F-4200, Nonliquid Resources

Revision 09-4; Effective December 1, 2009

There are two types of nonliquid resources:

• Real property
• Personal property

F-4210 Real Property

Revision 09-4; Effective December 1, 2009

Real property is the land and houses or immovable objects attached to the land. The terms real estate, realty and real property are synonymous, and for eligibility purposes, these terms designate real property in which an individual has ownership rights and interests. An individual also may have ownership of only the right to the use of the real property such as life estates or mineral rights. Real property also includes burial spaces.

The equity value of a person's ownership or part ownership in real property other than the home is a resource.

Determine ownership, current market value and equity value of non-home real property.

F-4211 Real Property in Excess of the Limit

Revision 16-3; Effective September 1, 2016

HHSC excludes the value of excess real property if the individual has put the property up for sale. The exclusion continues for as long as:

• the individual continues to make reasonable efforts to sell the property (reference Section F-3130); and
• including the property as a countable resource would result in a determination of excess resources.

Once the individual sells the property, the equity value the individual receives is a countable resource in the month following the month of sale. If the sale was for less than the fair market value or current market value, the sale of the property is subject to transfer-of-assets policy.

If the property rights involved are a life estate or if the individual has a remainder interest in the property, follow the procedures in Section F-4212, Life Estates and Remainder Interests. If the non-home real property produces income, follow the procedures in Section F-4300, Resources Essential to Self-Support.

See Appendix XVI, Documentation and Verification Guide.

If an individual's real property is producing income, use the procedures in Section F-4300.

F-4212 Life Estates and Remainder Interests

Revision 09-4; Effective December 1, 2009

When evaluating the life estate or remainder interest, determine when the interest was established.

If established before the look-back period, do not consider transfer of assets policy.

If established during the look-back period, consider transfer of assets policy:

• If the individual retains an undivided partial interest or life estate in the property during the look-back period, see Section F-3100, The Home and Resource Exclusions.
• If the purchase price of a life estate exceeds the fair market value of the life estate or a life estate is purchased on or after April 1, 2006, see Section I-6100, Purchase of a Life Estate, for evaluation of a transfer of assets.

The life estate or remainder interest may be excluded as follows.

A person may, without affecting his eligibility, maintain his life estate or remainder interest in property if:

• the property is his home and can be excluded under Section F-3000, Home;
• a contract restriction exists that prevents the person from disposing of his interest;
• the property is producing income and may be excluded under the exclusion rule for income-producing property; or
• the property is placed for sale. See Section F-3130, Home Placed for Sale.

If a life estate is excluded because of a person's intent to return to the property in which the person holds a life estate or remainder interest, and if that property is the person's principal place of residence, use the procedures in Section F-3000.

References:

• Use the procedures in Section F-3000, Home, when a spouse or dependent relative is living in the home property in which the person has a life estate or remainder interest.
• If a person's life estate or remainder interest property is producing income, use the procedures in Section F-5000, Potential Resource Exclusions.
• If the purchase price of a life estate exceeds the fair market value of the life estate or a life estate is purchased on or after April 1, 2006, see Section I-6100, Purchase of a Life Estate, for evaluation of a transfer of assets.
• See Appendix XVI, Documentation and Verification Guide.

F-4212.1 Calculation of Value of Life Estate or Remainder Interest

Revision 10-1; Effective March 1, 2010

When the life estate or remainder interest cannot be excluded, determine the value of the life estate or remainder interest as follows:

If the person has a life estate or remainder interest that is not excludable, determine the value of the resource according to the life estate holder's age and the equity value of the property. The person has the right to rebut this determination. To do so, he must present a statement from a knowledgeable source.

Note: Also see Appendix X, Life Estate and Remainder Interest Tables.

If the value given by the knowledgeable source is less than the value determined by the tables, use the rebuttal value.

For an individual's lifetime, a life estate transfers to the individual certain rights in property. The duration of the life estate is measured by the lifetime of the tenant, or by the occurrence of some event, such as remarriage of the tenant. In most situations, the owner of a life estate has the right to:

• possess the property,
• use the property,
• get profits from the property, and
• sell his life estate interest.

The contract establishing the life estate, however, may restrict one or more rights of the individual. The individual does not have fee simple title to the property nor the right to sell the entire property.

A remainder interest, which is created at the same time that a life estate is established, gives the "remainderman" (or remaindermen) the right to ownership of the property when the life estate holder dies.

An individual holding a remainder interest in property has the right to sell the remainder interest, unless prohibited from doing so by a legal restriction.

Use the following steps to determine the value of a life estate or remainder interest that cannot be excluded.

F-4213 Mineral Rights

Revision 10-1; Effective March 1, 2010

Mineral rights are the ownership interests in natural resources such as coal, oil or natural gas, which normally are extracted from the ground.

The value of a person's ownership of or interest in mineral rights is a resource.

• A person's mineral rights do not affect his eligibility if his equity in them does not exceed $6,000 and he receives a net annual rate of return of at least 6% of the equity value. See Section F-4310, Nonbusiness Property – $6000/6%.
• Ownership of mineral rights may or may not be associated with ownership of land. Surface rights are ownership interests in the exterior or upper boundary of land. Ownership in one does not automatically indicate ownership in the other.
• If the person owns the land to which the mineral rights pertain, the value of the land can be assumed to include the value of the mineral rights. Additional development is unnecessary.

In many instances, owners of mineral interests may lease their rights to an oil or mining company for exploration and development. Terms of leases may vary from one to five years or more, although five is most common. Besides a yearly rental fee for each acre, it is customary for a company to pay a one-time bonus to an individual for signing the lease. The specific amounts are stated in the lease agreements. If minerals are produced from the property, the company may suspend yearly rental payments.

Although under lease, the owner may sell his mineral rights at any time. Their value is based on the probability of oil, gas or minerals being present if the land is not in production. If minerals are being produced, value is decided by the size of the interest, length of time the minerals have been produced, quality of the product (oil or gas) being produced and many other factors.

Determine the person's ownership share of the mineral rights and the equity value.

Reference: If the mineral rights cannot be excluded under the $6,000/6% rule, count the individual's equity together with his other countable resources.

