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Irrevocable Funeral Trusts Give Seniors More Options

Agent Sales Journal - March 2008 - The Senior Market

As if life isn’t difficult enough for many seniors, the Deficit Reduction Act of 2005 (DRA) — signed into law by President George W. Bush in February 2006 — has further reduced senior citizens’ opportunities to reposition their assets. Among other issues, the DRA extends the look-back rule from 36 months to 60 months.

With the 2006 DRA, seniors can no longer give away or otherwise dispose of their financial assets during the 60-month window just prior to being admitted or confined to a long term care or nursing home facility.

Before the government will pay for medical and custodial care, the Medicaid authorities will investigate if the individual has the financial capability to pay for his or her own care. If they do not have a spouse and if they own a home; an automobile; or a collection of jewelry or silverware; stocks, bonds, CDs, U.S. savings bonds, old paid-up insurance policies with a cash-in value in excess of $1,500, or any other valuable financial resources, these assets must first be liquidated — not necessarily at their fair market value — and the monies from these assets must be spent down for care and custodial expenses. The individual is allowed to keep their wedding ring and a cash amount not to exceed $2,000. Additionally, any sources of regular income such as pension payments or Social Security monthly benefits must be signed over to the organization providing the care.

Any assets disposed of during that prior five-year period will be considered a countable asset — still belonging to the individual — for the purposes of determining eligibility for public assistance. In essence, the assets, or their cash equivalent at the time of disposition, must be returned to the original owner and used to pay for their care until these funds are spent down to approximately $2,000. This is hardly a sufficient amount to pay for a proper, dignified burial for the deceased, with current funeral expenses requiring $7,000 or more.

What’s a person — or their family — to do to plan ahead for funeral costs and still comply with the new terms of the DRA? One option is to obtain an irrevocable funeral trust (or IFT)* as soon as possible.

For seniors trying to plan ahead, five years can seem to be an eternity. Many seniors who start out with a minor medical condition often see it escalate quickly to become a catastrophic event within a short time, sometimes within a year. Soon, dementia, Alzheimer’s disease, or a debilitating physical problem such as a broken bone that will not properly heal relegates the patient to custodial care for the remainder of their life. An individual who previously enjoyed relatively good health can deteriorate very quickly if diagnosed with certain conditions. At that point, it is too late for them or their guardians to reposition their assets — except to create an irrevocable funeral trust.

An IFT is a tool that prevents an individual’s assets from being confiscated or forced to be spent down in order to receive government assistance in paying for care over an extended period in a nursing home or long term care facility. An IFT also protects those monies from being sought out by doctors, lawyers, drug stores, or any other providers or entities that would seek payment for bills or for any other purpose. A person facing serious health or mental challenges hardly needs to have bill collectors harass them for legitimate or illegitimate charges for any type of service.

By placing up to $12,500 in an IFT, the money is preserved from those seeking reimbursement for bills or expenses. A good rule of thumb concerning IFTs is that if a person doesn’t have long term care insurance (LTCI) and cannot afford an LTCI policy, they should obtain an IFT. It is estimated that more than 90 percent of all seniors do not have LTCI. Since an IFT is an irrevocable trust, no one — not even the insured — can access these monies until that person has passed away.

An IFT is issued by a select group of insurance carriers. The IFT is a single premium whole life policy that is wrapped into an irrevocable trust by the carrier immediately upon issue. The carrier also creates and absorbs the costs for creating the actual trust document, eliminating the complications, time, and costs of retaining an attorney.

Even more conveniently, the insurance carrier also assigns a company officer as a trustee of the IFT. Upon the insured’s passing and the trustee’s receipt of legal proof of the death, as well as an invoice for the expenses associated with the proper disposition of the deceased by a funeral home or other authorized agency, the carrier will issue a check, usually within 24 to 48 hours. If there are any remaining funds in the trust after all the final expenses are paid for, they are returned to the estate of the deceased.

Since the insured is paying the entire cost for the IFT in advance, there is no need for underwriting, further expediting the IFT issuing process. It is issued for individuals up to 99 years of age. There is also a guaranteed issue provision for those applicants already in a custodial situation. In many states, seniors seeking to reposition additional assets can create IFTs for their children, helping them shield additional financial resources.

A major benefit of the IFT is that it can be used for any final expenses. There are up to double-digit percentage comm­issions that you can earn, depending on the age of the applicant.

An IFT is the one of the last and only remaining legal methods to reposition assets so that the individual can enjoy peace of mind.

Jack Quinn is the founder and operator of

USA TODAY in July 2006

An excerpted from an article originally printed in the The Commercial Appeal, Memphis, TN

Trial starts over prepaid funeral contracts

A Tennessee chancery court begins hearing arguments today in the case of a funeral home operator who has canceled more than 13,000 contracts for pre-paid funerals and stands accused of embezzling the more than $76 million he had been paid, The Commercial Appeal of Memphis ( reported. Clayton Smart denies any wrongdoing, the newspaper wrote. He says inflation "and mismanagement by others" made it impossible for him to honor the contracts, according to The Commercial Appeal.

