How to Pre-Pay for a Funeral
According to the National Funeral Directors Association the average cost of a "regular adult funeral" (funeral with embalming, viewing and a metal casket) is now $7,755. That doesn't include a cemetery plot, monument, flowers or obituary notices. Then there are the costs of meals, travel, time off work. It can be an expensive, as well as a grief-filled and stressful time.
Many folks view it as a gift to those they leave behind to take the burden of planning and paying for a funeral off their shoulders. It gives family and friends the assurance that you get the service you wanted.
First, let me make this distinction: There is a difference between Pre-planning and Pre-paying. One can pre-plan without pre-paying. You can discuss your plan, and the funeral home will keep it on file for future reference. Or you can just write down your wishes yourself and make them available to your family. Your estate will be responsible for paying when the funeral is held.
There are some drawbacks to pre-paying. The law cannot provide absolute protection; the money is controlled by the funeral director, not you. If you take this route, make sure you always have a pre-need agreement for services whenever you prepay a funeral. Find out how and where your money is being held. Make sure your family and friends know about your arrangement. Otherwise, they may choose a different funeral home and pay again.
If the funeral home sells its business to another funeral home, both funeral homes must provide you with written notification. If the funeral home goes out of business, it must return your money with interest; or you can authorize a transfer to another funeral home.
If you are applying for Medical Assistance or SSI, make sure that the prepayment plan you use will be exempted from the spend-down to qualify for these benefits. In general, the pre-paid plan must be irrevocable to qualify.
There are several methods available to pre-pay for a funeral:
1) A regulated trust or insurance policy can be established by a licensed funeral director. You meet with the funeral director and plan exactly what funeral home services and what products will be used for your funeral. Only the fees for the products and services provided by the funeral home and included in the plan are "fixed". Outside vendors' fees such as the local newspaper's fee for the obituary notice, the florist's charges, clergy fee, and the cemetery's fee for the grave opening and closing, are all outside the funeral home's control and are estimated and subject to change.
The plan is funded either by the purchase of an insurance policy or the contribution of funds to a trust instrument through the funeral home. The funeral director acts as an insurance agent and receives a commission on the sale of the policy or a fee for setting up and managing the trust. The beneficiary on the insurance policy or trust is the funeral home.
Some plans guarantee the costs of goods and services provided by the funeral home. The interest earned by the investment of the consumer's advance payment helps cover the increases in funeral costs that will occur over time.
In other plans, a flat fee is paid to the funeral director. The funeral director agrees to invest the funds and, upon your death, to apply the funds to your funeral expenses. Any extra funds left after payment of funeral costs will be distributed according to the terms of your contract with the funeral director. If the actual funeral expenses exceed the prepaid funds, then your family or estate will have to make up the difference.
It is important to determine if your plan is "portable" - that is, can it be transferred if you move to a different area? The contract should allow the funds to be transferred to another funeral home in the event that you move or decide to be buried elsewhere. If the plan is not "portable," can it be cancelled? And if it can be cancelled, is there a penalty?
2) A life-insurance policy can be purchased, with a death benefit equal to the value of the funeral. Some insurance companies market products called Final Expense Insurance, or Burial Insurance - usually a policy worth around $10,000. Actually, any life insurance policy can be used to pay for a funeral. In either case, you tell the beneficiary what you want, and you expect that he or she will use the money to pay for your funeral expenses. The beneficiary is not obligated by law to do so and could use the death benefit for anything he or she wants to. Usually a funeral home will not guarantee pricing if you are using an established insurance policy because the funeral home cannot be certain the policy will still be in force, at the same death benefit, when the need arises.
3) Individuals can establish a savings or certificate of deposit account earmarked for funeral expenses. The account can be designated as Apayable on death@ (POD) to the funeral home or to a person who will use the money to pay for the funeral. Some folks set up a joint account during their lifetime, expecting the survivor to use the funds for a funeral. In both cases, whether it is a joint account or pay on death to an individual, the individual is not bound to use the money for the funeral but can use it any way that the beneficiary or surviving joint owner wants.
The Federal Trade Commission publishes a Consumer Guide on Funerals. It includes information and advice about pre-planning and pre-paying. It can be found at http://www.ftc.gov/bcp/edu/pubs/consumer/products/pro19.shtm.
