Can Prepaying Funeral Costs Affect Medicaid’s 5-Year Lookback in Illinois?

What is the 5-year lookback period?

In Illinois, the 5-year lookback period for Medicaid eligibility is based on when Medicaid benefits were applied for. The state will look at all financial transactions made during the 60 months (5 years) prior to the date of application for Medicaid benefits. During the 5-year lookback period, the state will evaluate whether the applicant or their spouse: (1) gave away money or property or (2) sold an asset for less than its fair market value.

Fair market value is the price that the asset, whether real (land and home on land) or personal property (vehicles/jewelry/etc.), would sell for on the open market. In other words, fair market value is what a reasonable person would pay for the property.  

What happens if improper transfers of property were made during the lookback period?

If an improper transfer occurred during the 5-year lookback period, a penalty period will be enforced. The penalty period will be a set period of time where the applicant would not be eligible for Medicaid benefits, even if the applicant were otherwise eligible at the time they applied for benefits.

During the penalty period, the applicant would be responsible for paying 100% of their long-term care costs. Transfers of property to a spouse, child under 21 years of age, and to a blind child or child with a disability (regardless of age) will not result in a penalty period being imposed.  

What about funeral expenses and Medicaid eligibility?

It is important to note that burial spaces that are intended for the use of the applicant, his/her spouse, or any other member of the applicant’s immediate family are exempt being considered for Medicaid eligibility. Immediate family is defined as: applicant’s minor and adult children (including adopted children and stepchildren), applicant’s brothers/sisters, applicant’s parents/adoptive parents, and the spouses of these individuals.  

Funeral funds in a revocable prepaid funeral/burial contract are exempt up to $1,500 except any portion of the contract that represents a burial space, as burial spaces are exempt regardless of value. Funds in an irrevocable prepaid funeral/burial contract are exempt up to $5,874 except the portion of the contract that represents the purchase price of a burial space, as burial spaces are exempt regardless of their value.

The contract must provide a complete and accurate description of the funeral goods and services to be provided, and their prices. Any amount in the contract not specified as such will be treated as a transfer of assets for less than fair market value, and a penalty period may be invoked as a result.  

A prepaid, guaranteed price funeral/burial contract funded by an irrevocable assignment of applicant’s life insurance policy to a trust is exempt. The amount exempted is capped at the amount the insurance policy designated for cost of funeral goods and services. In addition, the contract must clearly state and describe the funeral goods and services to be provided, as well as their cost.

Any amount not clearly specified as such will be treated as a transfer for less than fair market value, which could invoke a penalty period. The trust must state that upon the death of the applicant, the State will receive all funds that are remaining in the trust. The irrevocable assignment of ownership of the insurance policy to the State must be acknowledged by the insurance company.  

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