See Appendix XVI, Documentation and Verification Guide.

F-4214 Burial Spaces

Revision 17-4; Effective December 1, 2017

A burial space, or an agreement that represents the purchase of a burial space held for the burial of the person, the person’s spouse or any other member of the person’s immediate family, is an excluded resource, regardless of value. The person or a family member whose resources are deemed to the person must own the burial space or purchase agreement.

Burial Space — A burial space is a burial cemetery plot, gravesite, crypt or mausoleum.

Burial space items are a casket, urn, niche or other repository customarily and traditionally used for the deceased's bodily remains. The term also includes necessary and reasonable improvements or additions to these spaces, including but not limited to: vaults, headstones, markers or plaques; burial containers (for example, liners or concrete liners for caskets); arrangements for the opening and closing of the gravesite and contracts for care and maintenance of the gravesite. Contracts for care and maintenance are sometimes referred to as endowment or perpetual care.

For items that serve the same purpose, exclude only one per person. For example, a cemetery plot and a casket for the same person can be excluded, but not a casket and an urn.

Immediate family includes the person's spouse, minor and adult children, stepchildren, adopted children, brothers, sisters, parents, adoptive parents and the spouses of those individuals. It does not include grandchildren or the immediate family of the person’s spouse.

If a person owns a burial space that is not excludable, count the equity value of the space as a resource.

Until the purchase price is paid in full, a burial space is not "held for" a person under an installment sales contract or similar device if the:

• person does not currently own the space;
• person does not currently have the right to use the space; and
• seller is not currently obligated to provide the space.

Until the contract is paid in full, the amount already paid is considered as burial funds.

Accumulated interest earned on the value of a burial space agreement is excluded from income and resources.

See Appendix XVI, Documentation and Verification Guide.

Exclude all burial cemetery plots that are fully paid, regardless of designation. However, if the individual acknowledges that the cemetery plots are purchased as an investment, count the equity value.

Ownership of a burial cemetery plot in another state does not affect residency requirements or excludability.

F-4215 Nonliquid Resources Located Outside the State

Revision 09-4; Effective December 1, 2009

If a person owns or has an interest in property outside the state, equity in that property is a resource if it is available to him. The exclusion provision for a person's home does not apply when the home property is located outside the state.

Reference: See Section F-3000, Home, and Section F-4211, Real Property in Excess of the Limit.

Determine the type of property and its location. Also determine ownership and availability, current market value and equity value. If legal questions about the availability of the person's property or other states' property laws occur, consult the regional attorney.

Follow this handbook's verification and documentation procedures for the particular resource owned by the person.

F-4220 Personal Property

Revision 09-4; Effective December 1, 2009

The following items cover nonliquid resources other than real property.

F-4221 Automobile

Revision 15-4; Effective December 1, 2015

As used in this section, the term automobile includes, in addition to passenger cars, other automobiles used to provide necessary transportation.

Document the year, make and model of all automobiles.

Exclude one automobile, regardless of value.

Exclude a second automobile when the household is made up of more than one individual and:

• the additional member of the household requires an additional automobile for transportation to and from work because the original individual needs one automobile for medical use at all times; or
• the additional member of the household requires a vehicle modified for someone with a disability for transportation, and the automobile is specially equipped for that additional household member.

For all other automobiles, use the current market value. If the applicant/person still owes on the automobile, consider the current market value and equity value. If the equity value is less than the market value, document the formula used to determine the countable value. Indicate the source used to verify the current market value and equity value.

Verify the market value of an automobile in any of the following situations:

• The applicant's/person's statement is not reasonable.
• The applicant/person owns more than one automobile.

Sources for verifying the value of an automobile include:

• Kelley Blue Book or NADA guidebook (trade-in wholesale value),
• Hearst Corporation Black Book,
• statement from an automobile dealer,
• newspaper ads, or
• a source knowledgeable about antique automobiles. (In the Texas Integrated Eligibility Redesign System [TIERS], use "other acceptable" and document in case comments.)

Note: If the automobile is being declared as "junk" (not running or fixable), a $0 default value may be assigned.

For additional information about automobiles, see Appendix XVI, Documentation and Verification Guide.

Examples:

• A person and the person's ineligible spouse owned an automobile that had a current market value of $5,800. They still owed $2,000 toward the total price. The eligibility specialist did not count the automobile as a resource. (The equity value is irrelevant for the first automobile.)
• The person's spouse later obtained a job and purchased a second automobile. The eligibility specialist reviewed the person's case. It was discovered that a family member stays with the person while the spouse works. The family member used the first automobile to transport the person to the doctor and to therapy. The spouse was using the second automobile for transportation to and from the job. The eligibility specialist excluded the total value of the second automobile since the spouse used it to go back and forth to work and the first automobile was being used to take the person for medical treatment at the same time.
• The following year, the spouse encountered mechanical difficulties with the second automobile and decided to buy another used automobile that was in better condition for $6,000. No automobiles were traded in as part of the purchase. The spouse made a down payment of $400 on the third automobile and made two monthly payments of $200 each.

The eligibility specialist reviewed the case and excluded the first automobile. The eligibility specialist excluded the third automobile because the spouse was using the automobile for transportation to and from work.

The eligibility specialist will need to develop the current equity value of the second automobile that has mechanical difficulties to determine the countable resource value for this non-excluded automobile.

F-4222 Household Goods and Personal Effects

Revision 12-4; Effective December 1, 2012

Do not count household goods as a resource to an individual (and spouse, if any) if they are:

• items of personal property, found in or near the home, that are used on a regular basis; or
• items needed by the householder for maintenance, use and occupancy of the premises as a home.

Such items include, but are not limited to, furniture, appliances, electronic equipment such as personal computers and television sets, carpets, cooking and eating utensils, and dishes.

Do not count personal effects as resources to an individual (and spouse, if any) if they are:

• items of personal property ordinarily worn or carried by the individual;
• items having an intimate relation to the individual;
• items of cultural or religious significance to the individual; or
• items required because of the individual's impairment.

Such items include, but are not limited to, personal jewelry (including wedding and engagement rings), personal care items, prosthetic devices, and educational or recreational items such as books or musical instruments.

