Volume 11 - Opinions of Counsel SBRPS No. 111
Senior citizens exemption (income requirement) (interest on preneed funeral expense accounts) - General Business Law, § 453; Real Property Tax Law, § 467:
Interest earned on preneed funeral expense accounts are income to the account holder for purposes of the senior citizens exemption, except for interest earned on those preneed funeral contract moneys placed into irrevocable trust accounts for Medicaid and Supplemental Security Income recipients.
We have received an inquiry concerning the senior citizens exemption (Real Property Tax Law, § 467), specifically its income requirement (§ 467(3)(a)). The question is whether interest earned on accounts established by seniors for prepaid funeral expenses should be considered income of those seniors.
The senior citizens exemption’s income requirement is quite inclusive, interest being one of the specifically identified income items. We have issued several Opinions of Counsel concerning interest as it pertains to section 467 including 1 Op.Counsel SBEA No. 98 in which we concluded, in part: “Interest earned on a bank savings account . . . is computed as income annually since the taxpayer is free to withdraw the interest annually or at any time he chooses.” That is, the interest is income and available to the account holder regardless of whether the account holder chooses to withdraw it.
Section 453 of the General Business Law is entitled: “Moneys paid in connection with agreements for funeral merchandise or services in advance of need to be kept on deposit pending use or repayment.” Subdivision 1(a) of such section provides, in part:
Any and all moneys paid to a funeral firm . . . in connection with an agreement . . . for the sale of merchandise to be used in connection with a funeral or burial, or for the furnishing of personal services of a funeral director . . . wherein the merchandise is not to be actually physically delivered or the personal services are not to rendered until the occurrence of the death of the person for whose funeral or burial such merchandise or services are to be furnished shall continue to be the money of the person making such payment and shall be held in trust for such person by the funeral firm . . . and shall, within ten business days of receipt, be deposited in an interest bearing account in a bank . . . and shall be so held on deposit, together with any interest thereon, until such merchandise has been actually physically delivered and said personal services have been rendered, unless sooner repaid, in whole or in part.
These arrangements are commonly referred to as a type of preneed contract.
It has been stated: “Any preneed funeral contract must be in writing and must: *** except for certain irrevocable trusts, notify the person making such payment of his or her right to be repaid moneys paid, together with accrued interest . . .” (13 NY Jur2d, Business and Occupations, § 935). That same source also states:
Any and all moneys paid under or in connection with a preneed funeral contract continues to be the money of the person making such payment and must be held in trust for such person in accordance with statutory requirements. Moneys paid for a preneeds funeral contract for an applicant or recipient of supplemental security income benefits or medical assistance under the Social Security Law must be placed into an irrevocable trust but under which such applicant/recipient reserves the right to select any funeral firm . . . and to change such selection . . .” (id., § 941).
The Attorney General has opined: “Under section 453, the payment continues to belong to the consumer and must be held in trust and be repaid with interest on demand of the consumer at any time prior to actual delivery of the merchandise upon or after the death of the person for whom it has been purchased” (2001 Op.Atty.Gen. F2001-1). In what is apparently the only reported judicial interpretation of section 453, the court held that a person who had made prepayment to a funeral director who predeceased the person was entitled to recover both the amount of her prepayment and the interest which had been earned on that amount while held in trust by the funeral director (Petit v. Lodge’s Estate, 89 Misc.2d 380, 391 N.Y.S.2d 808 (Sup.Ct., Rensselaer Co., 1977)).
The internet website of the New York State Department of Health includes a brochure entitled “Before Prepaying Your Funeral, Know Your Rights” which also addresses these preneed contracts. In answer to the question of what happens to the money one prepays to a funeral home, the brochure advises that the funeral director must deposit the money within 10 days in an interest-bearing account or a government-backed investment, such as U.S. Treasury bills. The brochure notes that the location and amount of interest will be appear on Internal Revenue Service form 1099-Int (or equivalent) which will be sent to the person who has entered into the preneed contract each year. In answer to the question of who is responsible for paying income taxes on the interest earned on the account, the brochure advises that it is the person who has entered into the contract because “[i]t is still [his or her] money.” {1}
Finally, as to irrevocable agreements which apply only to Medicaid and Supplemental Security Income recipients, the brochure advises that: “The moneys paid to fund these agreements may not be refunded under any circumstances.” An attorney with the State Department of Taxation and Finance advised that any interest paid on moneys put into irrevocable trust per preneed funeral contracts for Medicaid and SSI recipients are paid to the trust, not the individuals who entered into such contracts. That is, the interest on moneys placed in those irrevocable trust accounts is never available to the senior for whom the preneed funeral contract has been established.
Accordingly, with the exception of Medicaid and SSI recipients, one who establishes a preneed funeral contract is entitled to recovery of those moneys, including interest, at any time before his or her death. Under these circumstances, and, especially given the apparent taxability of the interest to such person, in our opinion, such interest is income for purposes of section 467 of the RPTL. For Medicaid and SSI recipients, who forfeit access to such moneys once they are deposited into an irrevocable trust, and who are not taxed on any interest accruing thereon, such interest payments are not income for purposes of section 467.
September 26, 2007
{1} In 11 Op.Counsel SBRPS No. 71, we stated: “While it is true that whether moneys are taxable or nontaxable for income tax purposes is not dispositive for purposes of determining whether they are income for purposes of section 467 or 459-c (see, Engle v. Talarico, 33 N.Y.2d 237, 306 N.E.2d 796, 351 N.Y.S.2d 677 (1973)), as we have stated in numerous opinions, this does not mean that we are precluded from looking to the tax laws for guidance (e.g., 10 Op.Counsel SBRPS Nos. 12, 31).”
