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Funeral Exemption Increases to $10,000 for Medicaid Eligibility

Currently, Oklahoma law provides that up to $7,500 in an irrevocable funeral contract is not counted as an asset when determining Medicaid eligibility. Beginning November 1, 2009, this amount will increase to $10,000.

Here are some important tips and strategies to keep in mind when preplanning a funeral for a client who is planning for Medicaid to assist with paying nursing home or at home care expenses:

1. Irrevocable Election - Be sure the contract has been properly “irrevocably” assigned to the funeral home. There may be a “check the box” on the contract or a separate form to irrevocably assign a single premium life insurance contract. The irrevocable funeral will not be an exempt asset for Medicaid purposes until 30 days after the date of the contract. You may be faced with a situation where a funeral contract already exists, but has not been irrevocably assigned. Arguably, under 36 O.S. §6125(G), you can instantly make irrevocable any revocable funeral contract that has been in existence for more than 30 days.

2. Beneficiary Designations - Using a funeral as a small inheritance. A great funeral doesn’t have to be expensive. Funerals can often be arranged for less than $5,000 (sometimes less than $4,000 in Oklahoma County area) and cremations with memorial services for less than $2,000. You can plan an inexpensive funeral and still fund it with $10,000 (or less). The excess funds not used at the time of death will be distributed to the designated beneficiary of the funeral contract. Please be very careful to make sure that the beneficiary is the spouse or children. The “default” beneficiary is the estate of person for which the funeral was planned. The Oklahoma Health Care Authority will be a creditor of the Medicaid recipient’s estate and, therefore, receive the balance of the unused funeral funds if a family member is not specifically named as a beneficiary. The extra money could also be used for the many expenses relating to death that are not funeral home payments.

3. The Cash Value of Life Insurance Trap - The cash value of life insurance policies not used to fund the funeral count toward the $10,000 funeral contract limitation. Therefore, caution should be used if you plan to fund the full $10,000 on a funeral contract and the person has cash value in life insurance policy(ies). According to Oklahoma Medicaid policy, even $1 of cash value in a life insurance policy will make the person ineligible for Medicaid if they already have a $10,000 irrevocable funeral contract. Arguably, state law provides that the excess amount over $10,000 does not make the person instantly ineligible, but instead the excess amount is counted as a resource. See 56 O.S. § 165(A)(2)(b). You can transfer ownership of the life insurance policy to a spouse or have a child purchase the policy for the amount of the cash value.

These are only a few of the many considerations for funeral planning for Medicaid purposes. If you need assistance with funerals for Medicaid planning or any other aspect of Medicaid planning, please do not hesitate to contact our office for assistance.

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