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How To Pre-Plan A Funeral In Eight Steps

Step 4. Should You Pre-pay Or Just Pre-Plan?

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While it is recommended that you pre-plan funeral arrangements, be extremely cautious about pre-paying.

If you've already paid for your funeral or cemetery plot:

Don't worry. It's done.

  • Check your documents carefully to be sure they describe everything you paid for.
  • Make sure that your family is aware of your pre-payment and where to find the documentation. Otherwise, they could end up paying a second time. (See My Document Inventory.)

If you haven't yet paid for a funeral or cemetery plot:

Weigh the pros and cons for pre-paying.

Advantages of pre-paying a funeral:

  • Peace of mind knowing that arrangements are taken care of, and already paid for.
  • The price of the funeral is set.
  • If you qualify for Medicaid, the prepayment may not be counted as an asset.
  • You may be able to get a life insurance policy with no questions asked through the funeral home to pay for the funeral.

Disadvantages of prepaying for a funeral:

  • You could move.
  • You could change your mind about the place or type of funeral you want.
  • The funeral home could go out of business.
  • The funeral home could be purchased by an unscrupulous purchaser who strips all the assets - including your pre-payment.
  • What you pay today may not pay the cost of a future funeral.
  • In some states you lose a percentage or all of what you prepaid if you shift to another funeral provider.

To learn more, see: How to Choose A Funeral Provider, How To Choose A Cemetery Plot.

If you want to pre-pay for your funeral

Check to be sure that the company which owns the funeral home has been around for at least ten years, that it has a good reputation, and, if licensing is required in your state, that it is licensed.

Get a contract which:

  • Describes exactly what is being purchased. For instance, are you buying only merchandise, such as a casket and vault, or are you purchasing funeral services as well?
  • Sets a price that is guaranteed no matter when the funeral takes place.
  • Describes that your money will be held in a separate trust account rather than mingled with the company's other funds. The separate account will help assure that your money will not be subjected to the company's creditors.
  • Provides what would happen if the funds you pay are insufficient as a result of inflation or for other reasons to purchase the items you select.
  • Includes how any excess funds are to be handled. For example, if the funds are maintained in an interest bearing account, what happens to the interest that accumulates?
  • Provides that you get your money back if the funeral home closes or goes out of business -- or if you change your mind.
  • Provides that the company carries theft insurance in case your money is misappropriated.

As an alternative to a pre-payment contract

  • Consider setting aside the funds yourself for your final expenses. A Totten trust or pay-on-death(POD) bank account are two possible options you may wish to consider. (To learn more about them, see Probate Substitutes) ; or
  • Consider purchasing a small life insurance policy, if possible. You can name the funeral home as beneficiary as long as you keep the right to change the name of the beneficiary at any time. Or you can leave the insurance proceeds to a trusted friend or family member to use for your funeral. As a final alternative you can name your estate as the beneficiary of the policy. However, keep in mind it may take a while for the administrator of your estate to have the appropriate authority to receive the proceeds -- and the money would be subject to claims by your creditors.
  • If you are on a limited budget, set aside a little bit at a time, much as you would with a savings account.

If you receive Medicaid or Supplemental Security Income

You may be able to set aside money in a burial plan without affecting your eligibility criteria. See Medicaid for more information.

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