In a Fond Du Lac courtroom on January 18th, 2013 the court ruled that a person funding irrevocable burial trusts for children and spouses of children is not a divestment for Medicaid purposes.
For years insurance agents have used irrevocable burial trusts instead of final expense life insurance policies as the trusts are outside the estate and not available assets to pay for long term care. Life insurance over $1500 face amount generally must be cashed in to qualify for Medicaid. Medicaid has always allowed these as well as establishing them for children and spouses of, neither of which were considered divestments. A divestment, or gift, would preclude the grantor from receiving Medicaid for long term care.
The recent ruling where Medicaid challenged the practice of establishing trusts for family members clears away any concern that this is a legal and proper estate planning option for people needing or who may need Medicaid.
Here is an example of their use: Mom has Alzheimer’s and needs care in a nursing home. She has $1200 a month income from Social Security and $30,000 in savings plus a home worth $90,000. Her $120,000 of assets will be gone in just over a year and she would rather leave a legacy to her 3 children and their spouses than spend it all at the nursing home. She purchases a $15,000 irrevocable burial trust for herself so that her children will not have to dig into their pockets to pay for her funeral. She then further establishes an irrevocable burial trust for each one of her 3 children and their spouses for $15,000 each. Those for children can only be used for burial spaces and the merchandise of the funeral, not for services. She must obtain a statement of goods and services for each one of them verifying the cost of such merchandise. She has successfully “protected” $105,000 from being spent on her care and when she spends the remaining $13,000 on care, leaving herself with $2000 of assets, she qualifies for Medicaid.
While life insurance payout can take up to 5 weeks afer death, the irreovocable burial trusts can pay out within 48 hours of death, even before the death certificate is issued. This can eliminate the family having to come up with a deposit before the funeral home starts their work.
If you sell final expense life insurance products, you will immediately recognize the benefit to using irrevocable burial trusts instead. If you know of someone spending down to Medicaid impoverishment who would rather leave a legacy for family members, refer them to Kathy Lichter at 920 366-2928 for information on how to offer these products or to obtain them for yourself.