Pre-need funeral plans
lessen survivor responsibilities - addresses basic services and cost
DENVER, CO Individuals who have not planned for their funeral may leave loved ones to make
economical and emotional decisions at a very difficult point in time. To avoid this
traumatic event in the lives of your loved ones, individuals may consider pre-need
funerals.
A pre-need funeral requires an individual to plan in advance the goods
and services of the funeral. It may also include planning the type of cemetery service.
Individuals who plan a pre-need funeral designate the services and goods that are to be
included in the funeral plan.
The Federal Trade Commission requires the prices of sixteen services to
be itemized: forwarding of remains to another funeral home; receiving remains from another
funeral home; direct cremation; immediate burial; basic services of funeral director and
staff (and overhead); transfer of remains to funeral home; embalming; other preparation of
the body; use of facilities and staff for viewing; use of facilities and staff for funeral
ceremony; use of facilities and staff for memorial service; use of equipment and staff for
grave side service; hearse; limousine; either individual casket prices or the range of
casket prices that appear on the casket price list; and either individual outer burial
container prices or the range of outer burial container prices that appear on the outer
burial container price list.
The
pre-need funeral does not include arrangements for cemetery services, if desired. The
cemetery services require separate arrangements and include such things as the cemetery
lots, the marker or memorial stone, opening and closing of the grave or crypt, and vaults.
There are
primarily three ways to fund a pre-need funeral in Colorado: insurance, trusts, and
individual plans.
Insurance funded prepayment mechanisms use life insurance. The
individual signs a pre-arrangement agreement and purchases life insurance equal to the
value of the funeral. The funeral home becomes the beneficiary with the benefits assigned
to the funeral home. The funeral director who sells this type of policy usually receives a
commission. A single payment or multiple payments can be made with coverage usually
available when the policy is fully paid.
Trust
funded pre-arrangements require a payment equal to the cost of the funeral. According to
Colorado law, the funeral director may keep up to 25% of the contract price. Funds
received in excess of 25% are deposited in a trust fund with a bank or trust company
located in Colorado. The income and appreciation from the trust fund is the sole property
of the funeral director, however, the individual may incur a tax liability on the income
and appreciation.
Another
alternative is to fund a funeral with a savings account or some other instrument that
provides for a right of survivorship, allowing the funds to pass outside of probate and
the will. Individuals may want to join a local memorial society. These are non-profit
organizations which have negotiated contracts with local mortuaries to provide pre-planned
(but not pre-paid) funeral services at substantial discounts.
Individuals
have a choice between guaranteed and non-guaranteed price plans. The guaranteed price plan
means no matter what happens to inflation in the future, the funeral you pre-pay will be
provided at no additional cost. Without a guarantee, the family may have to pay additional
costs at the time of the funeral.
Not all
pre-need funeral plans are portable, if you move to another part of the country.
Individually funded plans are very portable and individuals can use them wherever they may
die. Trust agreements can be changed, but penalties may be incurred. Life insurance allows
the individual to change the beneficiary at any time, therefore, you designate a new
funeral home to be the beneficiary, if you move.
Plans may
be revocable or irrevocable. Most plans are revocable and can be changed if desired. An
irrevocable plan is a contract that can not be canceled. Individuals applying for Medicaid
benefits are usually advised to purchase an irrevocable policy because it is considered an
"exempt asset" for determining
eligibility.
Paying in
advance may be attractive because it combines pre-planning with pre-funding. A major
advantage of many pre-need plans is locking in a price with a guarantee. The choice is
yours.
Eileen Doherty is Executive Director of
the Colorado Gerontological Society and Senior Answers and Services. She has worked in the
areas of policy, clinical practice and education in gerontology for more than 20 years.
She can be reached at 303-333-3482.
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