Planning for the end of one's life is not a pleasant task. However, as the end will inevitably arrive (sometimes at the least expected time), it's wise to plan for it now. For many, end-of-life planning includes both Medicaid planning and purchasing a "pre-need" funeral and burial contract. As the name implies, purchasers of pre-need contracts make and pay for funeral arrangements with their preferred funeral home in advance of the time they are needed. The type of pre-need contract can affect eligibility for long-term care funded by Medicaid.
One major benefit of purchasing a pre-need contract is that you are able to purchase tomorrow's funeral at today's price. Funeral costs can be quite significant, and you can enjoy considerable savings by purchasing a pre-need burial contract. The other benefit is that the funds used to pay for a pre-need burial contract may be exempt from the assets Medicaid considers when determining a person's eligibility for nursing home care. In order to be eligible for Medicaid, a person may have no more than $2,000 in assets. However, certain assets are not counted when determining eligibility.
The amount of the pre-paid funeral and burial contract that is exempt depends on whether the funds are held under an irrevocable contract or an insurance policy irrevocably assigned to the funeral home.
The exemption for funds set aside in a bank account for funeral and burial expenses is only $1,500.00. To increase the amount of the exemption, the funds paid for pre-need funeral and burial contracts must either be held under an irrevocable contract funded by a trust or used to purchase a life insurance policy that is irrevocably assigned to the funeral home. If a pre-paid funeral and burial contract is held under an irrevocable contract funded by a trust, the maximum amount that is exempt is $5,874.00 for the year 2012. However, if the contract is funded by an insurance policy which is irrevocably assigned to a funeral home, the entire amount paid is exempt. These days, most funerals cost well in excess of $5,874.00, so funding a pre-need contract with a life insurance policy will ensure that you get the maximum benefit when it comes time to apply for Medicaid.
Consider this example: Mr. Smith applies for Medicaid and owns a pre-need funeral and burial contract worth $11,000. If his contract was held under an irrevocable contract, only $5,874 would be considered exempt, and his assets available to pay for nursing home care would include the remaining $5,126 of the contract value. Now, Mr. Smith could be ineligible for Medicaid at a time when he may need immediate nursing home care. However, if Mr. Smith's burial contract was funded by a life insurance policy irrevocably assigned to the funeral home, the entire amount of $11,000 is exempt, and Mr. Smith could still considered eligible for Medicaid. Careful planning really makes a difference!
The example above is greatly simplified. Medicaid rules are very complex. A specific form of pre-need funeral and burial contract and insurance policy must be used. Before executing a pre-need burial contract, it is wise to have your attorney review it and your other financial planning strategies to make sure you are getting your maximum exemption benefits. The foregoing discussion is based on the regulations promulgated by the Illinois Department of Human Services for Illinois residents published as of January 22, 2012. See your attorney regarding the current status of Illinois regulations and the application of the regulations to your specific fact situation.
This article is intended to present general information for educational purposes, is not legal advice and should not be relied upon in connection with any particular matter. The reader is advised to immediately retain their own separate legal counsel with respect to any specific legal issue. Rights to bring a claim will expire through the passage of time by the applicable statute of limitations.
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