Part of today's hearing will be to determine whether the state will take control of his three funeral homes and three cemeteries in Tennessee.

Smart also faces legal problems in Michigan, where the state has appointed a conservator to operate his 28 cemeteries.

The thousands of people affected say Smart has hurt them emotionally and financially. When Vesta Foshee died July 1, it was her son Donald's understanding the just $900 was still owed on a contract for her funeral and burial. But he was asked for an additional $4,000. "They've got you at the worst time of your life", Foshee told The Commercial Appeal.

----Mark Memmott

By John Bacon with staff and wire reports

Retiree Health Benefits: a Disappearing Act

The Trend Continues - companies cut back on retirees' health coverage
By Lisa Rademakers and Lisa M. Davila - The Erickson Tribune

Note from
It is clear that more and more of a person's income will be spent on health care in the upcoming years. Thus, the money you plan to use for future healthcare may be depleted before you think. If you require medical care, or nursing home care, provided by the federal or your state government, the "spend down" requirements will deplete your discretionary income and your estate might not have sufficient funds to provide for a proper, dignified burial.

Therefore, now, while you still have expendable income, this might be the best time to protect those funds you would like to set aside for your final expenses in a protected Irrevocable Funeral Trust as soon as possible.

In the 1950s and 1960s, retiree health benefits were offered in the U.S. as part of the package that employers used to attract and retain employees. Today, the situation is much different.

Reason for change
Between 1988 and 2006, the share of large employers offering retiree health benefits declined from 66% to 35%.

"The number of firms offering these [retiree] benefits started to drop significantly in 1993 when employers began to recognize the future cost of retiree benefits in their financial statements," says Richard Johnson, principal research associate at the Urban Institute - a nonpartisan economic and social policy research organization in Washington, D.C. - and a leading national expert on the health and income security of older Americans.

In 1993, the Financial Accounting Standards Board issued Standard 106, which recommended that companies account for the costs of current and future retirees' health care.

When companies added up these projected costs, the numbers were staggering. For some companies, continuing to pay for retiree health benefits would no longer be feasible.

Harsh realities
Additionally, the global marketplace had become more competitive. "Its hard for firms to provide generous compensation and benefits packages and maintain profitability," Johnson says. "Health care is more expensive now than it was even five years ago. A way to raise profits is to cut back on health care benefits. It's what companies have to do in today's economy."

"Don't assume that your benefits will always be there ...Save if you can, and have an alternative plan." -Richard Johnson, principal research associate at the Urban Institute

In 2005, total national health expenditures increased 6.9% - two times the arte of inflation. Total health care spending was $2 trillion in 2005, or $6,700 per person, and represented 16% of the gross domestic product.

Another force compounding the situation for companies is the growing number of retirees compared to a shrinking workforce, especially as the baby boomer generation moves into retirement. Fewer workers will have to support more retirees.

What's happening now
Companies are passing more of the buck onto retirees. In 2006, 58% of firms raised plan premiums. In 2007, 64% of surveyed firms said they are very likely to increase retirees' contributions to premiums. "companies, especially large ones, are moving away from open-ended benefits and more toward defined contribution, which means that the company pays only up to a certain amount of what Medicare doesn't cover," Johnson says. "If you have benefits now, you need to know it's likely that cut-backs will occur and premiums will increase."

Corporate examples
Over the last few, Sears Roebuck and Company eliminated retiree benefits for employees under age 40 and for new hires, while Lucent Technologies made severe coverage cuts and significantly raised premiums.

In the past year, Ford Motor Co. informed its salaried retirees that they would receive a health reimbursement account up to $1,800 to help cover health costs. Retirees can use it to create any Medicare-approved plan. Spouse will also be eligible for the reimbursement account up to $1,800. "This trend is happening throughout the country," says Jerry Kmieciak, a manager of Erickson Advantage; a Medicare Advantage health care insurance plan offered at Henry Ford Village, a retirement community in Dearborn, Mich. "Last year, Chrysler offered a health reimbursement account for salaried retirees up to $1,750 based on years of service. Ford watched what Chrysler did, and General Motors is probably next."

Kmieciak talks about the reaction from Ford retirees who live at Henry Ford Village. "They are going from $54 monthly premium per person to paying market price for health insurance - which could cost hundreds of dollars." They' re saying. "This isn't what I planned on."

Other companies - like Bethlehem Steel and LTV Steel Corporation - completely eliminated benefits and provide no stipend.

What you can do
Retiree health benefits are not protected by law, like some pensions. "Pensions are a legal obligation; health benefits aren't," Johnson says. "Employers can pull the plug anytime they want."

The U.S. Department of Labor advises that you review your health plan documents to understand the terms regarding termination of benefits. "In fact, the language in these documents is often vague, and the company can change the document at any time," Johnson says.

