Death Care Law Blog : Kansas Death Care and Preneed Lawyer & Attorney : Stalter Legal Services Law Firm : Funeral Law, Elder Law : Kansas City

Give the State Board credit for attempting to clarify how insurance assignments must be handled for compliance with Missouri laws. 

For several months, the State Board has sought clarifications from MO HealthNet regarding spend-downs. On May 12th, the Board emailed to the industry new MO HealthNet guidelines for insurance assignments. One day later, the legislature passed HB 2290.

HB2290 addressed a gaping hole left in Chapter 208 when SB1 was passed. Chapter 208 excluded funeral contracts that complied with Chapter 436 provisions that no longer exist. The drafters of HB2290 took a broad-brush approach to the problem. Having done so, funeral homes and cemeteries are left to ask MO HealthNet and the State Board new questions.

By the bill’s reference to Chapter 436, must a “Burial Plan” or “Preneed contract” comply with the requirements of SB1? This would be a defeat for cemeteries who have the option of selling preneed under Chapter 214. 

If an insurance policy was not purchased with the intent to fund a preneed contract, why then, bring the true spend down into Chapter 436 (and further burden the Board’s oversight functions)?

The MO HealthNet guidelines can be found on the State Board’s website.

Missouri funeral homes should note that the guidelines impose a duty on the funeral home to notify the Department of Social Services when excess funds remain from a participant’s preneed contract. If the preneed contract was irrevocable, that should flag to the funeral director that he should make an inquiry. 

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A “Spend Down” is the transaction where a person seeking public assistance transfers money or insurance to a funeral home to avoid having the “asset” count as a resource. It is a commonly held perception that the Spend Down accounts for many preneed contract purchases. But should all Spend Downs trigger the state preneed law intended to protect the consumer? That question has been the source of disagreement and confusion for Missouri funeral directors since last July when the State Board first began to implement SB1.

The Missouri controversy swirls around the Spend Down that involves an existing insurance policy. It is a fairly common occurrence for a family to approach the funeral director with a small life policy ($10,000 or less) with a request that the policy be held until welfare applicant’s death (when it is to be applied to funeral expenses). Missouri’s public assistance policies are interpreted at the county level, and the result has been widely diverging requirements. Some Missouri counties require the funeral director to provide a contract to the family to evidence the assignment was not made as a gift. The contract requirement also serves to protect the funeral director by setting out the terms and conditions underlying the assignment. For example, the funeral director may not necessarily promise the insurance policy is being accepted as the sole consideration for the future costs. If the policy proves worthless, the family will still be obligated to pay for the funeral.

The Missouri State Board of Embalmers and Funeral Directors has grappled with whether this transaction should be subject to the requirements of SB1. During it’s initial SB1 meetings, the State Board leaned towards excluding the Spend Down from SB1, but in subsequent meetings expressed an intent to include the transaction if a contract were involved.

When the family approaches the funeral director with an existing insurance policy or certificate deposit, and the funeral director receives no compensation in the form of a commission, the Spend Down represents an accommodation to the consumer. Under such circumstances, a regulator should consider whether the licensing requirements are sufficient to protect the consumer. Imposing the requirements of SB1, or any preneed statute with additional fees or costs, on an accommodation transaction burdens both the consumer and the funeral home.
 

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What happens when the family opts for a cremation at the time of need when the preneed contract provides for a traditional funeral?  If the preneed contract was purchased in a spend down situation, the funeral director and the family may be caught in a Catch -22.  Many states' laws preclude the refund of the funds to the family. 

Missouri law (RSMo 208.010.4) provides that if a preneed contract beneficiary was receiving public assistance, any cancellation or amendment of a preneed contract will result in the amount in excess of the cost of the funeral being refunded to the state (up to the amount of the benefits received).  Kansas law imposes a similar requirement on the funeral home to refund the excess to the state.  A Kansas Attorney General opinion states this is even required in the absence of a contract amendment. 

These laws have the effect of inducing the family to spend up rather than allow the funds to go back to the state. 

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