Home > Economic Update > Funeral Trusts

Funeral Trusts

THE #1 QUESTION THAT EVERYONE ASKS:

Why should anyone
obtain an Irrevocable Funeral Trust?

To protect and secure
a portion of their assets BEFORE the ravages of astronomical medical expenses
consumes their lifetime savings, leaving them with insufficient funds to pay
for their passing from this earth in a proper, dignified manner.

QUESTIONS ABOUT THE PRODUCT

Who can be covered?

Anyone up to the age
of 99 years old can be covered by an IFT regardless of their health situation.
For prospects already residing in a nursing home, or any other kind of long
term care facility, commission are calculated on Guaranteed Issue rates. For
all other prospects, commissions are calculated based on Standard Issue rates.

What if the
Grantor/Insured passes away within the first 13 months?

Commission
‘chargebacks’ can be made by the Company depending on the circumstances
surrounding the passing of the grantor/insured within the first 13 months.
Refer to your ‘COMMISSION SCHEDULE’ for the specific terms and conditions
involving ‘chargebacks’ in your state.

What about
underwriting?

The plan is field
underwritten, which means that you, as the agent, makes certain observations
and decisions concerning the writing of a policy and the eventual creation of
the trust. (For example, you observe that the prospect is already residing in a
nursing home, and that they might pass away within a short period of time due
to natural causes, resulting in a commission chargeback to you, it might not be
prudent to pursue the issuance of a policy/trust.)

How long does it take
to get a policy issued?

Once the application
and any other required documentation is received at the home office of the
Company, a policy is usually issued in 5 to 7 business days.

What expenses are
paid for by an Irrevocable Funeral Trust?

  • Basic
    Services of Funeral Director & Staff
  • Other
    Professional Services
  • Embalming
  • Other
    Care of Deceased

    • Dressing /
      Cosmetology Casketing
  • Funeral
    Home Facilities and/or Staff Services

    • Viewing/Visitation
    • Funeral Service
    • Memorial Service
    • Graveside Service
    • Other
  • Other
    Merchandise

    • Clergy Honorarium
    • Death Certificates
    • Musicians
    • Temporary Marker
    • Stationery Package
    • Obituary Notices
    • Flowers
    • Clothing
    • Open/Close
    • Other
  • Casket
    • Alternative
      Container
    • Outer Burial
      Container
    • Other Services
    • Transportation
      Equipment & Driver

      • Transfer of
        Deceased
      • Funeral
        Vehicle/Hearse
      • Car/Limousine
      • Utility/Service
        Vehicle
      • Other
  • Cemetery
    Charges

 

What is the maximum
amount a policy can be written for?

The maximum policy
amount is $15,000. However, most states restrict the amount to a maximum of
$12,500. This amount may be more or less in your state since each state
interprets the Medicaid laws differently.

What is the lowest
amount a policy can be written for?

The minimum policy
amount accepted is $1,000 for most states. In some states the minimum amount is
$500.

Do I have to deliver
a policy in person?

Not unless you choose
to do so. The Company will mail a Certificate of Coverage to the
grantor/insured once he/she signs the IFT agreement and the company receives
the signed forms and issues the policy and the trust.

Can the insured
obtain a copy of the IFT document if they choose?

Yes. Grantors of the
IFT can request a copy at anytime. Contact the home office in Elkhorn,
Wisconsin, if you would like a copy. There will be instructions on how to
request a copy of the IFT that is sent to the grantor/insured.

QUESTIONS
ABOUT THE TRUST DOCUMENT

What is an
Irrevocable Funeral Trust?

The IFT is an
agreement between the grantor/insured and one or more Trustees named by the
Company, which is established to make funds available upon the death of the
grantor/insured, for the purpose of paying the final expenses, up to the limits
of the amount placed into the IFT, as defined in the IFT Agreement.

What is the
definition of an Irrevocable Funeral Trust?

IRREVOCABLE means it
is impossible to change or distribute the funds delivered into the IFT by the
grantor/insured until the terms stated in the IFT are met. Thus, none of the
terms of the agreement can be changed, amended or canceled by any person or
entity. The trust may not be terminated or liquidated except through the
distributions permitted by the terms stated in the IFT. i. e. the death of the
grantor/insured.

What is a Trustee?

