Your Money

Preplanning a Funeral Helps Survivors

After a loved one’s death is not the best time to make decisions about a ceremony that can be expensive.

After a loved one’s death is not the best time to make decisions about a ceremony that can be expensive.

When Steve’s father died of a heart attack, Steve had no idea which funeral home to use. He chose one that he saw on his way from the airport to his father’s apartment. In a state of shock, Steve let the funeral director talk him into buying one of the more expensive caskets and setting up an elaborate funeral and visitation, even though his father, at age 96, didn’t have many friends or relatives remaining who would attend. Only later did Steve realize that he paid for services that he didn’t really need. In fact, months later, going through his father’s papers, he found that his father wanted to be cremated.

Unfortunately, after a loved one’s death can be the worst time to make arrangements for the funeral and visitation. Loved ones are being asked to make quick decisions at a time when they are in shock or in extreme stages of grief. They may not have any idea what their loved one wanted, and there is no time to go through papers and find out. Should the deceased be buried or cremated? What should the obituary say? Should there be a big funeral or just family? If no cemetery has been chosen, how do you find one? Who should the pallbearers be? What kind of music or readings would the deceased want?

One way to avoid this difficult decision-making is to preplan a funeral, either for yourself, especially if you are single, or for your loved ones.

Reasons to Preplan

Years, or even months, before a funeral plan becomes necessary, it’s helpful to acquire information, visit funeral homes and get a list of prices for comparison. Funerals can be expensive—averaging $10,000 for a traditional funeral—so you don’t want to end up paying for something you don’t really need or want. And if the cost falls to your children, this could hurt them financially or cause resentment.

When you preplan, you have time to think about how much you can afford (or your children can afford, in some cases) and what you really want—a simple ceremony with family and a few friends or something more elaborate that will involve distant cousins, acquaintances and old neighbors. Because these decisions affect your family and friends, you have time to sit down with them and discuss the options.

What is meaningful for you? Is burial important or would you prefer to be cremated (a less expensive alternative) and have your ashes scattered? What kind of ceremony do you envision that would summarize your life and give comfort to your survivors? Do you want a visitation in addition to the funeral?

If there is no body at the funeral, you don’t need a mortician. Some people come up with their own rituals, such as favorite writings, a slide show of photos or the right music. Preplanning gives you time to research ideas for alternative funerals.

Planning ahead also spares survivors the stress of making these decisions under pressure, so they can instead spend their time honoring and grieving their loved one.

Should You Prepay?

Although it is recommended that you preplan, you shouldn’t necessarily prepay for the funeral. While you may want to lock in prices that could go up, they could also go down. Businesses can close, change ownership and/or acquire poor reputations. When the time comes for the funeral, and survivors go to the funeral home their loved one chose, they may be told there are additional fees or the contract may be different than what their parents told them it included. However, the main reason to consider prepaying your funeral, burial or cremation is to shelter your assets from Medicaid.

Although state laws govern the prepayment of funeral goods and services, protections vary widely from state to state, and some state laws offer little or no effective protection. Some state laws require the funeral home or cemetery to place a percentage of the prepayment in a state-regulated trust or to purchase a life insurance policy with the death benefits assigned to the funeral home or cemetery. If you do prepay, make sure the contract ensures that you or your survivors get a full refund if plans are later changed—for example, if you move to a different state.

Some of the risks of prepaying include (from Funeral Consumers Alliance)

• If you cancel, move or change your plan, you may not receive a full refund.
• In many states, part or all of the interest earned on your account may be withdrawn each year by the seller.
• The money you pay for funeral arrangements now won’t be available for emergencies later.
• Many insurance companies will not pay the full benefit—or anything at all—during the first few years the premiums are being paid.
• Money spent today may not cover future funeral costs, which could result in the use of cheaper merchandise or requests for additional money.
• Survivors may not be aware that funeral costs have been paid and may pay at a different funeral home.

Funeral Rule Protects Consumers

Funeral homes have a reputation of taking advantage of people when they are at their most vulnerable. In addition, Wall Street companies have bought up and consolidated many businesses that were locally owned. To protect consumers, the federal government has instituted regulations. The Funeral Rule, which the Federal Trade Commission (FTC) enforces, makes it possible for you to choose only those goods and services you want or need and to pay only for those you select, whether you make arrangements when a death occurs or in advance. Some of the rights under the Funeral Rule are to:

• Get price information on the telephone.
• Get a written, itemized price list when you visit a funeral home.
• See a written casket price list before you see the actual caskets.
• See a written outer burial container price list.
• Receive a written statement after you decide what you want and before you pay.
• Use an alternative container instead of a casket for cremation.
• Provide the funeral home with a casket or urn you buy elsewhere.
• Make funeral arrangements without embalming.

For other rights under the Funeral Rule and more information about preplanning a funeral, see the FTC site.

Types of Preplans

There are several methods to set up a funeral plan, either by working with the funeral provider or setting up your own fund. Funeral Consumers Alliance, a nonprofit educational organization that supports increased funeral consumer protection, lists four:

Pre-need insurance. Offered by funeral providers, you pay installments to an intermediary insurance company. However, in most cases, you will spend as much or more in premiums than the policy will actually pay out at the time of your death.

Regulated trust plans. You pay the funeral home the cost of a funeral either in installments or in a lump sum. The director places the money into an interest-bearing trust account and serves as the trustee. After death, the trust funds are paid directly to the funeral provider named in the trust.

These come in the form of an irrevocable trust, which can’t be changed or dissolved without the permission of the trustee, or a revocable trust, which you can cash out or cancel at any time. Money set aside in an irrevocable trust will be excluded from your net assets when your eligibility to receive Supplementary Security Income (SSI) or Medicaid benefits is determined. On the other hand, Medicaid can take money placed in a revocable trust if your other assets have been depleted.

Prearrange without prepaying. After you research various funeral providers and their plans, write down your plan and let your family know what you want. Some funeral providers might let you fill out a pre-arrangement form and leave it on file at their business.

Pay-on-death account. You can set up your own “payable on death” (POD) account by depositing in a bank enough money to cover the current price of a funeral and let the accumulated interest cover any cost increase due to inflation. This account can be made payable upon death to a trusted family member or friend who will use the money for your funeral. POD bank accounts are FDIC-insured, they remain in your name and money can be withdrawn at any time. However, Medicaid treats these accounts as assets, and the interest is subject to income tax.