It's always a good idea to do a yearly check of your health plan to see if it's the best one for you in terms of premiums and coverage," says Penny Folden, vice president of sales and marketing for Erickson Advantage. "Plans are always changing, especially in terms of drug coverage.

If you know you're going to lose your benefits, you can compare Medicare plans by logging into www,," Folden says. "You can enter your age, your zip code, and other factors and compare a list of plans in your area. The site doesn't give you all of the plan details, but it's a good place to start."

"Don't assume that your benefits will always be there," Johnson says. "Save if you can, and have an alternate plan."

A Paradigm Shift for Final Expense

by Senior Market Advisor | Published August 1, 2008
From the August 2008 Issue of Senior Market Advisor Magazine

The only thing constant is change, as witnessed through our changing clients, their changing needs, and an industry full of product and policy change. The baby boomer generation has been the driving force behind insurance companies creating new products to meet boomers’ unique needs and desires. The same is true with products available for final expenses, such as the irrevocable funeral trust. This semi-hybrid between a final expense insurance policy and a pre-need funeral insurance policy provides advisors and agents with a new and important tool for their financial toolbox.

When most advisors and agents consider final expense, they think of the traditional final expense product where the agent sells a small life insurance policy of about $10,000 to $25,000 to cover a client’s final expense, particularly funeral and burial costs. These whole-life insurance policies usually require the insured to pay a premium for the remainder of his or her life. Traditionally, whole-life insurance policies have appealed to clients with a low net worth who find the payment affordable and whose family would need assistance with these extra expenses.

Many advisors avoid this process because it is too cumbersome for such a small reward, or because it may divert their client’s focus from the big picture. And of course, if you assume higher net-worth clients may not be interested, why bring it up?

In 2002, change came to the final expense playing field when a revolutionary product, the irrevocable funeral trust, was introduced into the marketplace. Since then it has experienced some minor changes and improvements; however, despite the effectiveness and client receptiveness, it is still widely underused by agents and advisors. Oddly enough, this underused final expense product has gained momentum among a public who are demanding alternative planning solutions from their agents and advisors. Yet it’s the middle class and high-net-worth clients who seem to be ideal candidates, although the less-affluent purchaser can benefit from this new irrevocable funeral trust as well.

I began selling insurance in the early ’90s, predominately pre-need insurance with funeral homes. The product’s purpose was to cover final expenses, but also protect against inflation. If my client required nursing home care or public assistance, they could keep the policy, as it was not a countable asset in the spend-down. The main problem with pre-need insurance is that it is only available through the funeral home of the client’s choice.

"By adding this one tool to your financial toolbox you will greatly benefit your clients."

The traditional final expense product had a few areas that always seemed to be a stumbling block for the client as well. First, the face value of the traditional final expense policies had to be increased every eight to 10 years to adjust for inflation. This could only be done by purchasing another small policy. Many people who owned the traditional product had two, three and sometimes four additional policies just to stay ahead of inflation.

Second, if the client needed nursing home care, and had to spend down assets to qualify, the policy cash value was a countable asset, as far as Medicaid was concerned. The policy had to be cashed in, leaving the client with no final expense coverage.

Once the final expense was cashed in due to nursing home spend-down, case workers would tell the traditional product owner to take the small amount of cash value and purchase a funeral plan. Consequently, the life insurance was gone and the client had to start over.

The new revolutionary solution offers an insurance product using the pre-need policy framework while creating product solutions for several common user problems, such as providing necessary coverage, protecting the policy in case of spend-down, adjusting for inflation, and making the product attractive and available to advisors, agents and their clients. This new model could also dramatically increase the compensation for the producer over what final expense had offered.

Not only does it meet the needs of the clients, but it also provides advisors and agents with a new tool and, ultimately, better service for their clients and an improvement in their own compensation.

As advisors and agents, we tend to become very set in our ways; when a new product comes to market we tend to overly scrutinize the unknown to the point of disregarding new opportunities as too far out of our planning comfort zone.

Fortunately, there is a demand for this type of product, creating a new breed of final expense advisor and agent. They are taking the time to evaluate and learn how to make the irrevocable funeral trust a successful part of their client’s retirement plan. In turn, these advisors are building their own success as a financial consultant.

Seventy-one percent of consumers questioned believe funeral planning should be done along with their financial planning, according to a survey conducted by the Wirthlin Report in 1999. This survey has been around for some time, and even though the consumer wanted it, we’ve ignored it because it didn’t fit into our financial toolbox. Now with a new paradigm shift, we are starting to catch up with what our clients have wanted all along.

As the baby boomers continue to move into retirement, we have a new and improved tool to help meet their needs better than ever before. I have used this tool in my financial advisory business with great success. (Actually, I have always offered pre-need insurance and, once it was available, the irrevocable funeral trust product and found it to be well received.)

My challenge to you is to look at this differently than you have before. By adding this one tool to your financial toolbox you will greatly benefit your clients.

Written by Evan Beecham, CFRA, is the founder of Beecham Financial Services Inc., in Burlington, Colo.

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