PS 01905.017 Indiana
A. PS 00-232 Indiana Forethought Life Insurance-Funded Burial Agreements: Heath L. G~ (Your ref: S2D5B51, SI 2-1-8)
DATE: September 1, 1994
This 1994 opinion explains why a Forethought life insurance-funded burial trust in Indiana is excluded from SSI resources. However, Section 205 of the Foster Care Independence Act of 1999 changes how certain trusts are evaluated under SSI resource counting rules. Therefore, adjudicators should be aware that trusts established after 1/1/00 must be evaluated under the revised rules.
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.
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.
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.