Compliments of Our Law Firm,
Written By: The American Academy of Estate Planning Attorneys
Across the nation, about half of all seniors who require nursing home care depend on Medicaid to cover the cost of that care. Medicaid, however, has both income and asset tests that must be satisfied before a senior will be approved for benefits. If the applicant’s assets exceed the limit, the applicant will be told to “spend-down” the excess assets in order to reach the asset limit (typically $2,000 for an individual). One “helpful” piece of advice often given to seniors in this situation is to purchase a funeral plan as a way to spend-down assets. After all, if you don’t already have a plan you will use it eventually and funeral plans are considered exempt assets, right? Not always.
Medi-Cal is the Medicaid program that is jointly administered by the State of California along with the federal government. For the remainder of this Article, we will refer to Medi-Cal.
The Need to Spend-Down
With the average national monthly cost over $6,000, many seniors cannot afford to cover the cost of nursing home care out of pocket. In the greater San Jose area, the average monthly cost for nursing home care in 2016 for a semi-private room is $9,901 and a private room is $11,482.¹ Basic healthcare insurance policies do not cover long-term care. Medicare won’t help either as it only covers long-term care expenses under very limited circumstances and only for a very short period of time. For many seniors, that leaves Medi-Cal as the only viable option to help with nursing home expenses. The problem is that Medi-Cal is a “needs based” program, meaning there are income and asset limits that cannot be exceeded by program participants. In California, an individual cannot have “countable resources,” or non-exempt assets, valued at more than $2,000. If the applicant’s non-exempt assets exceed the limit the applicant will be told to “spend-down” those assets. Spending-down assets may mean paying for nursing home care out of pocket until the excess assets are depleted, but it can also include turning non-exempt assets into exempt assets. That is the idea behind purchasing a funeral plan because funeral plans can be considered exempt assets for purposes of determining Medi-Cal eligibility; however, it is not a blanket exemption.
Exempt vs. Non-Exempt Assets
When determining Medi-Cal eligibility, the value of an applicant’s non-exempt assets are taken into account. However, exempt assets are not counted when determining eligibility. Examples of typical exempt assets include:
- Primary residence, no matter what its value. The home must be the principal place of residence. The nursing home resident may be required to show some “intent to return home” even if this nevery actually takes place.
- Personal belongs and household goods
- One car or truck
- Life insurance – term insurance has no limit; however, insurance with a cash value has a $1,500 face value limit
- Income-producing real estate
- Burial spaces and certain related items for applicant and spouse
Funeral Plans – Exempt or Non-Exempt?
Well-meaning friends, family members, or nursing home staff may suggest purchasing a funeral plan if a Medi-Cal applicant needs to spend-down assets. Moreover, that advice often includes purchasing more services than will likely be needed in order to spend-down more assets. This advice is based on the belief that the value of services not used from a funeral plan will be refunded to the decedent’s estate, making it a “win-win” proposition. So what is wrong with this advice?
For a funeral and/or burial plan to be exempt it must be irrevocable. In other words, once the plan is purchased the funds cannot be refunded for any reason. Medi-Cal also allows $1,500 in designated burial funds, the the $1,500 must be kept separate from all other accounts and designated as a burial account. Accumulated interest on all burial funds is also exempt. All states exempt burial plots, but some states include all members of the applicant’s household while others exempt burial plots for the applicant’s immediate family. Finally, there is nothing to be gained by purchasing excess funeral and burial services because while it is true that the funeral home may refund any unused funds, the Medicaid Estate Recovery program has a right to claim those funds.
Purchasing a funeral and burial plan may be a wise estate planning decision and could be a benefit for a Medi-Cal applicant who needs to spend-down assets; however, it is imperative for an applicant to understand that funeral and burial plans do not enjoy a blanket exemption.