On August 17, 1994, you asked us to review under Indiana law a Forethought life insurance-funded
burial agreement for Heath L. G~, an SSI beneficiary. The Forethought life insurance-funded
burial agreement package sold to Mr. G~ consists of: (1) a Forethought life insurance
policy purchased by the SSI beneficiary; (2) irrevocable transfer of ownership of
the life insurance policy to the Forethought Trust in Batesville, Indiana; (3) a Statement
of Funeral Goods and Services (the funeral planning agreement) between the insured
individual and a particular funeral home; and (4) revocable assignment of the proceeds
of the life insurance policy to the funeral home.
You have specifically asked if the Forethought documents result in an irrevocable
trust that is valid under Indiana law. In our opinion, under both the documents and
State law, ownership of the Forethought life insurance policy has been irrevocably
assigned to a trust and the SSI applicant neither owns nor has the legal right to
direct the use of trust assets to meet his support and maintenance needs. Therefore,
absent other considerations, the cash surrender value (CSV) of the policy is not a
resource of the purchaser for SSI purposes. This is true even though, as required
by Indiana law, the purchaser (and his representatives and survivors) retain the right
to change the funeral firm that will provide the burial goods and services.
DISCUSSION
Indiana law explicitly describes the necessary requirements of a funeral trust created
after July 1, 1982. West's Indiana Code at § 30-2-10-1 et seq. Under § 30-2-10-2,
payments must be made to a trust account in one of several specified institutions,
which include a trust company such as Forethought Trust. To be a valid funeral trust,
under § 30-2-10-3, it must also: (1) be irrevocable; (2) have only one settlor; (3)
name a licensed funeral home as sole beneficiary; and (4) be accompanied by a written
contract between the settlor and the beneficiary. In this case, the settlor of the
trust is the insured SSI beneficiary. Under § 30-2-10-5, the contract must contain
numerous provisions, which include a description of the funeral merchandise and the
place of funeral. Significantly, the settlor must acknowledge "that he understands
the irrevocable nature of the trust." Id., § 30-3-10-5(4). However, the agreement must also permit the settlor to change the
beneficiary. Id., § 30-3-10-5(11). Finally, under § 30-2-13-11(b), the contract may
use a life insurance policy as consideration so long as: (1) the seller is trustee
if ownership of the life insurance policy is irrevocably assigned to the seller; or
[as here] (2) a life insurance company that establishes a trust for the purposes of
holding and administering life insurance policies and annuity contracts issued by
the company to fund prepaid funeral services contracts.
In our opinion, the Forethought package you have sent us complies with all the foregoing
statutory requirements. The irrevocable assignment of policy ownership to the Forethought
Trust states that the owner assigns ownership of the life insurance policy to the
Forethought Trust, that the owner understands that the transfer is permanent, that
the owner renounces his or her power to control ownership of the policy, and that
the owner waives all rights under the policy to surrender it for cash and to obtain
a loan against the policy. At the same time, the owner states, as required by Indiana
law, that the assignment of ownership does not restrict the purchaser (or his or her
representative or family) from revoking the assignment of the proceeds of the policy
to the designated funeral establishment at any time prior to the funeral. The Forethought
package therefore creates an irrevocably assigned trust, even though the beneficiary
of the trust may be changed to another funeral home by the insured individual.
This result is consistent with SSI policy. In response to an inquiry on behalf of
Forethought, SSA Commissioner Gwendolyn S. K~ summarized SSI's policy in a July 8,
1991 letter to Congressman Andy J~, Jr. She stated that revocably assigned policies
could be placed in trust to avoid having them count as resources in determining eligibility
for SSI if: (1) the state allows insurance policies funding a funeral arrangement
to be placed irrevocably in trust; and (2) if such a policy is placed in trust, the
individual must have no access to it. On August 8, 1991, Associate Commissioner for
SSI Rhoda M. G. D~ gave Mark A. W~, counsel for Forethought, essentially the same
opinion. She stated:
If an individual irrevocably transfers ownership of a life insurance policy to a trust
and neither owns nor has the legal right to direct the use of trust assets to meet
his or her support and maintenance needs, the cash surrender value (CSV) of the policy
is not a resource for SSI purposes. The provisions of the document titled "Change
of Ownership to the Forethought Trust" meets these requirements. Under the terms of
the document, the CSV is not a resource even though the individual retains the right
to change the funeral firm that will provide the burial goods and services.
We agree that a revocably assigned policy placed in an irrevocable life insurance
trust will be treated exactly the same as an irrevocably assigned life insurance policy.
In both cases, the CSV of the policy is not a resource for SSI purposes since the
individual neither owns nor can legally use the CSV for support and maintenance. With
respect to a life insurance-funded burial arrangement, State law must permit a policy
which funds such an arrangement to be placed irrevocably in trust in order for the
policy's CSV not to be considered a resource.
We have previously been advised that a POMS clarification would be issued that would
state essentially the same thing.
CONCLUSION
For the foregoing reasons, the Forethought purchaser has irrevocably assigned ownership
of the life insurance policy to a trust so that he neither owns nor has the legal
right to direct the use of trust assets to meet his support and maintenance needs.
This arrangement is consistent with and valid under Indiana law. Therefore, absent
other considerations, the cash surrender value (CSV) of the policy is not a resource
for SSI purposes.