What is a Pre-Paid Funeral
Also known as a pre-need plan, a pre-paid funeral is sold by a funeral home or cemetery (or right here at MemorialPlanning.com). It allows you to arrange for the type of services and products you want (in-ground burial in a casket, cremation niche in a mausoleum, etc.), and to pay for them now with a lump sum or through installments.
When you pre-pay a funeral, you sign a legally-binding contract. The agreement states that you will pay now (and temporarily ongoing if you use an installment plan) for funeral costs sometime in the future. Maybe even decades in the future. Laws of individual states govern the pre-payment of funeral goods and services.
Please note that not all pre-paid funeral contracts are created equal. A guaranteed contract covers all listed expenses at the current rate. That way, even if costs go up, no additional payment is required. A non-guaranteed contract covers expenses up to the amount you've pre-paid, which is considered a deposit to be applied to the final cost. If rates increase, you will be required to pay the additional amount. All MemorialPlanning.com contracts are guaranteed, so your preferences decades from now will cost whatever you pay today.
In addition, there are revocable and irrevocable contracts. With a revocable contract, you can cancel the agreement and recoup most of your money. While you cannot cancel an irrevocable contract, you may be able transfer it to another funeral service provider. These are all aspects to go over with whichever companies you are considering.
Benefits of Pre-Paying
The most obvious benefit has already been mentioned - you lock in today's prices. The Bureau of Labor Statistics' Consumer Price Index for All Urban Consumers (CPI-U) began tracking funeral expenses in December 1986. Since then, the price of funerals in the United States has risen almost twice as fast as consumer prices for all items. Funeral expenses rose 227.1 percent, while prices for all items rose 123.4 percent. That means a funeral will cost significantly more in 20 or 30 years than it does now.
Pre-paid funerals are also ideal for those who want to spend down their assets in order to qualify for Medicaid benefits. Irrevocable pre-paid funeral expenses are not included in the asset limitations set forth by Medicaid. An irrevocable burial or funeral trust is a non-refundable purchase, and the funds cannot be used or disbursed until the time of death. Most states limit the amount that can be placed in a funeral trust, usually from $5,000 to $15,000.
And if you're wondering whether you can write off pre-paid funeral expenses, you can — but only in certain circumstances. According to Internal Revenue Service (IRS) regulations, you can only claim a deduction if you pay for the funeral from the funds of an estate.
- There are more than financial benefits to consider. By deciding exactly how you want your funeral handled in advance, you get to establish your legacy as you see fit. You get to dictate how your story gets told, how your loved ones will remember you. You also get to spare your loved ones the burden of trying to determine what they think you would have wanted, which will likely only further their grief and stress. Those in mourning are in a vulnerable emotional state and could make unwise decisions. They may choose extravagant funeral options out of a sense of respect, options that might be contrary to what you would have wished or that cost more than are necessary.
How to Get Started
To find a cemetery near you or a loved one, use our convenient cemetery locator. For more details on how to pre-pay for a funeral, download our free burial planning guide. It includes information on cemeteries, burial options, and much more.
If you do decide to pre-pay for a funeral, let your loved ones know about it. Record any specific instructions you have regarding burial, cremation, or organ donation. Make copies of everything and distribute to the appropriate family members, friends and perhaps to the attorney who drew up your will. If your loved ones don't know you pre-paid your funeral, they may end up paying for it themselves.
Consider these issues if you are thinking about funeral pre-payment:
- What do you need? Have you considered items such as a casket, vault or additional memorial items? Do you want to purchase traditional funeral services?
- Where does your money go? This depends on your location because different states have different requirements pertaining to pre-paid funeral arrangements.
- What happens to the interest income on money that is pre-paid and put into a trust account?
- What happens if the company that you plan your burial with goes out of business?
- What happens if you relocate or retire to a different location from where you planned your burial? Some pre-paid funeral plans can be transferred, but often at an added cost.
- How long in advance can you plan? Do you have an option for an insurance policy? It there a minimum waiting period? If so, how long is the waiting period?
- Does your current health or family health history affect the terms of the plan?