Setting up a burial reserve
A few weeks ago I wrote a column on old life insurance policies often held by seniors. Everyone knows the type. Issued by such companies as Prudential, John Hancock and Met Life, these policies had face amounts of less than $10,000, often less than $2,000. People held on to them for what seemed like a lifetime.(One policy I reviewed recently dated back to 1948 and was for $500).The rationale for many seniors was to have some fund from which their funeral might be paid.
At the time of my last column on the subject, I suggested that many owners of these insurance policies, for reasons indicated, might consider cashing them in now.
This column is intended to suggest one alternative for the funds. This alternative is known as an “irrevocable burial reserve.”
First of all, it might be interesting to note that, since that last column some readers have expressed resistance to the idea of giving up on the familiar policies. That may be understandable in light of the terrible performance of the stock market in the past few years. If an investment isn’t losing money today, it almost seems good.
Still, if the beneficiary of a life insurance policy is an individual, he or she is not obligated to use the proceeds to pay for a funeral. Possibly even of greater relevance is the fact that, while a properly established irrevocable burial reserve is protected during an individual’s life from the spenddown required on the government’s Medicaid program, most whole life insurance policies, except the smallest ones of face value $1,500 or less are not.
Here is how the system works:
Where an individual wants to establish an irrevocable burial reserve or a burial insurance policy, he or she may make arrangements with a funeral home or (less often) with a financial institution. Funds are held under a written agreement which states that they cannot be withdrawn before the individual’s death. When they are withdrawn, they will be used to pay for the funeral of the person indicated. If the reserve is properly established, the government will honor this arrangement even if the individual becomes disabled and needs skilled nursing home care paid for under the Medicaid program. For those who prefer cremation, this is an option also. The key is that the fund must be “irrevocable.”
The government favors this approach so much that, even after a person becomes disabled and is receiving nursing home care (but before Medicaid begins to pay for his care), the government allows the disabled person or his power of attorney to use the disabled person’s funds to set up the reserve and does not consider it a countable asset.
The end result is that a funeral can be completely planned and paid for during a person’s life, thereby relieving the family from the emotional burden and the expense of arranging a funeral when there could be no funds left.
As might be imagined, before recommending any of these ideas to clients, I wanted to make certain for myself. The first funeral director I questioned on this process some time back heard an earful.
Some of the questions I directed to him were the ones that I expected any client would want to know. “What happens if you and your family decide to retire from the funeral business?” “Suppose my clients move and want to be buried in Arizona?” “What guarantees are there that the money will still be there?”
As I learned, reputable funds are established along with a bank or financial institution. If the person on whose behalf the fund is established is to be buried elsewhere, the funds are to be transferred. Similarly, if the funeral director and his family leave the business, the funds are still held with the financial institution. This makes this type of reserve similar to a trust fund to be held for burial purposes.
This is obviously a thumbnail sketch and there is more information out there for persons who are interested. However, an irrevocable burial reserve is one option to assist families at a very vulnerable time.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.