TN 23 (07-90)

A. Definition

A prepaid (or preneed) burial contract is an agreement whereby the buyer pays in advance for a burial that the seller agrees to furnish upon the death of the buyer or other designated individual.

B. Policy General

1. Contract is a Resource

If a burial contract is revocable or salable, and any conditions for its liquidation do not present a significant hardship (see C.1. below), it is a resource. However:

• any portion of the contract that clearly represents the purchase of burial spacesmay be excludable,regardless of value (SI 01130.400); and

• some or all of any remaining value of the contract may be excludable as burial funds(SI 01130.410).

2. Contract is Not a Resource

If a burial contract cannot be revoked and cannot be sold without significant hardship, it is not a resource. However:

• any portion of the contract that represents burial funds reduces the $1,500 maximum otherwise available for the burial funds exclusion; but

• any portion that represents the purchase of burial spaces has no effecton the burial funds exclusion.

3. Contract Revocability

State law determines whether a contract is revocable. Some burial contracts may be partly revocable. For example, if the total value of an otherwise irrevocable contract exceeds the limit set for irrevocability by State law, the excess is revocable. See regional instructions for details.

4. Burial Insurance and Burial Trusts

Prepaid burial contracts do not include burial insurance as defined in SI 01130.300 or burial trusts as described in SI 01120.201H.

5. Provider Places Funds in Trust

If an individual contracts with a provider of burial services and the provider places the funds in trust, this constitutes a “purchase” and not a “transfer” of funds under SI 01150.110.

C. Policy Evaluating Contracts

1. Conditions for Liquidation

A prepaid burial contract, even when not technically irrevocable, may have conditions attached to its liquidation or revocation. If either of the following conditions exists, the contract is not a resource.

• Significant hardshipmay result from the conditions required for selling or revoking a contract. Significant hardship means an unrealistic demand on the buyer; e.g., having to move out of state. If an adjudicator determines that such would be the case, the file must contain a determination to that effect.

• State law or contractual terms may require mutual consent of buyer and seller in order to sell or revoke a contract. If the seller will not consent, or will consent only under conditions that would pose a significant hardship to the buyer,the file must reflect those facts.

NOTE:If a condition creating hardship or some other obstacle to liquidation is not evident on the face of the contract,assume it is revocable or salable and,therefore, a resource. The burden is on the claimant/ recipient to provide evidence to the contrary.

2. Value of Contract as a Resource

If a burial contract is a resource,we use as its value:

• the amount payableto the owner upon revocation; or

• if the contract is not revocable but is salable, its CMV.

3. Single - Purpose Burial Space Contracts

a. General

We apply the burial space exclusion to any single-purpose burial space contract that is a resource if:

• the contract lists all of the burial spaces and either includes a value for each space or the total value of all the spaces combined; and

• the seller's obligation to provide those items is not contingent on further payment (as in certain installment contracts); i.e., the items are actually being held for the individual's future use.

b. Exception

We treat as burial funds (i.e., as subject to the $1,500 maximum or as reducing that maximum):

• the unidentified portion of a contract that implies it covers only burial spaces but does notidentify some or all of the spaces, or does not include either a value for each burial space or the total value of all the spaces combined; and

• the amount paid on an installment contract for burial spaces if the contract does not entitle the person to the spaces until the full purchase price has been paid.

NOTE:Once full payment has been made, these items can become subject to the unlimited burial space exclusion because at the point of full payment the contract becomes an agreement representing the purchase of a burial space (SI 01130.400).

4. Single - Purpose Contracts for Burial Expenses

A single-purpose contract for burial expenses (SI 01130.410) includes only services that we consider burial funds and that are subject to, or reduce the amount of, the burial funds exclusion.

5. Contracts for Both Burial Spaces and Burial Expenses

a. Irrevocability Designation

If a combined contract designates which portion is irrevocable and which is not, that designation is controlling. That is, if the contract designates only the burial space purchase as irrevocable, the portion dealing with burial funds is revocable and is subject to the burial funds exclusion.

b. Maximum on Irrevocable Amount

If State law sets a maximum on the amount that can be irrevocable, but the contract does not designate which part is irrevocable and the contract value exceeds the State maximum, we apply the maximum to burial spaces first.

