Burial Reserves Explained
An individual who wishes to qualify for Medical Assistance Long-Term Care benefits, such as nursing home care or waiver benefits, must reduce his or her “countable resources” to below the limits of the program, usually $8,000.00. Countable resources include bank accounts, retirement funds, Certificates of Deposit, a vacation home, etc. in excess of the $8,000.00 limit. A common method of reducing countable resources, which is called a “spend-down,” is to purchase resources that the Department of Human Services does not count. The Department generally does not count burial resources.
The Department defines a “burial resource” as a burial space and a burial reserve. A burial space is a conventional grave site, crypt, burial drawer, mausoleum, urn, or any other repository for the remains of a deceased individual. In contrast, a burial reserve is a fund set aside for the individual’s burial. The funds may be called funeral reserves, pre-paid funeral agreements, or burial reserves. The amount of money that an individual applying for Medical Assistance Long-Term Care (hereinafter “MA-LTC”) benefits can transfer to a burial reserve is limited.
Each year, the Department surveys the funeral directors in the sixty-seven counties that comprise Pennsylvania. From this survey, the Department determines the average cost of a funeral in every County. The Department then publishes a list of the permissible limits for a burial reserve by County. The 2018 burial reserve limits are available to the public at http://services.dpw.state.pa.us/oimpolicymanuals/ltc/2018_Burial_Averages_Worksheet_updated_2-21-2018.pdf. The chart published by the Department is very easy to understand. Each County is listed in alphabetical order, the average burial cost (limit) is listed next to the County, and the limit for extraordinary costs, which is the County limit plus 25%, is listed in the final column. The burial reserve limits are not static: the limits fluctuate with the average cost of a funeral as determined by the survey.
During any particular year, it is likely that the burial reserve limits will increase or remain the same. Just as the cost of living seems to always increase, so does the cost of a funeral. For example, in 2017, the burial limit in Chester County was $12,500.00. In 2018, the burial limit increased to an astounding $20,589.00, an increase of $8,089.00. Many times there is no change in the burial reserve limit, such as in Philadelphia and Montgomery Counties, which remained the same from 2017 to 2018, $11,000.00 and $12,500.00, respectively. In several Counties, the burial reserve limit decreased. The burial reserve limits in Adams, Centre, Erie, Greene, Mifflin, Perry and Washington Counties all declined. It is important to note that the fluctuations in the burial reserve limits from year to year will generally not effect the eligibility of an individual for MA-LTC.
The Department evaluates the transfer of funds to the burial reserve at the time the transfer is completed. The burial reserve is not a countable resource. Therefore, the value of the burial reserve does not need to be reduced for purposes of MA-LTC eligibility. The Department will treat the act over-funding of the burial reserve as a transfer of assets for less than fair market value (“FMV”) and impose a penalty. Suffice it to say the penalty is determined by the amount of money transferred for less than FMV divided by the cost of one day in a nursing facility, which is $322.00. A detailed explanation of the transfer rules is far beyond the scope of this article. However, this example may be helpful:
An individual in Philadelphia County applies for MA-LTC. To reduce his resources, he purchases a burial reserve with $15,750.00, claiming he has extraordinary costs. The limit for a such a burial reserve in Philadelphia County is $13,750.00 (the $11,000.00 average cost of a burial plus 25% for extraordinary costs). The individual transferred $2,000.00 to his burial reserve in excess of the permissible limit. He made a transfer of assets for less than FMV and will be penalized from receiving MA-LTC for approximately 6 days.
In our example, we assume the individual purchased an irrevocable burial reserve. An irrevocable burial reserve is a fund held under contract with a financial institution or a funeral director. No part of the fund may be withdrawn before the individual’s death and the fund must be used for burial expenses. There must be a written agreement stating that the funds cannot be withdrawn before the death of the individual. An irrevocable burial reserve will not be counted as a resource. The income earned on the burial reserve will not be counted as income to the individual. However, not all burial reserves need be irrevocable.
A burial reserve may be revocable, which means it is a fund held by a financial institution or funeral director designated for burial expenses that may be withdrawn before the individual’s death. If the burial reserve is revocable, an amount up to $1,500.00 will not be counted. Any funds in the revocable burial reserve in excess of $1,500.00 will be counted as a resource and could disqualify the individual for MA-LTC. Further, if the individual has life insurance or an irrevocable burial reserve, the $1,500.00 limit is further reduced. If an individual is doing planning to qualify for MA-LTC, it would be extremely unlikely that an attorney would advise him or her to purchase a revocable burial reserve due to the risk that he or she could be disqualified for benefits.
It is far more likely that anyone doing MA-LTC planning will want to purchase an irrevocable burial reserve, given the large sum of monies that can be deposited, instead of a revocable burial reserve. The purchase of an irrevocable burial reserve is a powerful component of a spend-down. First, eventually everyone will need a funeral. Second, creating a burial reserve takes a lot of stress from family members who may not have funds readily available to pay for a loved one’s funeral. Finally, purchasing a burial reserve allows the individual to reduce his or her resources quickly. The purchase of a burial reserve has the added benefit of allowing the individual to qualify for MA-LTC retroactively to up to three calendar months prior to the month the application for benefits was filed. But what form should the burial reserve take?
A burial reserve could be a bank account, a trust, a pre-paid funeral, or an account deposited with a funeral director. The form of the burial reserve really depends on the individual applying for benefits and his or her family. I normally recommend a pre-paid funeral contract for many clients. A pre-paid funeral contract spells out the services provided by the funeral director and gives the individual an opportunity to communicate his or her wishes for final arrangements. Funds paid to the funeral director are used to purchase a life insurance contract payable to the funeral director upon proof of the individual’s death. This is usually the most convenient way for a family to deal with the expense of the individual’s funeral. The funeral director could also open a restricted bank account which would function as burial reserve. Although these accounts are regulated by the Commonwealth, I never recommend this because of the uncertainty and inconvenience if the funeral parlor goes out of business.
A burial reserve could take the form of a bank account or trust set-up at a financial institution. Many banks readily provide this service for their customers. This is particularly useful if the individual simply cannot express his or her wishes for the funeral. Many individuals applying for MA-LTC are very frail. They may not possess the capacity to understand or make decisions. They be afraid to even talk about their funeral. Or there may be an conflict in the family that they do not want to address. For example, I recently dealt with an individual whose first spouse passed away and he remarried. He did not want to decide if he should be buried with his first or second wife, especially since his children were hostile toward his second wife. He decided to “punt” and we created an irrevocable burial reserve at his bank.
Regardless of an individual’s preferences for his or her funeral arrangements, a properly funded burial reserve is an important part of applying for MA-LTC. A burial reserve allows the individual to pay for his or her funeral, remove the stress of paying for a funeral while grieving from his or her family, and to access MA-LTC as soon as he or she is otherwise eligible. Individuals should consult with a qualified elder law attorney about the purchase of a burial reserve that meets their needs when applying for MA-LTC.