Do count items that were acquired or are held for their value or as an investment These items are:

• countable resources (unless excluded under a different resource exclusion);
• not considered a household good or personal effect for the purposes of this exclusion; and
• treated as other personal property.

See F-4222.1, Other Personal Property, for more information.

F-4222.1 Other Personal Property

Revision 12-4; Effective December 1, 2012

Items that were acquired or held for their value or as investments are considered other personal property and are countable resources unless excluded under normal resource exclusions.

Other personal property can include, but is not limited to gems, animals purchased for breeding, re-sale or investment, or collectibles such as coin, stamp or doll collections.

Example: A coin collection is considered other personal property (nonliquid personal property) and the countable resource amount is based on the collector's value. The individual coins in the collection are not liquid resources based on their face value.

Other personal property may be contained in a safe deposit box. If the person's application shows that he has a safe deposit box, question him about its contents.

The following information must be included in the case record documentation:

• description of property and person's estimate of value;
• reason for exclusion, if excludable; and
• equity value and source of verification, if not excludable.

To develop the value of other personal property, obtain the market value of the items and determine whether the person has clear ownership. If any encumbrances exist, such as payments due, deduct the unpaid portions to arrive at the equity value of the items.

Sources for verifying the value of other personal property are:

• retailers;
• antique dealers;
• collectors (for example, stamp or coin collectors/dealers); and
• newspaper ads.

Sources for verifying a person's equity value in other personal property are:

• copy of the purchase contract;
• statement from the creditor showing the amount paid for an item and the amount still due; and
• payment schedule.

F-4223 Life Insurance

Revision 12-3; Effective September 1, 2012

Reference: See also Section F-4170, Burial Contracts Funded by Life Insurance.

If the total face value of life insurance policies owned by a person (or spouse, if any) is $1,500 or less per person, HHSC does not consider as a resource the value of the life insurance.

If the total face value of all life insurance policies owned by a person, eligible spouse or ineligible spouse whose resources are deemed to the person are more than $1,500 per insured person, the cash surrender values of the policies are resources.

This also includes policies owned on other individuals. HHSC does not include dividend additions with the face value of a life insurance policy to determine if the policy is excluded as a resource. A life insurance policy is a resource available only to the owner of the policy, regardless of whom it insures.

The following terms are used in connection with life insurance policies: The insured is the individual upon whose life a whole life or straight life policy is affected.

• The beneficiary is the individual (or entity) named in the contract to receive the proceeds of the policy upon the death of the insured.
• The owner is the individual with the right to change the policy as he may see fit. The owner is the only individual who can receive the cash surrender amount of the policy.
• The insurer-assurer is the company that contracts with the owner.
• The face value amount is the basic death benefit or maturity amount, which is specified on the policy's face. The face value does not include dividends, additional amounts payable because of accidental death or other special provisions.
• The cash surrender value is the amount that the insurer pays if the policy is cancelled before death or before it has matured. The cash surrender value usually increases with the age of the policy.
• A participating life insurance policy is one in which dividends are distributed to the policy holder.
• A nonparticipating life insurance policy means that dividends are not distributed to the policy holders.
• Default is the failure to pay the insurance premiums. There may be conditions in the policy relating to default.
• Ordinary life insurance (also known as whole life or straight life) is a contract for which the owner pays premiums and the insurer pays the face amount of the policy to the beneficiary upon the death of the insured.
• An individual policy is a policy that is paid for entirely by the owner.
• A group policy is usually issued through an employer or organization. The premiums may include some contribution from the employer. Group insurance is usually term insurance.
• Dividends are shares of surplus funds allocated to the policy holders of participating insurance policies. They generally represent a previous overpayment of premiums. Dividends may be received as cash payments; used to reduce future premium payments; applied to the existing insurance to increase coverage; or left as a separate accumulation of funds that draw interest.

Note: Ownership of a life insurance policy can be transferred or assigned to a funeral home without a transfer penalty if a prearranged contract provides burial services to the person. If a prearranged contract does not exist at the time of transfer, consider the cash value as a transfer of assets and explore a transfer penalty. See Chapter I, Transfer of Assets.

F-4223.1 Policy and Procedure

Revision 15-4; Effective December 1, 2015

A life insurance policy is a resource if it generates a cash surrender value (CSV). The life insurance contract’s value as a resource is the amount of the CSV. In this case, the term contract refers to an insurance policy. An insurance policy is considered to be a contract between the insurance company and the policyholder.

Ordinary life insurance (also known as whole life or straight life) has a CSV usually after the second year. The policy is flexible in premium payments if the dividends are used to pay off the contract at an earlier date, or the premium payment period can be limited to suit the financial resources of the insured. In a situation of this type, the policy is a limited payment life insurance policy.

This resource has a limited exclusion. A life insurance policy is an excluded resource if its face value (FV) and the FV of any other life insurance policies the person owns on the same insured person total $1,500 or less. The family relationship between the person who owns the policy and the insured does not affect this exclusion.

FV is the amount of basic death benefit contracted for at the time the policy is purchased. The face page of the policy may show it as such, or as the:

• amount of insurance,
• amount of this policy,
• sum insured, etc.

A policy's FV does not include:

• the FV of any dividend addition, which is added after the policy is issued (see Section 4224.1, Dividend Additions and Accumulations);
• additional sums payable in the event of accidental death or because of other special provisions; or
• the amount(s) of term insurance, when a policy provides whole life coverage for one family member and term coverage for the other(s).

In determining whether the total FV of the life insurance policies a person owns on a given insured person is $1,500 or less, the FV of the following are not taken into account:

• burial insurance policies, and
• term insurance policies that do not generate a CSV.

Do not include the FV of dividend additions in determining whether a policy is a countable or excludable resource. If the policy is a countable resource, include the CSV of dividend additions in determining the resource value of the policy.

Example: A person and his spouse each own a $1,500 whole life policy. The person also owns a $1,000 policy on each of his three children and a nephew. Although the total FV of the insurance owned by the person exceeds $1,500, none of the cash value is countable because the FV per insured individual does not exceed $1,500.