The Company will
designate one or more Trustees to carry out the terms as specified in the IFT.
Upon proper notification that the insured has passed away, the Trustee,
appointed by the Company, will carry out the terms contained in the IFT.

What will the Trustee
do with the property [funds] that the grantor/insured has transferred into the
IFT?

Under the terms of
the IFT, the Trustee shall have no duty to, and is expressly prohibited from,
changing, liquidating, or diversifying any trust assets contributed by
grantor/insured. Thus, the Trustee cannot surrender a policy to any person or
entity for its cash value. The Trustee can only make distributions according to
the trust indenture that states that distributions shall be made FIRST
to a service/product provider(s) in payment for the grantor/insured person’ s
final expenses. In the event that there are any remaining [excess] funds, the
Trustee is obligated to distribute them to any residual beneficiary so named,
or to the estate of the deceased.

 

 

Can the Trustee
change the beneficiary of the IFT?

No.

Can the Trustee
change the owner or beneficiary of the life insurance policy?

No.

It is my
understanding that Medicaid allows for a burial fund (of $1,500) or a prepaid
funeral or funeral trust. Does a life insurance policy purchased with a lump
sum payment, and transferred into the IFT, meet the qualifying rules for
exclusion for Medicaid eligibility? If so, is there any limit on the amount
that may be transferred and still remain excluded?

While Congress and
the federal Health Care Financing Administration set out the main rules under
which Medicaid operates, each state runs its own program and has its own
Medicaid laws. As a result, the rules and the limits on the amount of the
assets to be transferred, can be somewhat different in every state. And, while
the federally prescribed format is the same throughout the country, individual
state created Medicaid laws, and court cases interpreting those laws, are
constantly evolving. Remember, in no situation can any state supersede any
laws, rules or regulations, set down in the federal Medicaid program. However,
disputes sometimes arise when the state’s ‘interpretation’ differs from the
‘interpretation’ of the federal program.

The following paragraphs describe the basic rules, but check with your state’s
Division of Insurance, or a qualified Elder Law attorney practicing in your
state, for the up-to-date specific rules, regulations, and prior court
interpretations. Just about every state provides for the irrevocable set-aside
of funeral and burial funds in a trust or pre-need insurance. In most states
the limits as to the amounts that qualify for exclusion for Medicaid
eligibility are “unspecified”. For example, in the State of Indiana a
court ruled that a “valid irrevocable Indiana funeral trust” is
exempt regardless of its value (Id § 2615.20.15).

Do these transfers
qualify for exclusion, without penalty, regardless of any look-back period or
spend down provisions of Medicaid?

The IRREVOCABLE
assignment of assets to an IFT is designed to qualify those assets for
exclusion, without penalty, regardless of any look-back period or spend down
provisions of Medicaid. However, since the rules are somewhat different in each
state, check the state of legal residence of the proposed grantor/insured for
the specific rules and regulations currently in effect.

Who can be named as a
residual beneficiary?

The servicing funeral
home will automatically be paid FIRST according to the terms of the IFT. If
there are any funds remaining [residual funds], the Company recommends that the
residual beneficiary be a family member of the grantor/insured.

Why shouldn’t a
spouse be named as a residual beneficiary?

The client can name
anyone they choose as a residual beneficiary. However, the Company recommends
that the grantor/insured name someone other than their spouse in order to avoid
the funds coming back into the estate and creating problems with potential
creditors, and estate taxes.

 

 

Can the residual
beneficiary be changed at a later date?

No. This is why it
would be best to name a much younger family member as the residual beneficiary.

If the residual
beneficiary is a family member, is the amount paid to the residual beneficiary
subject to the look-back period or spend down provisions of Medicaid?

Because the rules are
somewhat different in every state, check with the state of residence where the
proposed grantor/insured lives for the specific application. But generally
speaking the IRREVOCABLE assignment of assets to the IFT has been designed to
qualify those assets for exemption, without penalty, regardless of any
look-back period or spend down provisions of Medicaid, and regardless of
whether the residual beneficiary is a family member.

Are you allowed to
have more than one policy in the trust?

No. Each policy must
have its own IFT.

Can any individual
have more than one IFT?

Yes. However, the
aggregate amount of all IFTs cannot exceed the total exempted amount based on
Medicaid laws in any given state.

Can the money be
taken back once the assignment into the IFT made?

