The Office of General Counsel issued the following informal opinion on September 15, 2000, representing the position of the New York State Insurance Department.
RE: Prearranged Funeral Program
Is the offering of a prearranged funeral program that uses an irrevocable trust, whereby the owner of a life insurance policy assigns the ownership rights to the policys cash values to a trust, which will use the proceeds to pay for the owners funeral expenses upon the owners death, violative of the New York Insurance Law?
The offering of such a prearranged funeral program that uses an irrevocable trust is violative of N.Y. Ins. Law § 4224 (McKinney 1985 & Supp. 2000).
ABC Corp. submitted an irrevocable assignment form and a consumer disclosure form that were drafted for use with a prearranged funeral program. ABC Corp. stated that the forms would be used to meet Medicare/Medicaid requirements, which ABC Corp. asserted have to be satisfied for citizens of this state "to transfer their assets to meet Medicare/Medicaid financial qualifications for assistance." ABC Corp. also stated that:
"The cash values of a life insurance policy are considered assets of the individual, and if the individual is the owner of a life insurance policy with cash values, those cash values must be included in calculating the total assets available to the individual. To remove the cash value assets out of the individuals estate for qualification purposes, the life insurance industry serving the prearranged and preneed funeral market has traditionally used a trust for the purpose of assigning to the trust the ownership rights of a cash value life insurance policy. The assignment of ownership rights is irrevocable and cannot be reversed once the irrevocable assignment is accepted by the trust."
The threshold issue to be addressed is whether this program, as described above, may be offered at all. In proposing to offer the prearranged funeral program through the use of an irrevocable trust, the component of the approved program that permits the beneficiary to choose not to use the insurance proceeds for funeral benefits is removed. The use of an irrevocable trust negates this element. As represented, the program violates the prohibition against "tie-in" sales contained in N.Y. Ins. Law § 4224 (McKinney 1985 & Supp. 2000). Consequently, this program, as currently articulated, may not be offered.