Making funeral and/or memorial arrangements in advance, including prepaying some or all of the costs, is an important part of estate planning. Planning and prepaying spares your survivors from making these decisions and from worrying about money during an already difficult time.
One way to prepay your funeral is by entering into a pre-need agreement with a funeral home. The funeral home may agree to “lock in” costs for future funeral or burial services at an agreed-on price. This is often done through a trust or other arrangement that you fund with cash, bonds or life insurance. At your death, the funds are disbursed to pay for your funeral according to the terms of the agreement.
Before entering into a prepaid arrangement, you may want to get answers to these questions:
• What happens to the funds you’ve prepaid? How are they held? Do they earn interest? Are they safe?
• What happens if the funeral home goes out of business? What protections, if any, do you have that your funds will be available when needed?
• Can you cancel the agreement and, if so, will you get a refund?
• If you move, can your funds be transferred to another funeral home? Will the same terms apply? Is there a fee or cost to transfer your funds to another funeral home?
There are some legal protections available to consumers of funeral home services. The Funeral Rule, enforced by the Federal Trade Commission (FTC), requires funeral providers to give consumers accurate, itemized prices for the various goods and services offered, and to offer goods and services on an itemized basis, not solely as part of a package. The rule also prohibits funeral providers from misrepresenting service-related requirements and engaging in unfair or deceptive practices, and requires disclosures about funeral goods and services.
For more information on shopping for funeral services, the Funeral Rule and prepaying some or all expenses, go to the FTC consumer website, at www.consumer.ftc.gov.
The Funeral Rule does not provide specific remedies or causes of action for consumers who are victims of funeral providers that do not comply. Laws in individual states further regulate funeral providers and help ensure that advance payments are available when they’re needed. However, protections vary widely from state to state, sometimes providing a window of opportunity for unscrupulous operators
Before entering into a prepaid agreement, here are some steps you can take to safeguard your funds and ensure you’ll get the services you’ve paid for:
• Find out what consumer protections your state provides and whether it regulates the payment methods.
• Be sure that your funds or insurance policy are held in a trust at a reputable bank or other financial institution where you can check to be sure your money or policy is safe. You may even be entitled to an annual statement.
• If you’re funding some or all of the pre-need arrangements with life insurance purchased through the funeral services provider, be sure the policy is permanent insurance, such a whole life, and not term insurance (if you outlive the term of the policy, there will be no insurance proceeds to pay for your funeral).
• The agreement should address what happens to any excess funds that may be available after paying for your services. Some pre-need contracts allow you to designate how excess funds are distributed (e.g., surviving family members, your temple or another charity).
• Along these same lines, find out if you are entitled to a partial or full refund if you cancel the contract. Some states allow the funeral provider to retain a portion of the funds, often depending on how long the contract has been in existence.
• Be sure to tell your family about the plans you’ve made and where you keep important documents, such as your last will and testament and pre-need funeral arrangements.
BARBARA KENERSON is first vice president/Investments at Janney Montgomery Scott LLC and can be reached at BarbaraKenerson.com.