Relation to Burial Fund Exclusion — The maximum of $1,500 that can be excluded and set aside for the burial fund expenses of the person must be reduced by the FV of:

• any excluded insurance policy covering the life of the person (or spouse, if applicable) that is excluded under this provision; and
• any amount held in an irrevocable trust, burial contract or other irrevocable arrangement for the individual's (or spouse's) burial expenses, except to the extent that it represents excludable burial spaces.

This includes the FV of a life insurance policy for which a funeral provider has been made the irrevocable beneficiary, if the policy owner has irrevocably waived his or her right to, and cannot obtain, any CSV that the policy may generate. The burial fund exclusion is based on family relationship. The maximum of $1,500 that can be excluded as set aside for burial expenses is only allowed for the recipient and the recipient’s spouse unless deeming of assets is involved. See Section F-4227, Burial Funds, for more details on the burial fund exclusion.

F-4223.2 Documentation and Verification

Revision 09-4; Effective December 1, 2009

The following information must be included in the case record documentation:

• name of insurance company, policy number and face value(s);
• type of insurance coverage (whole, term or burial insurance); and
• source of verification.

Sources of verification include:

• copy of policy;
• letter from insurance company or organization, as appropriate;
• completed Form H1238, Verification of Insurance Policies; and
• documented telephone contact with representative of issuing company or organization.

If a person owns any life insurance policies, determine the:

• FV of each policy,
• type of insurance,
• insured per policy, and
• cash surrender value if not excluded.

Verify with the insurance company whether there is a policy in force if the person reports any whole life insurance policies that are now lapsed due to non-payment.

To determine the approximate cash value of a whole life policy, use the table of values on all whole life insurance policies.

Obtain the actual cash surrender value from the insurance company when:

• the person cannot provide a copy of the insurance policy;
• the person's total resources, including the approximate cash value of whole life insurance policies, is approaching maximum resource limits. Request cash value as of 12:01 a.m. first day of the month;
• prior to denial of assistance because of excess resources; and
• the person reports any outstanding loans against the policy.

To verify the actual cash surrender value, send Form H1238 and Form H0003, Agreement to Release Your Facts, to the insurance company or contact the insurance company by telephone and follow up with these forms.

Determine if a policy is paying dividends to the insured by looking for the words participating or non-participating on the document. If unable to locate these identifying words, send a letter to the insurance company.

If a policy is non-participating and verification substantiates an exclusion of the policy, no further verification is necessary.

If a policy is participating, obtain the following information from the insurance company:

• how dividends are paid,
• the amount of dividends paid, and
• how often the dividends are paid.

If a person has a participating policy, determine whether dividends are used to:

• purchase additional insurance,
• increase the value of existing insurance policy coverage,
• apply toward the payment of premiums, or
• pay cash to the policyholders.

If the dividends are left to accumulate, treat them as a savings account. The dividends are not considered as part of the cash value. The person can withdraw them without touching the cash value.

Note: Separate accumulation of funds that draw interest. These funds are always a countable resource, even if the face value is less than $1,500. These funds may be designated for burial.

See Appendix XVI, Documentation and Verification Guide.

F-4224 Life Insurance Dividends

Revision 10-1; Effective March 1, 2010

Periodically (annually, as a rule), the life insurance company may pay a share of any surplus company earnings to the policy owner as a dividend. Depending on the life insurance company and type of policy involved, dividends can be applied to premiums due or paid by check or by an addition or accumulation to an existing policy. When dividends are used to increase cash value (CV) but they do not increase face value (FV) of the policy, exclude the dividends if the FV of all whole life polices per individual is no greater than $1,500 and count the cash surrender values of the policies as resources if the FV of all whole life policies per insured person is greater than $1,500.

See Appendix XXXV, Treatment of Insurance Dividends.

F-4224.1 Dividend Additions and Accumulations

Revision 09-4; Effective December 1, 2009

Additions — Dividend additions are amounts of insurance purchased with dividends and added to the policy, increasing its death benefit and cash surrender value (CSV). The table of CSVs that comes with a policy does not reflect the added CSV of any dividend additions.

Do not include the face value (FV) of dividend additions in determining whether a policy is a countable or excluded resource. If the policy is:

• a countable resource, include the CSV of dividend additions in determining the resource value of the policy.
• an excluded resource, do not include the CSV of dividend additions in determining the individual's countable resources.

Accumulations — Dividend accumulations are dividends that the policy owner has constructively received but left in the custody of the life insurance company to accumulate interest, like money in a bank account. They are not a value of the policy, but the owner can obtain them at any time without affecting the policy's FV or CSV.

Dividend accumulations cannot be excluded from resources under the life insurance exclusion, even if the policy that pays the accumulations is excluded from resources.

Unless dividend accumulations can be excluded under another provision (for example, as set aside for burial under the burial fund exclusion), they are a countable resource.

Do not exclude dividend accumulations under the life insurance provision, even if the policy that pays the accumulations is excluded. Unless the accumulations are excludable under another provision (for example, because they have been set aside for burial), count the accumulations as resources, even if the policy itself is excluded because the policy's FV is $1,500 or less.

F-4225 Accelerated Life Insurance Payments

Revision 09-4; Effective December 1, 2009

Other insurance issues can occur, such as accelerated life insurance payments.

Accelerated life insurance payments are proceeds paid to a policyholder before death. Although accelerated payment plans vary from company to company, all of the plans involve early payout of some or all of the proceeds of the policy. Most accelerated payment plans fall into three basic types, depending on the circumstances that cause or “trigger” the payments to be accelerated. These are the:

• long-term care model, which allows policyholders to access their death benefits should they require extended confinement in a care facility or, in some instances, health care services at home;
• dread disease or catastrophic illness model, which allows policyholders to access their death benefits if they contract or acquire one of a number of specified covered conditions; and
• terminal illness model, which allows policyholders to access their death benefits following a diagnosis of terminal illness where death is likely to occur within a specified number of months.

Some companies refer to these types of payments as “living needs” or “accelerated death” payments.

Depending on the type of accelerated payment plan, receipt of accelerated payments may reduce the policy's face value (FV) by the amount of the payments and may reduce the cash surrender value (CSV) in a manner proportionate to the reduction in FV. In some cases, a lien may be attached to the policy in the amount of the accelerated payments and a proportionate reduction in CSV results. Since accelerated payments can be used to meet food or shelter needs, the payments are income in the month received and a resource if retained into the following month and not otherwise excludable. The receipt of an accelerated payment is not treated as a conversion of a resource for Medicaid purposes. This is because, under an accelerated arrangement, a person receives proceeds from the policy, not the policy's resource value, which is its CSV.

F-4225.1 Life Settlement

Revision 14-3; Effective September 1, 2014

A life settlement allows an individual to sell a life insurance policy for a lump-sum payment that is less than the expected death benefit but more than the available cash value. The Texas Department of Insurance regulates life settlements. An individual may place proceeds from a life settlement contract into an irrevocable life settlement account. The irrevocable life settlement account can be designated to pay for the individual’s long-term services and supports (LTSS), including, but not limited to, home health, assisted living and nursing home services.

A life settlement contract is an agreement between the owner of a life insurance policy and the life settlement provider or investor that is purchasing the life insurance policy.

A life settlement account is a bank account established with proceeds from a life settlement contract, which can be used to pay for the individual's long-term care services.

In order to be excluded for eligibility purposes, a life settlement contract must:

• direct the proceeds from the transaction into an irrevocable, state or federally insured account;
• specify that the proceeds be used for payment of LTSS expenses;
• specify the total amount payable for LTSS expenses; and
• indicate the amount of the reserved death benefit and the irrevocable beneficiary.

In order to be excluded for eligibility purposes, a life settlement account must:

• be irrevocable,
• be state or federally insured,
• allow payments for LTSS and/or medical expenses, and
• indicate the total amount payable for LTSS expenses.

If a life settlement account does not meet all of the above requirements:

• consider the proceeds from the transaction a countable resource; or
• if the proceeds are no longer accessible to the individual, explore transfer of assets.

Note: Consider any payments made from the life settlement account, such as bank fees, legal fees or other administrative costs, as income to the individual in the month the payment is made.

F-4226 Term and Burial Insurance

Revision 10-1; Effective March 1, 2010

Term insurance and burial insurance are not resources.

Burial insurance is a form of term insurance. By its terms, burial insurance can only be used to pay the burial expenses of the insured.

Term insurance is a contract of temporary protection. The insured pays relatively small premiums for a limited number of years, and the company agrees to pay the face amount of the policy only if the insured dies within the time specified in the policy. It has no cash surrender value.

If a term insurance policy has been purchased by a life insurance company and premiums are used to purchase separate whole life coverage, the whole life coverage is subject to the policy as described in Section F-4223, Life Insurance.

If the term insurance policy is a participating life insurance policy, any dividend accumulation at interest is a countable resource.

Appendix XXXV, Treatment of Insurance Dividends, indicates that dividends are used to purchase term insurance; disregard the dividends as income or a resource.

F-4226.1 Policy and Procedure

Revision 09-4; Effective December 1, 2009

Term Life Insurance — Life insurance with no cash or loan value or no potential for cash or loan value. The term life insurance policy is for temporary protection. The insured pays relatively small premiums for a limited number of years and the company agrees to pay the face amount of the policy only if the insured dies within the time specified in the policy. Term life insurance with HHSC while employed is an example of this type of life insurance. Some companies sell term insurance with the premiums to be paid for the insured's whole lifetime. If Form H1238, Verification of Insurance Policies, indicates that there is no potential for cash value and the Form H1238 indicates whole life, contact with the company will be needed to clarify this discrepancy.

Burial Insurance — A form of term insurance. By the terms of the burial insurance policy, burial insurance can only be used to pay the burial expenses of the insured.

The dividend accumulation is a countable resource, like the balance of a savings account.

The interest accrued on the dividends would be excluded from income when paid. Interest left to accumulate becomes part of the countable resource.

The following information must be included in the case record documentation:

• name of insurance company, policy number and face value(s);
• type of insurance coverage (that is, term or burial insurance); and
• source of verification.

Sources of verification include:

• copy of policy;
• letter from insurance company or organization, as appropriate;
• completed Form H1238; and
• documented telephone contact with representative of issuing company or organization.

F-4227 Burial Funds

Revision 13-4; Effective December 1, 2013

HHSC excludes up to $1,500 per person for funds that have been set aside and designated for the burial expenses of:

• an applicant or recipient;
• an applicant's or recipient's eligible or ineligible spouse; or
• the parent or parent's spouse when resources are deemed to a minor child (see Section F-1420, Deeming for Children).

Reductions in Maximum Exclusion

The burial fund exclusion allows a person to designate up to $1,500 of various kinds of resources as burial funds. The burial fund exclusion works in conjunction with the life insurance exclusion described in Section F-4223, Life Insurance, because the $1,500 set aside for burial must be reduced by the face value (FV) of:

• any life insurance policy that is already being excluded by the life insurance exclusion (see Section F-4223);
• any burial insurance policy for the burial expenses of the individual (see Section F-4226, Term and Burial Insurance);
• any amount held in an irrevocable trust, burial contract or other irrevocable arrangement for the individual's burial expenses, except to the extent that it represents excludable burial spaces (see Section F-4160, Prepaid Burial Contracts); or
• any life insurance policy for which a funeral provider has been made the irrevocable beneficiary, if the life insurance policy owner has irrevocably waived his right to, and cannot obtain, any cash surrender value (CSV) the life insurance policy may generate (see Section F-4170, Burial Contracts Funded by Life Insurance, and Section F-4172, Irrevocable Assignment).

To be excluded, the person's funds must be:

• liquid resources (see below),
• separately identifiable and not combined with other funds, and
• specifically designated for burial expenses.

How a Designation May Be Made

Burial funds may be designated as such by:

• an indication on the burial fund document (for example, the title on a bank account); or
• a signed statement.

Signed Statement Designating Burial Funds

A signed statement designating resources as set aside for burial must show the:

• value and owner of the resources;
• person for whose burial the resources are set aside;
• form(s) in which the resources are held (for example, burial contract, bank account, etc.); and
• date the individual first considered the funds set aside for the burial of the person specified.

Use Form H1252, Designation of Burial Funds, for resources owned by the applicant, recipient or spouse (or parent in a minor child deeming budget) for a signed statement of designation.

Date of Intent

Accept the person's allegation as to the date the person first considered the funds set aside for burial (even prior to application) unless there is evidence that the funds were used and replaced after that date.

Effective Date of Exclusion

Once the date that burial funds were considered set aside for burial has been established, the first month for which the exclusion affects the first-of-the-month resources determination is the latest of:

• the month following the month in which the funds were considered to have been set aside, subject to the rules of administrative finality; or
• the actual or effective month of filing if the funds were considered set aside before that month.

Note: The "separately identifiable" criteria above must be met before burial funds can be excluded. If the requirement is not met as of 12:01 a.m. on the first day of the "test" month, the exclusion cannot apply until the following month, even if the funds were considered as set aside for burial prior to the "test" month (see Section F-4227.3, Effective Date of Designation).

Designating Life Insurance as a Burial Fund

When designating a countable life insurance policy as a burial fund, the individual typically designates the policy itself rather than the CSV. This is the case because the CSV of a policy is payable only during the lifetime of the individual and thus cannot be used to bury the individual. However, since the CSV is the current resource value of the policy, it is the CSV which is applied toward the burial fund limit when determining countable resources.

When designating life insurance as a burial fund, the individual can also designate any dividend accumulations on the life insurance policy (see Section F-4224.1, Dividend Additions and Accumulations) as a burial fund. Dividend accumulations are a separate resource (that is, not considered as an increase in the value of the CSV) and must be designated as burial funds separate from the life insurance policy itself.

Note: A verbal designation is acceptable when the applicant/recipient or authorized representative is designating life insurance insuring the applicant/recipient (or spouse) and the case is due. A follow-up with a written statement from the recipient/authorized representative is required to continue the burial fund designation. The case also must reflect a special review to follow up for the written statement of designation.

Written documentation of the verbal statement from the applicant/recipient or authorized representative must contain the same information requested on Form H1252 for life insurance designation and must be in the case record documentation.

Burial Funds

Burial funds are:

• revocable burial contracts;
• revocable burial trusts;
• other revocable burial arrangements (including the value of certain installment sales contracts for burial spaces);
• cash;
• financial accounts (for example, savings or checking accounts); or
• other financial instruments with a definite cash value (for example, stocks, bonds, certificates of deposit and life insurance, including the cash value of life insurance the person owns on someone else).

These funds must be clearly designated for the person's or spouse's burial, cremation or other burial-related expenses. Property other than that listed in this section is not considered burial funds and may not be excluded under the burial funds provision. For example, a car, real property, livestock, etc., are not burial funds.

Expenses for Burial Funds Exclusion Purposes

Expenses Included — Generally, expenses related to preparing a body for burial and any services prior to burial. Examples: transportation of the body, embalming, cremation, flowers, clothing, services of the funeral director and staff, etc.

Expenses Not Included — Usually, expenses for items used for interment of the deceased's remains. Such items may be subject to the burial space exclusion (see Section F-4214, Burial Spaces). However, items that do not qualify for the burial space exclusion (for example, a space being purchased by installment contract) may be excluded under the burial fund exclusion.

Originally Designated Amount

The originally designated amount of a burial fund is the amount set aside for burial, including excluded and non-excluded funds, but exclusive of interest and appreciation at the time of the most recent designation. Any amount can be designated for burial, but only the amount established in Section F-4228, Burial Fund Calculation, Step 3, can be excluded.

Note: The person or his authorized representative meets requirements for excluding burial funds by:

• including a specific statement about the designation on a financial institution's records or on other ownership documents, or
• providing a written statement (or Form H1252) that the resource is designated for burial expenses. The person or his authorized representative must include in this statement the following information:
  • Type of resource set aside and designated
  • Name of the financial institution or company
  • Account or policy number
  • Amount of money in or value of the resource
  • Effective date of designation

Use Form H1276, Burial Fund Designation Worksheet, which provides a step-by-step worksheet for calculating the amount of excluded burial funds.

F-4227.1 Calculation of Available Burial Fund Exclusion

Revision 10-4; Effective December 1, 2010

From the $1,500-per person (for the person, spouse or deemor) allowance for burial fund exclusions:

1. deduct irrevocable arrangements owned by the person or someone else (for the person, spouse or deemor). This includes a revocable/irrevocable burial contract for the person's burial purchased by someone other than the person, including the spouse after the initial eligibility period in spousal cases (see Section F-4160, Prepaid Burial Contracts, Section F-4170, Burial Contracts Funded by Life Insurance, and Section F-4172, Irrevocable Assignment);
   
   Note: Burial insurance policies, generally ranging from $100 to $200, were issued by some funeral homes before 1965. These policies are not countable resources. However, they are considered irrevocable burial arrangements, which reduce the $1,500 maximum burial fund exclusion. If the policies have been purchased by life insurance companies and converted to term life insurance, they are treated as any other term life policy (see Section F-4226, Term and Burial Insurance).
2. deduct the face value of excluded life insurance on the individual (see Section F-4223, Life Insurance); and
3. use the remaining amount to reduce the countable amount of any liquid resource (see Section F-4100, Types of Liquid Resources) designated by the person (see Section F-4227.2, Opportunity to Designate).

Note: If the amount of the burial exclusion reduces the total countable resource amount below the resource limit, the person is resource eligible. If the amount of the exclusion is insufficient, the person is not eligible. If joint funds are being designated for more than one individual, calculate each individual's designation separately. For example, a couple with a $1,000 joint savings account could designate $500 for each spouse or $750 for one spouse and $250 for the other. Their statement of designation or Form H1252, Designation of Burial Funds, must be specific.

An exclusion of burial funds does not continue from one period of eligibility to another across a period of ineligibility. If a person reapplies after he has been denied, and there is a break in coverage, HHSC applies the burial fund exclusion as if it had never existed before. The exclusion is subject to the $1,500 maximum and the provisions of this item.

If a person designates a whole life policy (or policies) for burial expenses, he must designate the total cash value of each policy.

If an ineligible spouse/parent has designated funds for burial and then applies for benefits, it is not necessary to redesignate fund for burial.

