Pre-Need Funeral Plans: The Pros, The Pitfalls, and The Alternatives
How many advertisements have you heard or received in the last month about pre-need funeral arrangements? As we boomers age they certainly seem to be multiplying. Even our local talk-radio gardening guru is pushing them this year.
Though it's not a subject most of us care to dwell on, it's certainly true that if you want to have any say in how you ultimately take your leave, you'll have to make your arrangements before you go. And, to be sure, it's a gift you can give to your loved ones, who won't have to make decisions at a time of grief.
Like any other significant purchase, there are advantages and disadvantages to pre-paying for a funeral. There are also other options that you might not have considered.
The Advantages of a Pre-Need Funeral Plan
Costs can vary wildly from one funeral home to another, and you can comparison shop at your leisure. You can collect and compare detailed, printed price lists. You'll have the chance to get a breakdown, in writing, of the "professional services" often included as a lump-sum line item on price lists.
You can choose the kind of funeral service you want. Or you can make alternate arrangements if you'd rather have something else. You can choose caskets and urns, flowers, memorial cards, and a host of other products and services yourself.
By pre-paying, you reduce the pressure on your loved ones to spend more than you would want on a funeral or memorial service.
You can also stimulate some valuable discussions with your family members as you talk with them about your choices.
The Pitfalls of Pre-Need Funeral Plans
Unless your plan is irrevocable, meaning that you can't cancel after signing, make sure the plan you choose allows for a full refund with minimal or no penalty. Unless you are purchasing a pre-need plan as part of Medicaid planning, when your contract must be irrevocable, avoid an irrevocable contract.
If the funeral home says they will put your pre-payment into an interest-bearing trust, get confirmation in writing that every penny of the money you are pre-paying will go into an interest-bearing account. Find out how much the funeral director wants to withhold as "administrative fees" for the funeral home.
Investigate how the trust is set up. If the funeral home goes out of business or is sold, is your money safe in the trust for you to retrieve, or could it disappear with the previous owner?
Make sure that your contract includes cemetery costs, unless you've made a conscious choice to not include these. Many a family has confidently appeared at the funeral home to confirm final arrangements, only to be hit with an additional several thousand dollars for cemetery charges that were not included in the funeral plan.
Is the plan transferable if you should move to another part of the country? Many pre-payment funeral plans are non-transferable. This means the family will either have to pay again for a local funeral, or they will have to pay to ship the body and travel to a distant funeral home and cemetery.
Alternatives to a Pre-Need Funeral Contract
Life Insurance: Often, what you are purchasing in a pre-need plan is actually a life insurance policy for a specific dollar amount which is payable to the funeral home. If you wish to purchase life insurance, you can purchase your own policy and leave specific instructions with your beneficiary about how you would like this benefit used. The disadvantage of this alternative is that the beneficiary rarely receives the insurance money before the funeral itself. So the family will have to pay for services themselves and wait for the insurance money.
Some funeral homes will accept "assignment." The designated beneficiary of the insurance policy signs over some or all of the insurance benefit to the funeral home. The advantage is no out-of-pocket costs to the family. The disadvantage is that the funeral home now knows exactly how much insurance money is available. Funny how funeral costs often expand to cover the insurance money available.
Totten Trust: A Totten Trust is a simple bank account. Totten Trusts are sometimes called "pay upon death," or "in trust for" accounts. You deposit the money to pay your final costs, and you designate someone you trust to receive the money in this account at your death.
You maintain complete control over the funds in a Totten Trust as long as you live. You can add more, withdraw whatever you choose, or even close the account at any time. The funds earn interest at the bank's rate. At your death, the designated beneficiary can withdraw the money immediately.
If you have done your comparison shopping in advance, you can leave these instructions with your Totten Trust beneficiary. You can even go so far as to leave model numbers and pictures of the items you would like at your funeral. In this way, you will have done your pre-need planning and still give your loved ones the flexibility they may need to implement your wishes.