Effective Dates: 09/19/2024 - Present Previous | Next

TN 126 (09-24)

SI 01130.420 Prepaid Burial Contracts

A. Definition

A prepaid (or preneed) burial contract is an agreement whereby the buyer pays in advance for a burial that the seller agrees to furnish upon the death of the buyer or other designated individual.

B. Policy for burial contracts, insurance, and trusts

1. Contract is a resource

If a burial contract is revocable or salable, and any conditions for its liquidation do not present a significant hardship it is a resource (see subsection C.1. in this section). However:

  • •

    any portion of the contract that clearly represents the purchase of burial spaces may be excludable, regardless of value, see SI 01130.400; and

  • •

    some or all of any remaining value of the contract may be excludable as burial funds, see SI 01130.410.

2. Contract is not a resource

If a burial contract cannot be revoked and cannot be sold without significant hardship, it is not a resource. However:

  • •

    any portion of the contract that represents burial funds reduces the $1,500 otherwise available for the burial funds exclusion; but

  • •

    any portion that represents the purchase of burial spaces has no effect on the burial funds exclusion.

3. Contract revocability

State law determines whether a contract is revocable. Some burial contracts may be partly revocable. For example, if the total value of an otherwise irrevocable contract exceeds the limit set for irrevocability by State law, the excess is revocable. See regional instructions for details.

4. Burial insurance and burial trusts

Prepaid burial contracts do not include burial insurance as defined in SI 01130.300 or burial trusts as described in SI 01120.201H.

5. Provider places funds in trust

If an individual contracts with a provider of burial services and the provider places the funds in trust, this constitutes a “purchase” and not a “transfer” of funds under SI 01150.110.

C. Policy evaluating contracts

1. Conditions for liquidation

A prepaid burial contract, even when not technically irrevocable, may have conditions attached to its liquidation or revocation. If either of the following conditions exists, the contract is not a resource.

  • •

    Significant hardship may result from the conditions required for selling or revoking a contract. Significant hardship means an unrealistic demand on the buyer; e.g., having to move out of state. If an adjudicator determines that such would be the case, the file must contain a determination to that effect.

  • •

    Mutual consent, State law or contractual terms may require mutual consent of buyer and seller in order to sell or revoke a contract. If the seller will not consent, or will consent only under conditions that would pose a significant hardship to the buyer, the file must reflect those facts.

NOTE: If a condition creating hardship or some other obstacle to liquidation is not evident on the face of the contract, assume it is revocable or salable and, therefore, a resource. The burden is on the claimant and recipient to provide evidence to the contrary.

2. Value of contract as a resource

If a burial contract is a resource, we use as its value:

  • •

    the amount payable to the owner upon revocation; or

  • •

    if the contract is not revocable but is salable, its CMV.

3. Single - purpose burial space contracts

a. Generally applying burial space exclusion

We apply the burial space exclusion to any single-purpose burial space contract that is a resource:

  • •

    If the contract lists all of the burial spaces and either includes a value for each space or the total value of all the spaces combined; and

  • •

    If the seller's obligation to provide those items is not contingent on further payment (as in certain installment contracts); i.e., the items are actually being held for the individual's future use.

b. Exception

We treat as burial funds (i.e., as subject to the $1,500 burial funds exclusion or as reducing that exclusion):

  • •

    the unidentified portion of a contract that implies it covers only burial spaces but does not identify some or all of the spaces, or does not include either a value for each burial space or the total value of all the spaces combined; and

  • •

    the amount paid on an installment contract for burial spaces if the contract does not entitle the person to the spaces until the full purchase price has been paid.

NOTE: Once full payment has been made, these items can become subject to the unlimited burial space exclusion because at the point of full payment the contract becomes an agreement representing the purchase of a burial space, see SI 01130.400.

4. Single - purpose contracts for burial expenses

A single-purpose contract for burial expenses as described in SI 01130.410, includes only services that we consider burial funds and that are subject to, or reduce the amount of, the burial funds exclusion.

5. Contracts for both burial spaces and burial expenses

a. Irrevocability designation

If a combined contract designates which portion is irrevocable and which is not, that designation is controlling. That is, if the contract designates only the burial space purchase as irrevocable, the portion dealing with burial funds is revocable and is subject to the burial funds exclusion.

b. Maximum on irrevocable amount

If State law sets a maximum on the amount that can be irrevocable, but the contract does not designate which part is irrevocable and the contract value exceeds the State maximum, we apply the maximum to burial spaces first.

  • •

    If space purchases exceed the maximum, we consider the excess revocable but subject to the burial space exclusion.

  • •

    If space purchases are less than the maximum, we apply the remainder of the maximum to burial funds items.

NOTE: Irrevocable burial funds reduce the amount available for excluding other burial funds.

c. Installment contracts

We treat as burial funds the amount paid for any spaces and services in a combined contract being purchased in installments if the contract:

  • •

    does not entitle the individual to the spaces and services listed until the full purchase amount has been paid; or

  • •

    relieves the seller of the obligation to provide the spaces and services listed at the price listed until the contract is paid in full.

Once the contract has been paid in full, we apply the space and funds exclusions as appropriate.

D. Procedure development and documentation

1. General procedures

  1. a. 

    Develop initially whether a prepaid burial contract exists and is a resource.

  2. b. 

