Identification Number:
SI 01130 TN 83
Intended Audience:See Transmittal Sheet
Originating Office:ORDP OISP
Title:Clarifying policy on life insurance-funded burial trusts
Type:POMS Transmittals
Program:All Programs
Link To Reference:
 

PROGRAM OPERATIONS MANUAL SYSTEM
Part SI – Supplemental Security Income
Chapter 011 – Resources
Subchapter 30 – Resources Exclusions
Transmittal No. 83, 08/10/2020

Audience

FO/TSC: CS, CS TXVI, CSR, CTE, DRT, FR, OA, OS, RR, TA, TSC-CSR;

Originating Component

OISP

Effective Date

Upon Receipt

Background

This is a Quick Action Transmittal. These revisions to do not change or introduce new policy or procedure.

Summary of Changes

SI 01130.425 Life Insurance Funded Burial Contracts and the Burial Space/Funds Exclusions

In addition to non-substantive editorial and formatting changes made through this section, we made the following updates:

  • Subsection E – Clarified policy on the resource treatment of an arrangement whereby an individual irrevocably transfers ownership of a revocable life insurance policy that funds a burial contract to a trust established by the funeral company.

  • We added cross-references to the existing trust policy guidance that should be used to evaluate these arrangements.

SI 01130.425 Life Insurance Funded Burial Contracts and the Burial Space/Funds Exclusions

A. Definitions

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 01130.300B.4).

2. Proceeds

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 Policy on Life Insurance Funded Burial Contracts

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 01130.300B.7.a.)

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.

c. Example

Mrs. 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 SI 01130.425C.1.a in this section). 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.

c. Example

Mr. 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 burial space purchase is not a resource either, but it 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 SI 01130.425D.1.c in this section.

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 01130.300C.2).

  • 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. For instructions on the burial funds exclusion, see SI 01130.410.

d. Examples

  • Ms. 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 SI 01130.425D.1.a in this section.

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 Irrevocably 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 funeral company. If State law allows such an arrangement, we evaluate the resource value of the policy (its CSV) according to the applicable trust rules based on the date of the arrangement.

1. Trust Established Before January 1, 2000

If a life insurance policy is placed irrevocably in a trust prior to January 1, 2000, evaluate the resource value of the policy (its CSV) according to the trust rules in SI 01120.200D.

Generally, the policy’s CSV is not a resource if the individual does not have the legal authority to revoke or terminate the trust or to direct the use of the trust assets for his or her own support and maintenance.

2. Trust Established On or After January 1, 2000

If a life insurance policy is placed irrevocably in a trust on or after January 1, 2000, the policy’s CSV generally is a resource if the arrangement constitutes a trust established with the individual’s funds. However, it is not a resource if the arrangement constitutes a purchase of goods and services by the individual and the subsequent establishment of a trust with the funeral provider's funds. For detailed instructions, refer to the rules governing burial trusts in SI 01120.201H.

3. Treatment of Dividends

We assume, absent evidence to the contrary, that any dividends paid on the policy are also irrevocably assigned to the trust. Therefore, assume that:

  • If the trust is not a resource, the dividends also are not a resource.

  • If the trust is a resource, the dividends also are a resource.

4. Individual Retains Right to Change Funeral Firm

Under an irrevocable trust arrangement, the resource value of the life insurance policy's CSV is not affected by the individual retaining the right to change the funeral firm that will provide the burial goods and services.

5. 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 SI 01130.425C.2 in this section). 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 Procedure for Life Insurance Funded Burial Contracts

Follow instructions in SI 01130.410E regarding the development and documentation of burial funds. See additional instructions in this subsection.

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 01130.300D for further development and documentation requirements.)

If ownership of the life insurance policy has been irrevocably assigned, apply the policy principles in SI 01130.425C.2 in this section 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 SI 01130.425E in this section 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:

  • the life insurance policy;

  • the assignment; and

  • any other related documents.

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. For more information, see SI 01130.300D.2.b.

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 SI 01130.425C and SI 01130.425D in this section to determine:

  • the value of the contract that is excludable as a burial space (if any) (SI 01130.400); and

  • the value of the contract that is excludable as burial funds (if any) (SI 01130.410).

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).


SI 01130 TN 83 - Clarifying policy on life insurance-funded burial trusts - 8/10/2020