Yes. But ONLY during
the 30 day ‘free-look’ period. Should the grantor/insured decide not to
continue with the IFT, all assets will be returned to the grantor/insured and
the IFT is effectively cancelled. The 30 day ‘free-look’ period begins the day
after the grantor/insured receives the acceptance letter and Certificate of
Coverage from the Company. Once the 30 day ‘look-back’ period expires, the
funds will not be returned for any reason whatsoever.

Explain the Part A
and Part B mentioned in Article 4 of the trust agreement.

While Congress and
the Federal Health Care Financing Administration set out the main rules under
which Medicaid operates, each state runs its own program and has its own
Medicaid laws. As a result, the rules can be different in every state, although
the overall design of the Medicaid program is the same throughout the country.
Medicaid laws, and court cases interpreting those laws, are constantly
evolving.

Because it is impossible to know how Medicaid laws will be interpreted in the
state of the grantor/insured residence for purposes of Medicaid qualification,
the Trustee shall divide the Trust Estate into two separate shares, trusts A
and B. Trust A shall be composed of cash in an amount equal to the lesser of
(1) the maximum amount that may be set aside in the state of the
grantor/insured’s residence for funeral expenses and qualify as Exempt Assets
for purposes of Medicaid qualification, less the aggregate amount of assets
designated for such purposes not owned by this Trust or (2) the
grantor/insured’s funeral expenses paid or payable by the Trustee in accordance
with and as specifically authorized by grantor/insured’s expense directive
attached to the Trust as Exhibit “A”. Trust “B” shall be
the balance of the Trust Estate after the assets have been allocated to Trust
“A”. This provision in the trust allows the grantor/insured to take
the maximum amount for funeral expenses and qualify as Exempt assets for
purposes of Medicaid qualification as determined in the grantor/insured’s state
of residence.

 

 

 

Is a specific funeral
home named anywhere in the application documents?

No. This is one of
the main attractions of an IFT. A person may pass away and have a funeral and
subsequent burial in any state. Those persons responsible to handle a deceased
grantor/insured burial arrangements will carry them out. The Trustee of the IFT
will distribute the funds in accordance with paying the servicing funeral home
that provides the products and services FIRST.

Can these funds be
attached by Medicaid, nursing homes, doctors, hospitals or other creditors?

No. The IFT is
designed to qualify these assets for exemption, without penalty, regardless of
any look-back period or spend down provisions of Medicaid. As such, assets
exempt from Medicaid would not be attachable by any other person or entity.

Can the client cash
in the policy/trust at a later date?

No. The
grantor/insured can only cancel this policy during the 30 day ‘free look’
period and have their fund returned. Once the client has assigned all rights of
the policy to the IFT, these assets are no longer under their control. They
cannot cash it in, borrow against the cash value, or implement any other
similar type of options that might be considered as an attachment or an attempt
at ‘breaking the trust’. This is the IRREVOCABLE portion of the title an
Irrevocable Funeral Trust. If the trust is not IRREVOCABLE, it would be subject
to attachment by any and all types of ‘creditors’, including nursing homes and
other entities. The grantor/insured’s signature on the IFT document is an
assignment and a complete severance of their control, or any other person or
entity’s ability to get access to these funds.

How long does it take
to get the funds distributed at the time of death?

The funeral home
providing the services will fax or mail a copy of the itemized bill, signed by
a family member, or an authorized representative of the family, along with a
copy of a certified death certificate to the Company. Within 1-2 day(s), the funds
of the IFT are distributed [paid out] to the servicing funeral home FIRST. Any
residual funds will be distributed to the Residual Beneficiary [Beneficiaries]
the following business day.

Who is officially
named as the owner and primary beneficiary of the policy?

The owner and primary
beneficiary will be the Trustee designated by the Company. The purpose of this
is to keep the funds in the IFT apart from the estate or spouse of the
deceased.

Why does the
grantor/insured assign their policy ownership rights to the IFT?

The grantor/insured’s assigns their
rights to ownership of the policy to the IFT to remove the funds from their
control and permanently remove them from their estate. This further prevents
these funds from being pursued by any and all creditors.

 

 

For further information or to set up a Funeral Trust contact:

 

James B. Driscoll, Financial Advisor, Tax Advisor

1-800-797-1594

www.jamesbdriscoll.com

 

Advertisements
Categories: Economic Update
  1. No comments yet.
  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: