Medical Assistance for People Who Are Age 65 or Older and People Who Are Blind or Have a Disability
2.3.3.2.7.10.1 Life Insurance Funded Burial Contracts
Life Insurance Funded Burial Arrangements
A life insurance funded burial (LIFB) contract involves a person purchasing a life insurance policy on his or her own life and then assigning, revocably or irrevocably, either the proceeds or ownership, or both, of the policy to a third party, generally a funeral provider. The purpose of the assignment is to fund a burial contract. Life insurance funded burial contracts are not burial insurance.
A life insurance policy purchased by an MA applicant or enrollee to fund a burial contract for someone other than the MA applicant or enrollee, such as a spouse, is treated as a life insurance policy, not a life insurance funded burial. See 2.3.3.2.7.10 MA-ABD Life Insurance
If an annuity policy is being used to fund a burial contract, it is called an annuity-funded burial (AFB) and follows LIFB policies. Otherwise, see Medical Assistance for People Who Are Age 65 or Older and People Who Are Blind or Have a Disability (MA-ABD) Annuities for how the annuity is evaluated as an asset.
Proceeds
Proceeds of a life insurance policy are the face value of the policy plus any additions payable at maturity or death. This does not include dividends, cash surrender value (CSV) or interest.
Dividend Accumulations
Dividend accumulations of a life insurance policy as part of the value of the policy or the burial contract are not excluded assets. Dividend accumulations are separate assets and must be evaluated separately.
If ownership of the life insurance policy has been irrevocably assigned, then absent evidence to the contrary, the dividend accumulations are also assigned.
Contingent Beneficiary
A person’s estate must be named as contingent beneficiary when irrevocably assigning ownership of a life insurance policy to fund a burial arrangement. If a person’s estate is not named as the contingent beneficiary, the policy is treated as a life insurance policy, not a life insurance funded burial or annuity funded burial.
Effect of Revocable Assignment of Ownership
Burial Spaces
The burial space exclusion does not apply. This is because the funeral provider has not received any payment and no purchase of burial spaces has been made. The provider has no obligation to provide any spaces until the person dies and therefore no spaces are being held for the person.
Burial Funds
The life insurance funded burial arrangement is evaluated under the life insurance policy. The burial funds exclusion may apply.
Example
Emma has a burial contract funded by the revocable assignment of ownership of a life insurance policy. She doesn't have any other burial assets. The face value (FV) of both the burial contract and the life insurance policy is $3,000 and the CSV of the life insurance policy is currently $1,700. The total asset value of Emma’s burial contract is equal to the CSV of $1,700.
The burial space exclusion does not apply to Emma’s contract. However, Emma can exclude $1,500 of the CSV under the burial fund exclusion. The remaining $200 of the CSV is considered a countable asset.
Effect of Irrevocable Assignment of Ownership
Burial Spaces
The burial space exclusion may apply, depending on the nature of the contract (See MA-ABD Burial Space Exclusion). Any portion of the contract that represents the purchase of a burial space has no effect on the burial fund exclusion.
Burial Funds
The life insurance policy and the burial contract are not assets because the person no longer owns them. The FV of the burial fund portion of the contract (if any) offsets the $1,500 burial fund exclusion.
Example
Bill has made provision for his burial by irrevocably assigning ownership of a life insurance policy on his life to a funeral home to fund a burial contract. The FV of the life insurance policy is $3,000.
The burial contract identifies the purchase of $1,300 of burial spaces and $1,700 of burial funds. The $1,700 burial funds portion of the contract is not an asset because he no longer owns them, but, since the assignment of policy ownership is irrevocable, the $1,700 burial funds portion reduces the $1,500 burial fund exclusion.;Bill may not designate any additional assets under the burial fund exclusion (the $1,700 reduced the $1,500). The $1,300 burial space purchase is not an asset either, and will not reduce the amount of the burial fund exclusion.
Effect of Revocable Assignment of Proceeds
Burial Spaces
The burial space exclusion does not apply to the CSV of the life insurance policy. This is because the funeral provider has not received any payment and no purchase of burial spaces has been made. The provider has no obligation to provide any spaces until the person dies and, therefore, no spaces are being held for the person.
Burial Funds
The life insurance funded burial arrangement is evaluated as a life insurance policy. The asset value of the burial contract is the amount of the CSV of the life insurance policy.
Treatment of CSV
If the FV of all life insurance policies on the person's life is $1,500 or less, the CSV is excluded under the life insurance exclusion.
If the face value of all policies exceeds $1,500, the CSV of the policy is applied according to the burial fund exclusion, if applicable (See MA-ABD Burial Fund Exclusion).
Examples
Lydia has a burial contract funded by the revocable assignment of the proceeds of an insurance policy on her life, with a face value of $1,300. The CSV of the policy is $1,000. If this is the only life insurance policy she owns on her life, then the CSV of the life insurance policy would be excluded under the life insurance exclusion and the burial fund and burial space exclusions would not apply, because the FV is $1,500 or less.
The life insurance policy's FV of $1,300 reduces the maximum $1,500 burial fund exclusion by that same amount. So, Lydia may designate an additional $200 under the burial fund exclusion.
If Lydia has another life insurance policy on her life and the total FV of the two policies exceeds $1,500 (and, therefore, the life insurance exclusion does not apply), then $1,500 of the CSV may be excluded under the burial fund exclusion. No burial space exclusion applies.
Effect of Irrevocable Assignments of Proceeds
When there is an irrevocable assignment of proceeds or an irrevocable designation of a beneficiary, but the insured has not irrevocably assigned ownership, the CSV is a countable asset if the person has access to the CSV. Each policy may be different and must be reviewed to determine the terms of the contract. If the policy indicates that the person does not have access to the CSV, then the CSV is not a countable asset because it is unavailable.
Burial Spaces
The burial space exclusion may apply, depending on the nature of the contract (See MA-ABD Burial Space Exclusion). Any portion of the contract that represents the purchase of a burial space may be excluded and has no effect on the burial fund exclusion.
Burial Funds
If the CSV of the life insurance policy and the burial contract are unavailable, because the person cannot access them, then the FV of the burial funds portion of the contract (if any) offsets the $1,500 burial fund exclusion. This is because the contract represents an irrevocable arrangement available to meet the person’s burial.
Life Insurance Policy Placed In A Trust
A life insurance company may provide a person with the option of irrevocably transferring ownership of a revocable life insurance policy that funds a burial contract to a trust established by the company. If a policy is placed in trust, the asset value of the policy (its CSV) is evaluated as follows:
Treatment of Policy's CSV
The CSV is not an asset when a person does not own or have the legal right to direct the use of trust assets to meet his or her support and maintenance.
Treatment of Dividends
If the policy's CSV is not an asset, then, any dividends paid on the policy are also not an asset.
Person Retains Right to Change Funeral Firm
Under an irrevocable trust arrangement, the life insurance policy's CSV is not an asset even if the person retains the right to change the funeral firm that will provide the burial goods and services.
Burial Fund Exclusion Offset
A revocably assigned life insurance policy placed in an irrevocable life insurance trust is treated the same as a life insurance policy for which the ownership has been irrevocably assigned to fund a burial contract. This means that the value of the burial funds portion of the contract (if any) reduces the $1,500 burial fund exclusion. This is because the burial funds portion of the contract represents an irrevocable arrangement that is available to meet the person's burial expenses.
Legal Citations
United States Code, title 42, section 1382b
Code of Federal Regulations, title 20, section 416.1230
Minnesota Statutes, section 256B.056, subdivision 1a
Minnesota Statutes, section 72A.325