Funeral Trusts and Nursing Home Planning
B.
Douglas Hayes
Seniors of moderate means should consider setting up
an irrevocable funeral trust to make sure that monies will be available
to pay for funeral costs if they should end up with a lengthy nursing
home stay. Because nursing home care can easily exceed $4,000 per month,
it is not uncommon for an individual to spend down his assets until
he has less than $1,500. If the senior has not set up an irrevocable
funeral trust and runs out of assets due to nursing home costs, it may
fall to the senior's relatives to pay for the funeral.
If a senior does not have long-term care insurance, his
only other insurance coverage for the costs of a nursing home stay may
be Medicare and his Medicare supplement policy. Medicare and the supplement
policy only pay for up to 100 days of nursing home expenses, and do
not even pay that long once the nursing home stay becomes merely caretaking
so that therapy is no longer being provided.
At that point, the senior must privately pay for nursing
home costs out of his own income and assets. When a single individual's
countable assets are less than $1,500 on the first of a month, Medicaid
will begin paying for nursing home costs. However, when an individual's
assets are less than $1,500, he no longer has enough to pay for even
a moderate funeral when he dies.
The Medicaid rules do, however, allow an individual to
prepay his funeral through an irrevocable funeral trust. In determining
whether an individual has less than $1,500 of assets, Medicaid does
not count one irrevocable trust that has a value of not more than $10,000.
However, effective January 1, 2003, in order for a funeral
trust to be exempt, the funeral trust must designate the individual's
estate or the State Medicaid Office to receive any amounts remaining
after payment of funeral and burial expenses. If the funeral trust does
not designate the estate or the State Medicaid Office to receive the
remaining amounts after payment of funeral expenses, then the Medicaid
Office must notify the senior and give him 20 days to correct the problem.
For example, if an individual funds a trust with $10,000,
it grows with interest to $11,000, and the funeral expenses are $6,000,
$5,000 will be left over. The purpose of the rule requiring designation
of the estate or the State Medicaid Office to receive the balance of
the funeral trust monies is so that Medicaid can be reimbursed for nursing
home expenses it may have paid.
If the individual puts $10,000 into an irrevocable funeral
trust and designates his estate to receive any remaining amounts, what
happens is that the funeral home writes a check payable to the decedent's
estate for the balance not spent on the funeral upon death. Medicaid
then has the right to attempt to recover those monies from the estate.
However, if Medicaid has paid for nursing home costs,
the size of the estate is usually so small that no estate would ever
actually be opened. The Indiana Code provides that assets can be transferred
to beneficiaries through the use of a small estate affidavit when the
total estate is less than $25,000, so that no estate is ever opened.
Because the estate of a senior whose nursing home costs
were paid by Medicaid likely consists of less than $1,500 in the bank
plus the excess funeral trust monies, a small estate affidavit will
be used and no estate will be opened. Although Medicaid has the right
to go after the monies that were in the funeral trust, if no estate
is opened it does not actually do so.
If an individual funds a funeral trust shortly before
his countable assets are less than $1,500, it is important that he waives
the right to revoke the trust. Normally, under state law a funeral trust
remains revocable for the first 30 days. This gives the individual who
set up the trust the right to change his mind and get his money back.
However, if it is important that the individual have
less than $1,500 on the first of a month so that he qualifies for Medicaid
and the 30 days have not yet passed, he can sign a waiver of the right
to revoke the trust. This will cause the monies in the trust to not
be counted as an asset.
An irrevocable funeral trust is established through a
funeral home. It is a simple process since the individual can merely
go to the funeral home of his choice, pre-choose the type of funeral
services he wants, and prepay the expenses.
A senior can also use a life insurance policy to fund
the trust. The life insurance policy may not have a face value of more
than $10,000. The irrevocable funeral trust is made the owner and beneficiary
of the life insurance policy.
The individual can also designate the individual's estate
to receive the proceeds from the life insurance
policy with a face value of less than $10,000 and not use an irrevocable
funeral trust. As long as the individual does not have an irrevocable
funeral trust set up, the life insurance policy will then be treated
as exempt so that it is not counted toward whether the individual has
$1,500 of assets.
Even though Medicaid does not permit a senior in the
nursing home to have more than $1,500 of countable assets before Medicaid
pays for nursing home costs, by setting up an irrevocable funeral trust
or designating the estate as beneficiary of a life insurance policy,
the senior who may end up in the nursing home can avoid the situation
where he dies without enough assets to pay his funeral expenses.
________________________
Doug Hayes is a partner in the law firm
of Yoder, Ainlay, Ulmer & Buckingham, LLP in Goshen, Indiana, practicing
in the areas of estate planning, probate, and elder law.
While information in this article is
believed to be accurate, it is educational and general in nature, and
should not be construed as legal advice. Please consult your attorney
for specific legal advice. Yoder, Ainlay, Ulmer & Buckingham, LLP
© 2003
Yoder,
Ainlay, Ulmer & Buckingham, LLP