• If space purchases exceed the maximum, we consider the excess revocable but subject to the burial space exclusion.

• If space purchases are less than the maximum, we apply the remainder of the maximum to burial funds items.

NOTE:Irrevocable burial funds reduce the amount available for excluding other burial funds.

c. Installment Contracts

We treat as burial funds the amount paidfor any spaces and services in a combined contract being purchased in installments ifthe contract:

• does not entitle the individual to the spaces and services listed until the full purchase amount has been paid; or

• relieves the seller of the obligation to provide the spaces and services listed at the price listed until the contract is paid in full.

Once the contract has been paid in full, we apply the space and funds exclusions as appropriate.

D. Procedure Development and Documentation

1. General

1. Developinitially whether a prepaid burial contract exists and is a resource.

2. Documentthe file with respect to:

   • revocability;

   • liquidity (as needed); and

   • value, if the contract is a resource or involves burial funds (unless the tolerance in SI 01140.010 B.2. applies).

3. In posteligibilitysituations:

   • develop and documentany newly acquired contract per a. and b. above;

   • do not redevelopa contract if prior development showed that it is not a resource and does not contain burial funds;

   • redevelop and documenta contract if prior development showed that installment payments could affect applicability of the funds/ space exclusions or that it included burial funds (revocable or irrevocable).

2. Valuing a Revocable Contract

For revocable burial contracts,State law usually sets refund guidelines that may vary by contract. If you cannot determine the refund amount by examining the contract, have the individual contact the provider or, if necessary,make the contact yourself.

3. Valuing an Irrevocable But Transferrable Contract

If a contract is irrevocable but can be liquidated some other way (e.g., through sale), assumethat the contract's CMV is the amount that has been paid on it.

If the individual disagrees with this assumption, he or she can rebut it with an estimate from a disinterested knowledgeable source such as the State Funeral Directors Association or a local funeral director.

4. Single-Purpose Contract

Develop and document the factors outlined in 1. above, following the guidelines above, as appropriate.

5. Contract for Both Spaces and Funds

1. Determinewhether the contract designates which portion (if any) is irrevocable.

2. If designated, develop each portion as appropriate per SI 01130.400 or SI 01130.410.

3. If the contract does not designate, apply the State maximum for irrevocability, if any, first to the total value of all burial spaces and then to the value of the burial funds. (See E. below for examples.) Any burial spaces not covered are subject to the burial space exclusion. Any burial funds not covered are subject to the burial funds exclusion.

4. If you cannot determinewhich amounts represent the purchase of spaces and which represent burial funds, and which parts of the contract, if any, are irrevocable,the individual has not satisfactorily identified funds versus spaces. In that event,consider the entire contract as a resource in the form of burial funds.

E. Examples Contracts for Spaces and Funds

1. Spaces Exceed State Maximum Amount for Irrevocability

a. Situation

A contract for both spaces and funds gives the following breakout:

b. Treatment

The first four items, totaling $1,850, are burial spaces. We consider $1,500 of that amount to be irrevocable and the remaining $350 to be revocable but excluded.

The remaining $1,000 represents burial funds and is subject to the $1,500 exclusion.

2. Value of Spaces Less Than State Maximum Amount for Irrevocability

a. Situation

A contract for both spaces and funds gives the following breakout:

b. Treatment

The first four items, totaling $1,150, are burial space and we consider the entire amount irrevocable. We consider the other four items, totaling $1,700, as funds set aside for burial. Of the $1,700, we consider $350 irrevocable and $1,350 revocable. We apply the burial funds exclusion as follows:

3. Installment Contract

a. Situation

An individual owns a revocable contract for his own burial. The contract, which covers both spaces and funds, gives the following breakout:

The contract provides that, until the full price of the contract has been paid, the seller has the option to be released from any obligation to provide the items and services at the contract price. Rather, the seller can charge prices current at the time of death, allowing a credit for amounts already paid.

b. Treatment

Until the contract has been paid in full, we consider all payments to be funds set aside for burial. Amounts paid in excess of the maximum available for exclusion as burial funds are countable resources.

When the contract has been paid in full, the spaces listed in a. above are subject to the burial space exclusion. The $1,050 value of the remaining items is subject to the burial funds exclusion.