Funeral Planning…Before the Need Arises

If you are going to make an informed choice when you prearrange your funeral, you need to: know what you want; how much you can afford to pay; if guarantees are provided on merchandise and services; what happens if you move and want to change funeral homes; the tax consequence of the funding arrangements, if any, and if you are protected against inflation.

When you prearrange a funeral, you want to arrange one which fits your needs today and into the future.

Prepaid Funeral Agreements

Generally, funeral plans consist of a two step process: making the funeral arrangements (preneed funeral contract) and second, funding the cost of the prearranged funeral through life insurance, bank trust agreement or other method. It is possible to select funeral goods and services. If you do either of these, you should be aware that the price of the funeral will usually not be guaranteed.

The preneed funeral contract should identify the person selling the contract, the person purchasing the contract, and the person for whom the contract is purchased. In several states, only funeral directors may prearrange your funeral. You should check you state laws and the credentials of the person selling the preneed funeral contract. If the person selling the contract is not with a funeral home, you should ask to see a copy of the agreement between the seller and the funeral home which you want to conduct your funeral.

The contract should contain a complete description of the merchandise and services purchased, and disclose the current price of the merchandise and services. If a unique service is requested, you should discuss this in detail with the funeral service professional to determine if the service can be provided.

Funeral service selections fall into two general categories; the services of funeral professional and funeral merchandise.

Funeral service selections usually include:

• Professional services of a funeral director and staff
• Transportation services.
• Embalming and other preparation
• Facilities for visitation.
• The funeral ceremony
• Funeral vehicles
• Other services and associated items (pastoral services, music, grave opening and closing)
• Funeral merchandise selections include:
• Casket, urn or both
• An outer burial container (cemetery vault or other selection).
• Outer merchandise and associated items such as flowers, acknowledgment cards, and transfer containers.

The funeral home is required by law to give you a general price list which contains the current cost of each individual item and service offered. It must also contain information on embalming, cash advance sales, containers for cremation and any required purchases. Cash advance items are goods and services that are paid by the funeral provider on your behalf, such as a cemetery plot, flowers, obituary notices, pallbearers, and clergy honoraria. Some funeral providers charge you their cost for these items while others add a service fee.The funeral provider receives a discount, refund or rebate for these items, he must disclose this fact to you.

You may, of course, choose any or all of those items you prefer. A funeral planning professional will be able and willing to help you with each of these steps. The contract should clearly state whether the provision of the supplies and services is guaranteed. A guaranteed funeral means that regardless of the retail price of the funeral at the time of death, there would be no obligation to pay additional money to the funeral provider. The guarantee may be limited if installment payments are selected as a method of payment.

The agreement should also state that goods and services of equal value will be substituted if the exact ones are not available at the time of need, at no extra cost. It should also clearly identify any items or services which are required and explain why. An example would be embalming, which may be required for direct cremation, and a vault may not be required in all instances. If you are considering the purchase and storage of a casket or other merchandise, you should consider factors such as the risk of loss, impact upon manufacturer warranties, and whether the funeral home selected will agree to accept the merchandise for use.

The contract should disclose any penalty or restriction, including geographic restriction, on the funeral homes' ability to perform.

Cemetery arrangements should be discussed well in advance, too. Some questions you should ask when deciding on a plot are:

• Does the plot meet the requirements of your religion?
• What restrictions are placed on the types of monuments and burial vaults?
• Does the price include perpetual care and maintenance?
• Are there other plots available in the same location to provide for the burial of the entire family?

Types of Funding Available

Annuities
Generally, annuities allow for the money you pay to be invested. Interest is earned which will increase, over time, the amount of money available to pay for your funeral. The interest rate it earns and the rate of inflation are important considerations. There may be federal and state income tax liabilities associated with this type of funding, although tax on interest earned is generally deferred until death.

Life Insurance
Through this method, the person planning their funeral buys a policy of life insurance, and directs payment of the death benefit to the funeral home if allowed by law. It is important to know how much insurance you have to buy to secure a guaranteed funeral; if the death benefit is adjusted for inflation or level in amount; and if the policy will issued regardless of your health, or whether your health may disqualify you from coverage. Many policies will pay the entire death benefit even if the total premiums have not been paid at the time of death. Death benefits from insurance policies are generally exempt from income tax liability to the insured on growth in the policy death benefit.

Savings Account
Savings accounts(sometimes referred to as P.O.D.- payable on death-accounts) can be established for the purpose of paying for a funeral. The interest earned will increase, over time, the amount of money available to pay for the funeral. Interest earned each year is usually subject to income tax. P.O.D. accounts are usually held jointly by the consumer and funeral director, and upon the consumer's death the account automatically belongs to the funeral director. The interest rate any savings account earns and the rate of inflation are important consideration. Usually, there is no guarantee that the funeral will be totally paid, and the estate or family may be responsible for any shortfall. Usually, any excess funds belong to the funeral home. Jointly held Certificates of Deposit (CD's) have the same general considerations.

Bank Trusts
Funds may be placed in a trust fund at a bank and invested to earn interest to increase the funds available to pay for the funeral. Interest may remain in the trust or may be withdrawn by the funeral firm depending on your state law. In either event, generally, you are responsible for federal income taxes on the interest earned each year. Some states allow the funeral home to keep some of the money as an initial charge, so it is important to know if all or only part of the money is deposited, especially on non-guaranteed contracts. Administrative expenses are generally charged against the trust. You should ask about these charges before you sign anything. There may also be state tax liabilities associated with this method of funding.

Medicaid and Supplementary Security Income (SSI)
Some may receive benefits under a state's Medicaid program or the Social Security Administration's Supplemental Security Income (S.S.I.) program.