F-4227.2 Opportunity to Designate

Revision 09-4; Effective December 1, 2009

If a person's resources exceed program limits, HHSC does not deny the case before determining if excess resources can be designated as burial funds and allowing the person the opportunity to do so. Use Form H1277, Notice of Opportunity to Designate Funds for Burial. A person may designate funds for burial at any time, not just at the point of ineligibility.

F-4227.3 Effective Date of Designation

Revision 10-3; Effective September 1, 2010

HHSC accepts the person's statement about the date he considered the funds set aside for burial, unless there is evidence of tampering. The effective date of designation can be retroactive to the month of application, or prior months, if all criteria for designation are met at that time. Once designated, the funds remain burial funds until eligibility terminates or until the funds are tampered with.

When an ineligible spouse/parent has designated funds for burial and then applies for benefits, the following applies:

• If resources have been deemed to the person from the ineligible spouse/parent, HHSC uses the value of the designated burial funds as of the original designation date.
• If resources have not been deemed to the person from the ineligible spouse/parent, HHSC uses the value of the designated burial fund as of the ineligible spouse's/parent's medical effective date (MED).

In spousal cases:

• If the ineligible spouse applies during the initial eligibility period, HHSC uses the value of the designated burial fund as of the original designation date.
• If the ineligible spouse applies after the initial eligibility period, HHSC uses the value of the designated burial fund as of the ineligible spouse's MED.

Notes:

• The 12:01 a.m. rule applies to the assessment of all resources. Use the value of the designated burial funds as of 12:01 a.m. for the month of the medical effective date in the calculation.
• The burial fund exclusion is only allowable for the person, the person's spouse (eligible or ineligible) or the parents of the person when the person is a minor child and deeming occurs.
• The burial fund exclusion is not allowed for the person's minor or adult children or any other individual. If the person purchases an asset that is a burial fund for a minor child or an adult child who is not disabled, treat as a transfer of assets. Deduct the value of the burial space items before calculating the penalty. If the person's child meets Social Security Administration disability criteria, regardless of age, treat as an exception to transfer.

F-4228 Burial Fund Calculation

Revision 10-4; Effective December 1, 2010

Procedure

Based on policy in Section F-4227, Burial Funds, Section F-4227.1, Calculation of Available Burial Fund Exclusion, Section F-4227.2, Opportunity to Designate, and Section F-4227.3, Effective Date of Designation, use the following for determination of the burial fund calculation.

Examples:

• As of 12:01 a.m. on January 1 of this year, Carol Caswell owned the following resources:
  
  $2,200 – Savings account
  $1,200 – Cash value of a whole life insurance policy with a face value of $1,700
• The full $1,500 burial fund designation exclusion was available for designation.
• Ms. Caswell designated the cash value of the life insurance policy for burial effective 12:01 a.m. on January 1 of this year, but did not wish to designate the total savings account for burial. Therefore, she was ineligible January of this year.
• On January 1 of this year, Ms. Caswell withdrew $500 from her savings account and deposited the $500 into another savings account designated for burial. She provided a statement on Form H1252, Designation of Burial Funds, indicating that this account was designated for burial effective January 25 of this year. Funds that were not separately identifiable on the date of application but are subsequently separated and designated for burial are excluded effective at 12:01 a.m. of the first day of the following month.

• The person has two life insurance policies with a total face value of $7,000 and total cash value of $1,100. The person also has an irrevocable, fully-paid burial arrangement which is owned by the community spouse. The face value is $3,770, which reduces the $1,500 burial fund designation dollar for dollar. Therefore, the $1,100 cash value of the life insurance is a countable resource.

F-4229 Annual Burial Fund Calculation

Revision 09-4; Effective December 1, 2009

HHSC excludes from income and resource determinations interest that accumulates and becomes a part of excludable burial funds or appreciation in the value of an excludable burial fund. Interest/appreciation on excluded burial funds is not included in determining if the $1,500-maximum has been reached. Also excluded is the increased cash value of life insurance policies excluded under this policy, but payments made on a prepaid burial contact that increases the value of the contract are not excluded as appreciation.

F-4229.1 Designated Amount is Less Than $1,500

Revision 09-4; Effective December 1, 2009

Example: The person became eligible in May 1988 with an original balance of $1,000 in the excluded burial fund account. The current balance is $1,166.40 in the designated savings account. The person now wants to increase the excludable burial fund balance by adding more money to this account. The person is not covered by any irrevocable trust and does not have any excluded whole life insurance. The person can add $500 to the burial fund without affecting resources. The $166.40 should be excluded as a resource. Any interest earned on this burial fund account is excluded.

F-4229.2 Designated Amount Exceeds $1,500

Revision 10-3; Effective September 1, 2010

If a designated resource exceeded $1,500 at the initial designation and that resource has increased in value at the next annual review from accrued interest, dividends or inflation, calculate the countable amount of the burial fund as follows:

1. Determine the percentage of total funds that were countable at the prior designation by dividing the countable amount of the designated resource by the total value of the designated resource.
2. Apply that percentage to the current total value of the designated resource. If a decimal number is used rather than a percent, take the decimal to three places. For example, 25.5 percent would be .255 in a decimal number.

At the next annual review (if designated funds increase in value again), multiply the total value at the review by the percent determined at the initial designation. The percentage used at each review remains the same unless major changes, such as tampering to the fund, occur.

Example: At the initial application, the person designated a $2,000 savings account for burial:

$500 ÷ $2,000 = 25% countable of the designated resource

At the annual review the following year:

Twenty-five percent of the total interest earned is considered for income in the eligibility and co-payment budgets.

At the annual review the following year:

Twenty-five percent of the total interest earned is considered for income in the eligibility and co-payment budgets.

F-4229.3 Increased Value from Person Action

Revision 09-4; Effective December 1, 2009

If the value of a resource previously excluded under burial designation fund exclusion was less than or equal to the allowable $1,500 at the time of designation, and the amount designated increased because of person action, such as additional payments, the increased amount which exceeds $1,500 is a countable resource.

If the amount designated exceeded $1,500 and increased in value due to person action, such as making monthly payments on a prepaid burial contract, the amount in excess of $1,500 is a countable resource.

