Medicaid Planning

LIFE INSURANCE & FUNERAL/BURIAL EXPENSES

Definition:  “$2,000 asset disregard” means up to $2,000 that the Medicaid recipient may have in the bank for the future purchase clothes, shoes, and additional items that he or she might need or desire.  (Additionally, the Medicaid recipient may also receive $30 per month into an account at the nursing home for spending on toothpaste, shampoo, and other items that the nursing home may have available to sale, or for a service such as a haircut.)  Upon the Medicaid recipient’s death, the Illinois Department of Public Aid can claim any money remaining of the $2,000 asset disregard (as partial reimbursement for Medicaid benefits paid for the Medicaid recipient). 

 

Life Insurance:

1.  Term life insurance policies with no cash value are exempt

2.  The Medicaid recipient (not his/her spouse) may have $1,500 for either

(a)  life insurance in which the face value is not more than $1,500 is exempt; if the face value totals over $1,500 then the cash value is applied toward the $2,000 asset disregard.  For example, if the cash value is $1,800, then the excess ($300) is reduced from the $2,000 asset disregard (thus the Medicaid recipient can only have $1,700 in the bank for his/her assets disregard and not the normal $2,000).

  or

 (b)  a revocable prepaid burial fund of $1,500 or less (with excess applied toward the $2,000 asset disregard).  

or (the following choice is the one most client’s choose)

(c)  an irrevocable prepaid burial fund of $5,219 or less (with any excess reducing the $2,000 asset disregard).

See WAG 07-02-08-c for limits on an irrevocable prepaid burial contract

 

Transferring/Gifting ownership of a life insurance policy: 

1.  If ownership of a life insurance policy is transferred/gifted to a loved one (such as a child), then the cash value of the policy is considered the value of the gift to the new owner.  The insurance company would need to provide your family with a letter stating the “cash value” of the policy at the time of the transfer/gift (and that letter would later need to be given to the Illinois Department of Human Services as part of the application materials). 

2.  Please note that if your family is making gifts by check on a planned monthly basis, then you need to factor in the cash value of any life insurance policies being gifted (because if you don’t reduce the monthly gift of money by the cash value of the life insurance policy, then the penalty period may be 2 or 3 months, rather than the planned 1-month penalty).  If you have not sure about this, please consult with the attorney.  You don’t want to make a mistake in this area. 

 

Funeral Expenses and Burial Spaces: 

1.  Burial spaces for the Medicaid applicant, for his/her spouse, and other immediate family members are exempt

2.  The following items are exempt, and there is no limit as to how much you can spend for the following items (and the cost of these items isn’t counted towards the number $5,219 as shown below): casket, vault, burial space, marker, crypt, mausoleum, charges for opening & closing the grave,

sales tax. 

3.  The items listed below are limited if paid into a prepaid funeral plan…

      (a)  to a maximum of $1,500 if the money is in a revocable prepaid burial plan: or

      (b)  to a maximum of $5,219 if the money is in an irrevocable prepaid burial plan (this number does increase at times):  

Items covered under the $5,219 (this number does increase occasionally):  honorarium to priest/rabbi, prayer cards, flowers, visitor’s book, use of room at the funeral home for a wake, obituary, transportation of the body, death certificates, etc.

 

Thus, in summary, a Medicaid applicant can have the following:

         (a)  burial plots

         (b)  the following items (regardless of the cost of the items are exempt and not counted as part of the number $5,219 listed below): casket, vault, burial space, marker, crypt, mausoleum, charges for opening & closing the grave, sales tax

         (c)  up to $5,219 towards the following:  honorarium to priest/rabbi, prayer cards, flowers, visitor’s book, use of room at the funeral home for a wake, obituary, transportation of the body, death certificates, etc.

What if the funeral expenses exceed the allowable amount?

If the funeral expenses are over the allowable amount, that will reduce the amount of money that the Medicaid applicant may have in the bank (the $2,000 asset disregard).  For example, if the Medicaid applicant is $300 over the allowable amount for funeral expenses, then the Medicaid applicant may only have $1,700 in the bank ($2,000 minus $300 = $1,700).