Pre-Needs/Prepaying Your Funeral
Advantages of Prepaying
By paying in advance you may:
• Ensure that money is available for your funeral service.
• Provide peace of mind for your loved ones, or you in the case there are no
survivors to handle final arrangements.
• Set funds apart from other assets if you apply for certain social benefits.
• The ability to search for what is the best choice for your expectations without
pressure of bereavement
Disadvantages of paying in advance
• Remember that states generally regulate prepaid funeral expenses differently from
prepaid cemetery expenses. Regulations on pre-need cemetery purchases are usually
much looser and offer the consumer far less protection.
• In many states, should you move, you cannot shift your arrangements to a new
location or receive a refund unless you leave the state.
• Money paid today may not cover inflated future funeral costs, resulting in possible
substitution of less expensive merchandise or additional funding from survivors (what
you were trying to avoid).
• Money you pay today for funeral arrangements may be needed for other
• If payment is made in installments and you do not complete the payments, your
refund may be reduced by a sales charge which could be as high as 30%.
• If your state does not require funeral directors to provide you a 100 percent refund
of your money should you decide to cancel your prepaid funeral, you may get back
much less back than you paid.
• The seller of today's funeral services may not be in business at the time of your
death. If death occurs prior to the time you complete payments, your agreement may
not be honored in full.
• In many states part or all of the interest earned on your account may be withdrawn
each year by the seller as part of his administrative fees.
• Your survivors may not be aware you have prepaid your funeral.
Comparison shopping is important when choosing funeral arrangements. The costs of
such items as caskets or "professional services" vary dramatically from mortuary to
mortuary. Compare prices from at least three mortuaries. You are entitled by law to
be provided with a detailed price list or given prices over the phone. If you are not
sure what is included in "professional services", be sure to ask.
The Positives and Negatives of Prepaying or Pre-needs
"Pre-need" is a term coined by the
funeral industry to describe the
arrangement and payment of a funeral
prior to death. Obviously, if you are to
have any say in it, you must plan in
advance of your death. "Prearrangement"
is also used interchangeably with
The marketing of pre-need plans for funeral
services and merchandise is increasingly prevalent. Everyone connected with the
funeral industry is promoting pre-need purchases. Various companies, including
insurance companies, "for-profit cremation societies," and "pre-need associations"
mail advertising which touts the benefits of their pre-need plans. There are a number
of pitfalls, as well as options, about which consumers should be well-informed.
Advantages of Planning in Advance
There are several advantages to planning your funeral:
• You may choose the type of funeral service you desire.
• You will save your survivors from making choices during the stress of bereavement.
• You can do comparison shopping at available mortuaries.
• You can make knowledgeable decisions.
• You will be stimulating family discussion, sharing, and decision-making.
Financing a Funeral
There are three basic ways to set aside money for funeral arrangements:
• Totten Trusts. This is an individual trust or savings plan earmarked for one's
funeral. The consumer controls the account and can withdraw from it at any time.
Usually a sum of money equal to today's funeral costs is deposited in a passbook,
certificate of deposit (CD), or money market account, payable to a beneficiary of
your choice. These funds will be available immediately at the time of death without
the delay of probate. Accumulated interest covers costs increased by inflation.
Annual interest is subject to income tax.
• Regulated Trusts. All states, except Alabama, Vermont and the District of
Columbia, regulate the sale of commercial trust agreements. Regulated trust laws
provide for some consumer protection, specifying the portion of your money which
must be deposited in a bank or savings and loan. But only about half of states require
that 100% of your prepaid funeral money be put in trust. Unless designated as
"irrevocable", individual savings and regulated trusts are subject to claim by the state
if you receive social benefits.
• Insurance-Funded Plans. Life insurance or an annuity contract may provide for
an ever-increasing death benefit to account for inflation. Morticians usually sell such
insurance and expect to be named the beneficiary. Other insurance plans advertised
as "pre-need plans" are not tied to specific funeral goods and services. They are
simply life insurance, and you may choose the beneficiary you want to control the
use of the funds.
Important factors to consider before you purchase a paid plan:
• Your plan should allow for a full refund with little or no penalty.
• Your money should be safe. A Totten Trust is a regulated trust governed by state
laws. If the states are taking proper control, your money is probably safe. Funeral
insurance plans are not as tightly governed, so extra caution should be taken.
• Your plan should be transferable if you move.
• Obtain a guaranteed agreement in which the funeral director agrees that the original
price, plus interest, will pay for the designated funeral.
• Make sure leftover funds will be paid to your estate. Otherwise, the mortician may
likely keep them.
We endorse the idea of planning your funeral in advance. Comparison shopping for
prices and services is important for any large purchase, and funerals are no
exception. However, be very cautious if you pay for your funeral in advance.
Maintain control over your funds to assure they will finance your funeral when the
time comes, and to confirm your money is protected. These are considerations of
paramount importance. Your local memorial society can assist you in research, but
the final decision is yours.
Another resource for pre-need is available from the AARP.
|the funeral source
"the" source for funeral information
|Ways to Set Aside Finances for a Funeral
|The Pros and Cons of Prepaying for a Funeral
|Additional Thing to Consider about Prepaying
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