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