Most, if not all, funeral homes offer pre-need funeral arrangements. Pre-need simply means you pay for your funeral arrangements in advance.
The allure of the pre-need arrangement is the sense of security it provides to those who wish to leave as little of a burden as possible on their loved ones — including the financial burden of paying for a funeral. The average funeral costs more than $6500, not including the additional costs of flowers, transportation and fees charged by the cemetery. Once these additional costs are figured in, funeral costs can skyrocket to over $10,000.
While pre-need contracts vary by funeral home, generally a person will decide which services they want, choose a casket, choose the style of service and then pay either a monthly sum or a lump sum for the package. At the time of death, so long as the package was paid for in full, the family will not have to worry about making funeral arrangements or paying for them. However, these contracts do not always work the way they were intended.
There has been a rise in funeral home fraud and mismanagement complaints to the federal and state governments. The complaints range from consumers being unable to receive back the money they prepaid once they cancel a pre-need contract, to families being forced to pay thousands more for prearranged funerals, to outright fraud by funeral home directors who have used the money from prepaid contracts as their own personal expense accounts.
With this in mind, it is essential that you understand the terms of a pre-need contract before ever considering signing one. When you meet with the funeral home, be prepared to ask:
- What happens if I need to cancel the contract?
- If I cancel the contract, how much of the money I prepaid will be refunded?
- Can the money from the contract be transferred to another funeral home?
- What happens if the services and items I chose are not available at the time of my death?
- In what instances will my loved ones be forced to pay more for my funeral than what I have already paid?
- What happens to the money I prepay for my funeral? Is that money kept in trust, and if so, how much of it is?
- What happens if I die out-of-state or in another county or city?
- What happens if the casket I choose is unavailable at the time of my death?
You also should keep in mind how your wishes may change. For example, you may sign a pre-need contract, and then move out of state and decide that you would rather your funeral arrangements be made in your new state of residence. Depending on the terms of the contract you signed, you may be unable to receive a refund, or may be charged a hefty penalty for doing so (some contracts charge up to 30% for cancelling).
Currently, there are few federal or state laws protecting consumers from the pitfalls of pre-need funeral contracts. While the Federal Trade Commission passed a rule requiring funeral homes to provide consumers with itemized pricing information at the beginning of every visit, consumers have little recourse when they lose their money in a pre-need contract or families find out the funeral home their loved one had a contract with has gone bankrupt.
With this in mind, it may be best to save for your funeral on your own rather than signing a pre-need contract. One of the ways to do this is the Totten Trust. A Totten Trust is an account that is made payable upon your death to your designated beneficiary. The trust does not go through probate, so when you pass away, your beneficiary will have access to the account’s funds to pay for your funeral arrangements.
Whatever decision you make, you should include your wishes for your funeral arrangements in your will or other estate planning document. Your attorney may have other options he or she can discuss with you for setting aside money to pay for your funeral. If you decide to sign a pre-need contract, you should have your attorney look over the terms to make sure they are fair and you understand what you are purchasing.
Written by Sanford (Sandy) J. Mall, JD, CELA, CAP, VA Accredited Attorney. Sandy is the founder and senior partner of Mall Malisow & Cooney, P.C – The Holistic ElderCare, Special Needs & Estate Planning Law Firm located in Farmington Hills, Michigan. Attorney Mall and his firm are Featured in ElderCareMatters.com – America’s National Directory of Elder Care / Senior Care Resources to help families plan for and deal with the issues of Aging.