06/11/2009

NEW PRENEED CONTRACT FORM FOR SURPLUS MEDICAID FUNDS

By: T. Scott Gilligan, OFDA General Counsel

              In previous newsletter articles, we have discussed how preneed consumers, who anticipate applying for Medicaid benefits, may also use surplus funds to purchase preneed funeral services for a surviving spouse and preneed burial space items (casket, urn, vault, marker, opening and closing services) for immediate family members. If a preneed consumer has excess funds after pre-paying for his or her funeral services, those surplus funds may be used to pay for preneed funeral services for the surviving spouse or preneed space items for other immediate family members. However, the key requirement is that those arrangements must be paid for prior to the preneed consumer applying for Medicaid benefits. Once that Medicaid application is made,  it is too late to take excess funds and try to purchase preneed funeral services for a spouse or preneed burial items for immediate family members.

             While the advice set forth above covers prepaid funeral trusts, what about insurance policies that are assigned to a funeral home to pay for a consumer's funeral before the consumer applies for Medicaid?  The irrevocable assignment of the policy makes the policy an exempt resource so the consumer may apply for Medicaid.  But how can the funeral home and surviving family members use any excess insurance proceeds that may remain after the consumer dies and  the funeral is paid for?  May those excess funds then be used to prepay for a surviving spouse's funeral or for burial space items for surviving immediate family members?

                  Excess insurance funds may be used toward those purchases, but only if those arrangements are provided for when the preneed contract funded by the insurance assignment is entered into. Once the Medicaid recipient dies, all excess insurance proceeds that are not subject to a preneed contract must be paid back to the State.  Therefore, it is important to enter into contractual agreements regarding surplus funds when the preneed consumer assigns the insurance policy over to the funeral home..  However, the standard preneed contract forms are not designed to address surplus insurance funds. As a result, OFDA has prepared the Addendum to Preneed Contract that appears at the end of this article. The Addendum is designed to address the many uncertainties that will arise when pre-planning using insurance policies assigned to the funeral home by a consumer who will be applying for Medicaid benefits.

             What are the uncertainties? First and foremost, no one will know if surplus funds will exist and how much they may be. The amount of surplus funds will depend in large part on when the Medicaid recipient dies. A $10,000.00 insurance policy assigned to a funeral home today will produce surplus funds if the Medicaid recipient dies next year. However, if the Medicaid recipient lives for another decade, there probably will not be surplus funds after the recipient's funeral is paid for.

             Another factor that introduces uncertainty in these arrangements is that no one can predict the order of death for surviving spouses or immediate family members. In addition, the Medicaid recipient may want surplus funds to be set aside for particular family members depending upon when their deaths occur in relation to other family members. Another factor that needs to be addressed is whether the Medicaid recipient would only want to purchase particular burial space items, such as a grave plot, instead of the full range of the burial space items, such as caskets and vaults.

             The Addendum designed by OFDA attempts to deal with all of these contingencies. In the Addendum, the Medicaid recipient may indicate whether surplus funds are to be used for a spouse or immediate family member. In addition, if the Medicaid recipient wishes to establish a priority list among his or her family members for receipt of the funds, the recipient may do so on the second page of the Addendum. The recipient may also select those particular burial space items which he or she wishes to purchase for immediate family members with the surplus funds.

Download the new form on the Forms Page under the Pre-Need Heading.

             Since this a new form, OFDA would appreciate feedback from members who utilize the form. If you have suggestions for changes to the Addendum or questions regarding the Addendum, please contact OFDA General Counsel, Scott Gilligan at 513-871-6332.