    Document the file with respect to:

    • •

      revocability;

    • •

      liquidity (as needed); and

    • •

      value, if the contract is a resource or involves burial funds (unless the tolerance applies in SI 01140.010 B.2.).

  3. c. 

    In posteligibility situations:

    • •

      develop and document any newly acquired contract per a. and b. in this section;

    • •

      do not redevelop a contract if prior development showed that it is not a resource and does not contain burial funds;

    • •

      redevelop and document a contract if prior development showed that installment payments could affect applicability of the funds and space exclusions or that it included burial funds (revocable or irrevocable).

2. Valuing a revocable contract

For revocable burial contracts, State law usually sets refund guidelines that may vary by contract. If you cannot determine the refund amount by examining the contract, have the individual contact the provider or, if necessary, make the contact yourself.

3. Valuing an irrevocable but transferrable contract

If a contract is irrevocable but can be liquidated some other way (e.g., through sale), assume that the contract's CMV is the amount that has been paid on it.

If the individual disagrees with this assumption, they can rebut it with an estimate from a disinterested knowledgeable source such as the State Funeral Directors Association or a local funeral director.

4. Single-purpose contract

Develop and document the factors outlined in this subsection1.; following the guidelines above, as appropriate.

5. Contract for both spaces and funds

  1. a. 

    Determine whether the contract designates which portion (if any) is irrevocable.

  2. b. 

    If designated, develop each portion as appropriate per SI 01130.400 or SI 01130.410.

  3. c. 

    If the contract does not designate, apply the State maximum for irrevocability, if any, first to the total value of all burial spaces and then to the value of the burial funds, see the examples in subsection below. Any burial spaces not covered are subject to the burial space exclusion. Any burial funds not covered are subject to the burial funds exclusion.

  4. d. 

    If you cannot determine which amounts represent the purchase of spaces and which represent burial funds, and which parts of the contract, if any, are irrevocable, the individual has not satisfactorily identified funds versus spaces. In that event, consider the entire contract as a resource in the form of burial funds.

E. Examples of contracts for spaces and funds

1. Value of burial spaces exceed State maximum amount for irrevocability

a. Situation

See SI 01130.420D.5.c; A contract for both burial spaces and burial funds that does not designate which portion is irrevocable in a State with a $1,700 maximum irrevocable amount gives the following breakout:

​
$1,000 - casket
250 - vault
500 - headstone
100 - opening/closing
800 - funeral services
+200 - embalming
=$2,850 - total value of contract
-1,700 - maximum irrevocable amount under State law
=$1,150 - total revocable amount of contract ($150 of burial spaces and $1,000 of burial funds)

b. Treatment

The first four items, totaling $1,850, are burial spaces. We consider $1,700 of that amount to be irrevocable and the remaining $150 to be revocable but excluded under the burial spaces exclusion, see SI 01130.420 and SI 01130.400.

The remaining $1,000 represents revocable burial funds and is subject to the $1,500 burial funds exclusion, see SI 01130.420 and SI 01130.410.

2. Value of burial spaces less than State maximum amount for irrevocability

a. Situation

See SI 01130.420D.5.c: A contract for both burial spaces and burial funds that does not designate which portion is irrevocable in a State with a $1,600 maximum irrevocable amount gives the following breakout:

​
$600 - casket
100 - vault
350 - headstone
100 - opening/closing
1,000 - funeral services
200 - burial clothes
300 - embalming
+200 - limousine
=$2,850 - total value of contract
-1,600 - maximum irrevocable amount under State law
=$1,250 - total revocable amount of contract ($1,250 of burial funds)

b. Treatment

The first four items, totaling $1,150, are burial spaces and we consider the entire amount irrevocable because it is less than the $1,600 maximum irrevocable amount under the State's law.

We consider the other four items, totaling $1,700, as funds set aside for burial. Of the $1,700, we consider $450 irrevocable (which is the remaining irrevocable amount available under the State's law) and $1,250 revocable. Next, we address the burial funds exclusion as follows:

​
$1,500 - burial funds exclusion
-450 - irrevocable burial funds reduce the available burial funds exclusion
=$1,050 - remaining available burial funds exclusion to apply
$1,250 - revocable burial funds
-1,050 - remaining available burial funds exclusion to apply
=$200 - countable resources

3. Installment contract

a. Situation

An individual owns a revocable contract for their own burial. The contract, which covers both spaces and funds, gives the following breakout:

​
$700 - casket
350 - vault
200 - opening/closing
225 - embalming
300 - use of facilities
+525 - services of director and staff
=$2,300 - total value of contract

The contract provides that, until the full price of the contract has been paid, the seller has the option to be released from any obligation to provide the items and services at the contract price. Rather, the seller can charge prices current at the time of death, allowing a credit for amounts already paid.

b. Treatment

Until the contract has been paid in full, we consider all payments to be funds set aside for burial. Amounts paid in excess of the maximum available for exclusion as burial funds are countable resources.

When the contract has been paid in full, the spaces listed in a. above are subject to the burial space exclusion. The $1,050 value of the remaining items is subject to the burial funds exclusion.

To Link to this section - Use this URL:
http://policy.ssa.gov/poms.nsf/lnx/0501130420
SI 01130.420 - Prepaid Burial Contracts - 09/19/2024
Batch run: 11/27/2024
Rev:09/19/2024