F-4229.4 Increased Value from Person Action and Interest/Dividends

Revision 09-4; Effective December 1, 2009

HHSC excludes from income and resource determinations interest that accumulates and becomes part of excludable burial funds.

If the amount designated for burial funds increased to over $1,500 because of person action plus accrued interest, dividends or inflation, HHSC must first determine the date of the additional payment and the date interest or dividends were paid.

If the person made the additional payment before the interest was paid, determine the countable amount using the following steps:

1. Add the amount of the additional payment to the amount that was countable at the prior designation.
2. Divide this total by the value of the designated account after the additional payment was made (before the interest was paid). This yields the percentage of the fund that is now countable.
3. Multiply the current value of the designated fund (including interest) by the percentage from #2. This yields the countable value of the fund.

At the next review, if additional payments are made before interest is paid, the percentage changes again. Therefore, repeat the steps.

Example: At the initial application, Bill Brooks designated a $2,000 savings account for his burial. $1,500 (or 75.0%) was excluded and $500 (or 25.0%) was countable.

At the annual review, the savings account record shows:

Determine the countable value using the following steps:

Step 1.

Step 2.

$600 + $2,100 (value after payment, but before interest) = .286 or 28.6%

Step 3.

If the person made the additional payment after the interest was paid:

1. Multiply the value of the resource after interest paid (before additional deposits) by the percent counted as determined at the previous designation. This yields the countable portion of the resource before the additional payments.
2. Add to the above figure the amount of the additional payments. The sum is the total countable resource value of the fund. Divide the countable amount by the total amount of the fund to determine the percentage to carry over to the next review.

At the next review, if additional payments are made after interest was paid, repeat the steps.

Example: At the initial application, Tom Taylor designated a $2,000 savings account for his burial. $1,500 (or 75.0%) was excluded and $500 (or 25.0%) was countable.

At the annual review, the savings account record shows the following:

The eligibility specialist determined the countable value using the following steps:

Step 1:

Step 2.

Step 3.

F-4230 Treatment of Burial Fund Tampering

Revision 09-4; Effective December 1, 2009

If a person designates funds for burial, he is establishing that the funds will not be used for any other purpose. Therefore, if the designated funds are used for purposes other than the person's burial, they are really not designated for burial. The asset becomes a countable resource as of 12:01 a.m. of the first day of the month following the month the funds were used for other purposes.

HHSC does not consider that a person tampered with burial funds if he:

• adds funds to a resource that is designated for burial, or
• converts the total amount in a designated burial fund to another designated burial fund (for example, the person uses a savings account designated for burial expenses to purchase a prepaid funeral contract).

If funds are tampered with, they may be redesignated. Request restitution for months in which the designation was broken and the person's resources exceeded the appropriate resource limit. Redesignating may mean a different amount in the designated burial fund and possibly a new percentage of exclusion. It always means a new effective date of the designation.

F-4240 Safe Deposit Box

Revision 09-4; Effective December 1, 2009

If a person's application or redetermination form shows that he has a safe deposit box, ask him about its contents. If the contents indicate ownership of resources, refer to the appropriate handbook sections for handling these resources.

The following information must be included in the case record documentation:

• location of safe deposit box, and
• inventory of contents.

Sources of verification include:

• contact with financial institution, and
• statement by person or responsible person.

F-4250 Livestock

Revision 09-4; Effective December 1, 2009

Livestock maintained as part of a trade or business or exclusively for home consumption is not counted; otherwise, the livestock's current market value is a countable resource.

If the livestock meets the equity value and rate of return criteria for nonbusiness property, the livestock used to produce income may also be excluded.

If animals are maintained as part of a trade or business or exclusively for home consumption, do not verify the value. If the person's statement appears to be reasonable and the actual value could not affect eligibility, verification is also unnecessary. In all other cases, verify the current market value for the number and kind of animals reported.

The following information must be included in the case record documentation:

• kind and number of animals owned by person;
• whether animals are excluded as a resource;
• reason for exclusion, if excluded;
• current market value, if countable; and
• source of information or verification.

Sources of verification include:

• local knowledgeable source (for example, auction barn employee); and
• newspaper.

F-4260 Nonliquid Resources Converted to Cash

Revision 09-4; Effective December 1, 2009

See Section F-1260, Conversion of Resources.

If a person converts nonliquid resources to cash, subtract expenses from the gross amount for which the person sold the resource and count the net value of resources resulting from the sale. Examples of expenses are cost of advertising, legal fees and cost of repairs to make the resource salable.

Determine the type of resource sold and whether the person received the current market value. If he did not, use the transfer-of-resources policy.

Determine whether the person is eligible based on his total countable resources, including the net amount received from the sale.

If two or more resources are sold and the person incurs a loss in the sale of one of them, the person may not use this loss to lower the net proceeds from the sale of the other resources(s).

If the net value of all countable resources exceeds the applicable resource limitation, the person is not eligible unless the property can be excluded for another reason.

See Chapter J, Spousal Impoverishment; Section F-2000, Resource Exclusions – Limited and Related to Exempt Income; Section F-3000, Home; and Section F-5000, Potential Resource Exclusions.

If a person converts nonliquid resources to cash, subtract expenses from the gross amount for which the person sold the resource and count the net value of resources resulting from the sale. Examples of expenses are cost of advertising, legal fees and cost of repairs to make the resource salable.

Determine the type of resource sold and whether the person received the current market value. If he did not, use the transfer-of-resources policy.

Determine whether the person is eligible based on his total countable resources, including the net amount received from the sale.

Verify and document the gross amount that the person received from the sale of his resources and any expenses relating to the sale. Also verify the current market value of the resource.

Sources for verifying the amount received from the sale of a resource are:

• sales receipt or contract,
• note, and
• bank deposit slip.

Sources for verifying expenses related to the sale of a resource are:

• bill for repairs or services, and
• copy of a lien or note that had to be paid to effect the sale. The copy should show final settlement.

Sources for verifying the current market value of the resource are:

• statement from a knowledgeable source, depending on the type of resource;
• newspaper ads for the sale of similar items; and
• assessment or tax notices.