TN 29 (06-92)
SI 01130.425 Life Insurance Funded Burial Contracts and the Burial Space/Funds Exclusions
1. Life Insurance Funded Funeral Arrangements
A life insurance funded burial contract involves an individual purchasing a life insurance policy on his or her own life and then assigning, revocably or irrevocably,either the proceeds or ownership of the policy to a third party, generally a funeral provider. The purpose of the assignment is to fund a burial contract.
Life insurance funded burial contracts are not burial insurance (SI 01130.300 B.7.).
Proceeds of a life insurance policy are the face value of the policy plus any additions payable at maturity or death. This does not include dividends, cash surrender value (CSV) or interest.
B. Policy — general
1. Operating Assumptions
We assume that the burial contract itself (without the insurance policy assigned to fund it) has no resource value. We also assume that the contract is not salable because it is a part of a larger arrangement involving life insurance that has been assigned to another party as payment for contract goods and services. This means that the value of the burial arrangement is the value of the life insurance policy.
2. State Limits on the Amount of Funeral Contracts That May Be Made Irrevocable
State limits on the amount of funeral contracts that can be made irrevocable generally address the face amount of the contract that can be made irrevocable. Since we are concerned with the irrevocable assignment of ownership of an insurance policy to fund a burial contract and not with the face amount of the contract itself, State dollar limits are usually of no consequence in evaluating the policy for SSI purposes unless State law specifically limits irrevocable assignment of ownership of insurance policies funding burial contracts.
3. Dividend Accumulations
We do not exclude from resources dividend accumulations of a life insurance policy as part of the value of the policy or the burial contract. Dividend accumulations are separate resources and must be designated separately in order to qualify for the burial funds exclusion. (See SI 01130.300 B.5.b.)
If ownership of the life insurance policy has been irrevocably assigned, we assume, absent evidence to the contrary, that the dividend accumulations are also assigned.
C. Policy — effect of assignment of ownership on burial exclusions
1. Revocable Assignment
a. Burial Spaces
The burial space exclusion does not apply. This is because the funeral provider has not received any payment and no purchase of burial spaces has been made. The provider has no obligation to provide any spaces until the individual dies and therefore no spaces are being held for the individual.
b. Burial Funds
The burial funds exclusion may apply. The resource value of the burial contract is equal to the CSV of the life insurance policy, subject to the $1, 500 burial funds exclusion.
Mrs. Emma White has a burial contract funded by the revocable assignment of ownership of a life insurance policy. The face value of both the burial contract and the life insurance policy is $3,000 and the CSV of the life insurance policy is currently $1,700. The total resource value of Mrs. White's burial contract is equal to the CSV of $1,700.
The burial space exclusion does not apply to Mrs. White's contract (per a. above). However, we can exclude $1,500 of the CSV under the burial funds exclusion. The remaining $200 of the CSV will be considered a countable resource.
2. Irrevocable Assignment
a. Burial Spaces
The burial space exclusion may apply, depending on the nature of the contract (SI 01130.400 ff.). Any portion of the contract that represents the purchase of a burial space has no effect on the burial funds exclusion.
b. Burial Funds
The life insurance policy and the burial contract are not resources for SSI purposes because the SSI recipient no longer owns them. The face value of the burial funds portion of the contract (if any) offsets the $1,500 burial funds exclusion because the contract represents an irrevocable arrangement available to meet the individuals burial.
Mr. Bill Atkins has made provision for his burial by irrevocably assigning ownership of a life insurance policy on his life to a funeral home to fund a burial contract. The face value of the life insurance policy is $3,000.
The burial contract identifies the purchase of $1,300 of burial spaces and $1,700 of burial funds. The $1,700 burial funds portion of the contract is not a resource, but, since the assignment of policy ownership is irrevocable, the $1,700 burial funds portion reduces the $1,500 burial funds exclusion so that Mr. Atkins may not have any other excluded burial funds. The $1,300 space purchase is not a resource either, but does not reduce the burial funds exclusion.
D. Policy — effect of assignment of proceeds on burial exclusions
1. Revocable Assignment
a. Burial Spaces
The burial space exclusion does not apply to the CSV of the life insurance policy. This is because the funeral provider has not received any payment and no purchase of burial spaces has been made. The provider has no obligation to provide any spaces until the individual dies and, therefore, no spaces are being held for the individual.
b. Burial Funds
The resource value of the burial contract is equal to the CSV of the life insurance policy. We treat the CSV according to the policy described in c. below.
c. Treatment of CSV
If the face value of all life insurance policies on the individual's life is $1,500 or less, we exclude the CSV under the life insurance exclusion (SI 01130.300 B.).
