Warning!! Watch out for Medicaid Traps when setting up an Irrevocable Prepaid Funeral Contract

When “spending down” excess resources in connection with an application for Medicaid benefits under the MLTSS program, the individual frequently purchases an irrevocable, prepaid funeral contract, because such a contract is treated as an “excluded resource” under the rules of the program. These contracts are set up by the funeral home, and the individual looks through a menu of items and selects their choices for the pre-arrangements. Once the contract is paid for, the individual cannot revoke it and cannot get back the money. Typically, a funeral arrangement will include a casket, preparation and transportation of the body, hearse, limousine, pallbearers, use of funeral home’s chapel space for visitation or service, and whatever is needed for a memorial service such as clergy, music, flowers, guest sign-in book, prayer cards, and sometimes a religious icon that is placed on the casket.

Medicaid applications are filed after the individual’s non-excluded resources (assets) are below the limits set by the MLTSS program. The application is processed by the County Board of Social Services. This summer, our clients have received notices from certain County Boards that various prepaid items in the irrevocable contract are still being counted as resources because they are “for the living” and not “for the funeral for the deceased.” Needless to say, this has come as a shock and in some cases results in the County Board rejecting the application due to “excess resources”  in spite of the fact that the applicant has no access to the money paid for those items.

Believe it or not, we have seen cases in which the County is trying to disallow an exclusion for the payment made for pallbearers ($50 each), clergy ($500), cost of the room for the viewing ($800), and the memorial package that includes guestbook ($30), prayer cards ($45). The Counties are relying on the instruction written in the New Jersey  State Med-Com No. 18-08, since the State’s regulation [N.J.A.C. 10:71-4.4.(b) 9 ] is not explicit as to what would be disallowed. Med-Com 18-08 Funeral Trusts

If the available resources of the applicant (and spouse, if any) are very close to the resource limit, counting the few bucks that are no longer accessible because they are part of the irrevocable funeral contract can be disastrous — the county would deny the application due to “excess resources,” leaving the applicant (and spouse) potentially liable for nursing home bills that run over $10,000 per month until the resources are below the limits and a new application can be filed. In my opinion, though, what should happen, at most, is the imposition of a transfer-of-assets penalty (see N.J.A.C. 10:71-4.10) because money has been placed into an irrevocable trust that cannot pay out benefits during the lifetime of the applicant (see N.J.A.C. 10:71-4.11).That penalty period would run from the time of the application, assuming all other criteria have been met.

I say this because the State’s definition of a “resource” is that it is an asset that “could be converted to cash” and is “available” to the individual. See N.J.A.C. 10:71-4.1(b) and (c). Clearly, the assets held in the irrevocable funeral trust are not “available” at all during the lifetime of the individual. Therefore, they cannot and should not be counted as “resources.”

Review these issues carefully when setting up the prepaid funeral trust. Certain expenses might have to be paid separately by a third party such as a family  member, and not included as part of what the irrevocable contract covers, or should be expressly delineated as having been paid for separately by someone else.


Call us for legal advice and representation on  Medicaid spend-downs, applications and appeals ……….. 732-382-6070


It’s official: NJ Qualified Income trusts are needed for high-income Medicaid applicants as of 12/1/14

I am sure you’ve seen or heard about the changes coming to the NJ MLTSS Medicaid program with respect to applicants whose gross monthly income exceeds the “income cap,” which is presently $2,163. I’ve blogged about this over the last few months. Well it’s official now – the State has confirmed that December 1 is indeed the date in which this new procedure must be used. Here is the State’s updated memo: QIT_FAQs(1)

These arrangements are called Medicaid Qualified Income Trusts, QITs or MQITs, and in some other states are called Miller trusts. A Trust must be established prior to the month for eligibility and the applicant’s income must be directed into the trust. From there, the trustee must pay the applicant’s expenses in a specified order of priority. Although the form of the Trust document itself is prescribed by the state, and may seem to be “simple,” there are plenty of steps involved in setting it up at the bank in a timely manner, getting it funded, and then in properly handling it. You may need several weeks at a minimum to have the structure fully in place prior to the date of your anticipated eligibility.

Our Firm has been preparing applications and advising Medicaid applicants & their spouses for 20 years and we are ready to assist you with an application now, including the new QIT’s. Call for appointment 732-382-6070.

NJ Medicaid issues Guidance on new Qualified Income Trusts

I previously posted about the upcoming changes to the New Jersey Medicaid programs that pay for nursing home care and home and community-based services (HCBS) for people whose gross monthly income exceeds $2,163. This amount was formerly called the “income cap,” and people in that group could only receive Medicaid benefits in nursing homes. That was under the “Medically Needy” program. Going forward, the Medically Needy Program is being replaced for new applicants. Under MLTSS, the State will now require that the income be transferred into a Qualified Income Trust (QIT) which used to be colloquially referred to as a “Miller Trust.” The State has published some guidelines about the process on the DMAHS website.

Here at FRE-L, we are developing a process to help our clients set up and administer a QIT so that they can have it in place by the time the person’s assets have been reduced to the necessary level for Medicaid eligibility. https://www.ershow-levenberg.com/medicaid_nj.html   We  are ready to help you with every step of this process. We will provide detailed instructions and assistance to you.

If you are planning to file a Medicaid application for someone whose gross monthly income exceeds $2,163, you have to handle the income in a particular way so that it is funneled through the Trust every month before it is then disbursed for the expenditures that are allowed under the Medicaid program. Eligibility will be at risk if this isn’t done correctly. As of now, this structure will be required for all applications beginning 11-1-2014. It will likely take at least a month for you to get it all in place. First, the Trust must be prepared. Next, the bank account for the trust must be set up. Next, the arrangements to get the income into the trust each month must be implemented. Finally, you will establish the routine for the monthly disbursements from the trust.

Once the structure is in place, the trustee will be issuing several payments each month out of the trust: (1) Personal Needs Allowance for the applicant (currently $35 PNA); (2) support for the community spouse, if authorized, to fund their MMMNA or Minimum Monthly Maintenance Needs Allowance (MMMNA) in an amount that is calculated per the regulations or court order; (3) incurred medical expenses and (4) cost share for medical assistance.

Call us for legal advice and assistance with Medicaid applications and NJ Qualified Income Trusts  … 732-382-6070