A person's eligibility for these programs is dependent on the amount of resources (property and cash) that the person owns. In determining the amount of resources, both Medicaid and S.S.I. allow a person to exclude prearranged funerals within certain limits.

When making your funding arrangement, you should ask what the impact would be on your funeral arrangement if you ever need to qualify for Medicaid or S.S.l.

Other
Other types of funding are available, however, life insurance, bank trusts, annuities and savings accounts are the most common.

Real estate or personal property may, in limited cases, be transferred to a funeral home to pay for a funeral. In these cases, state law will control how this is done. Some state laws prohibit creditors from filing a claim against the trust, life insurance or other property used to fund a funeral.

Impact of Inflation and Installation Payments

The manner in which the funeral is funded will affect the ability of the funeral home to guarantee delivery of the funeral which you planned.

Funeral price inflation has closely matched the rate of general inflation in the U.S. economy. Consequently, it is important for you to know if the money available at the time of death will be sufficient to pay for the cost of the funeral at that time.

Payment can usually be made in a lump sum or paid over time. If an annuity, savings account trust fund isused to fund the funeral, a guaranteed funeral is usually not immediately available to you when installment payments are made. If insurance is used, the funeral may be guaranteed immediately ,or after one or two years depending upon the insurance policy, even though the payments did not equal the cost of the funeral..

If your funeral is not guaranteed, it is important for you to know if the money available at the time of your death will be sufficient to pay for the cost of your funeral.

Excess Funds
Occasionally, the annuity, life insurance policy, bank trust or other investment is more than enough to pay for the cost of your funeral. If funding your contract through an annuity or life insurance policy, the excess would go to the beneficiary named in the annuity or life insurance policy. If funding thorough a trust, the excess will usually go to your estate. Some state laws specify who is entitled to excess funds which are not used for your funeral. You should ask about these and make sure that the preneed funeral contract states who is entitled to any excess.

Cancellation and Relocation

You will usually be given a limited time in which you may cancel your funding arrangement without penalty. After this period of time has passed, the funding arrangement will specify any refund to which you are entitled.

If you move to another state or area not served by the funeral director of funding arrangement, it may also affect the funeral and guarantees. Some states have specific regulations which govern where funeral trust funds may be deposited and how such transfers may be implemented. For example, many states require burial trust funds to be deposited in banks and other financial institutions within that state.

Additionally, the cost of providing the same funeral may vary by geographic location. A different funeral director may not guarantee the same funeral for the same price.

Disclosures

Regardless of the funding arrangement, the following information should be disclosed before you sign any contract, so you fully understand the funding arrangement:

• The manner in which the preneed funeral contract is funded; (life insurance, bank trust, annuity, savings account, etc.)
• The relationship between the entity providing the funding and the funeral home;
• The tax considerations;
• The existence of any guarantees.(Are you guaranteed a funeral without further cost to you or your estate?)
• The effects of:
• Any changes in an assignment, beneficiary designation or use of funds. (Can you change your mind?)
• Any penalty incurred if you fail to make any required payment or cancel the contract. (Are there cancellation fees? Is there a grace period if you fail to make a payment?)
• The possibility of not enough money at the time of need to pay for the funeral you arranged. (Will your family or estate have to pay more money? If there is more than enough money needed, who gets the excess?)
• Your relocation. (Can you take your funding arrangement with you or will you have to start over?)

Some FSCAP Suggestions

The Funeral Service Consumer Assistance Program (FSCAP) works with families each weekday in helping resolve problems and complains concerning funeral homes. FSCAP also offers suggestions on how to begin the process of reviewing various types of funeral home or preneed contract "rating" service, FSCAP uses its experience with other families in helping you discover for yourself what's best for you. The assistance and additional resources we suggest you use are intended to make you become a more informed shopper of funeral-related services and merchandise.

Most problems arise through misunderstandings, inability to listen or take notes due to emotional stress, questions not asked, answers not heard or understood, or important consumer obligations not stressed by the seller.

Some of the most important questions to ask before you sit down with a sales counselor, and prior to making any decisions.

In addition, picture yourself, pencil in hand, asking these important questions of the sales counselor:

"More than half the states now require a license or permit to sell these contracts. Does this state? If so, what is your license number?"

"I understand that virtually all states have a controlling agency that regulates the sale of these contracts. What is the name, address and phone of the one in this state?"

"I'm going to listen to your presentation, but just because I'm quiet doesn't mean I understand it all! Can you stop every five minutes to see whether I understand all you've just said, and give me time for questions?"

"Could you explain the difference between the standard professional services fee and other services listed farther down in the contract? What is the reason for the two types of charges?"

"What if we need the services of two funeral homes, one in this state and one out-of-state? Why is there a need for two separate bills?"

"If we change our minds after we sign, what is our time limit to cancel? What if we choose to cancel well after the time limit has expired?"

"We've gone over a great deal of information today, mostly about the funeral. Is there any other vital information I need to know about possible additional charges, documents I'll need, the cemetery purchase, graveside charges or ground/air transportation? Have I asked every question? If I haven't, have you volunteered all the information you need to ensure satisfaction for me and my family?"

Helpful Hint!
Communication is the first step toward understanding. If you are not a good note-taker and want to listen carefully to the sales counselor, have another person in the room to take notes, and jot down questions they think of during the conversation.Obtain an audio cassette tape player and tape record the entire conversation. That way, both you and the funeral pre-arrangement counselor have a permanent record of exactly what information was discussed. Review the tape as often as necessary to make certain you're aware of what is and perhaps isn't contained in you written agreement.