If the face value of all policies exceeds $1,500, we treat the CSV of the policy according to the burial funds exclusion, if applicable. See SI 01130.410 for instructions on the burial funds exclusion.
Ms. Lydia Fisher has a $1,300 burial contract funded by the revocable assignment of the proceeds of an insurance policy on her life. The CSV of the policy is $1,000. If this is the only life insurance policy she owns on her life, then the life insurance policy would be excluded under the life insurance exclusion and the burial exclusions would not apply.
The life insurance policy's face value of $1,300 reduces the maximum $1,500 burial fund exclusion by that same amount. Ms. Fisher may have an additional $200 in excluded burial funds.
If Ms. Fisher has another life insurance policy on her life and the total face value of the two policies exceeds $1,500 (and, therefore, the life insurance exclusion does not apply), then the CSV may be excludable under the burial funds exclusion. No burial space exclusion applies per a. above.
2. Irrevocable Assignments
We are not aware of insurance companies that permit irrevocable assignment of policy proceeds without requiring the irrevocable assignment of ownership. Contact your regional office should you encounter this type of policy.
E. Policy — life insurance policy placed in a trust
A life insurance company may provide an individual with the option of irrevocably transferring ownership of a revocable life insurance policy that funds a burial contract to a trust established by the company. If a policy is placed in trust, we evaluate the resource value of the policy (its CSV) according to the rules governing trust funds, as discussed in
SI 01120.200 B.1.
1. Treatment of Policy's CSV
Consistent with SSI trust policy, if:
the individual neither owns nor has the legal right to direct the use of trust assets to meet his or her support and maintenance needs, and
State law allows a revocably assigned life insurance policy that funds a funeral contract to be placed irrevocably in trust, then the policy's CSV is not a resource for SSI purposes.
2. Treatment of Dividends
If the policy's CSV is not a resource, assume, absent evidence to the contrary, that any dividends paid on the policy are also not a resource.
3. Individual Retains Right to Change Funeral Firm
Under an irrevocable trust arrangement, the life insurance policy's CSV is not a resource even if the individual retains the right to change the funeral firm that will provide the burial goods and services.
4. Burial Fund Exclusion Offset
A revocably assigned life insurance policy placed in an irrevocable life insurance trust is treated the same as a life insurance policy for which the ownership has been irrevocably assigned to fund a burial contract (see C.2. above). This means that the value of the burial funds portion of the contract (if any) reduces the $1,500 burial funds exclusion.
This is the case because the burial funds portion of the contract represents an irrevocable arrangement that is available to meet the individual's burial expenses.
F. Procedure — general
Follow instructions in SI 01130.410 E. regarding the development and documentation of burial funds. See additional instructions below.
1. Development and Documentation
a. Life Insurance Policy
Examine the life insurance policy and document whether the ownership/ proceeds of the policy have been assigned (revocably or irrevocably) and, if so, to whom.
If ownership or proceeds of the life insurance policy have been revocably assigned, follow regular life insurance development procedures. (See SI 01130.300 C. for further development and documentation requirements.)
If ownership of the life insurance policy has been irrevocably assigned, apply the policy principles in C.2. above to determine the policy's resource status.
If an insurance policy that funds a funeral arrangement is placed irrevocably in trust, apply the policy principles in E. above to determine the policy's resource status. Refer to any regional instructions regarding State law in this area.
In all cases, document the file with a copy of:
b. Option for Developing Policies Issued by Nonparticipating or Stock Companies
If the insurance policy funding the burial contract is issued by a nonparticipating or stock company (and therefore does not pay dividends), you may be able to curtail development as to the policy's CSV. You can use the CSV chart attached to the policy instead of contacting the life insurance company. See SI 01130.300 C.5. for more information.
c. Burial Contract
Examine the burial contract and determine what items and/or arrangements have been contracted for. Document the file with a copy of the burial contract.
2. Determine Applicability of Burial Space/Fund Exclusions
Apply the policy principles in C. and D. above and determine:
Put your determination in the file.
3. Refer Questionable Cases to the RO
If the policy and/or burial contract are particularly complex and, after following national and regional POMS instructions, you are unable to determine countable/excludable resources, refer the policy and contract to your RO for evaluation.
G. Procedure — redetermination development
For a previously developed life insurance funded burial contract, redevelop and document the value of the contract using applicable life insurance development procedures if:
ownership and/or proceeds of the policy have been revocably assigned (i.e., the CSV of the policy must be reverified); or
ownership of the policy has been irrevocably assigned (or a revocably assigned policy has been placed irrevocably in trust) and the individual has other excluded burial funds (i.e., the value of the contract reduces the amount of other funds that may be excluded).