What to Know About Prepaid Funerals

White and red roses sit on top of gray granite headstone in a cemetery with other flowers around it.

Thinking about your funeral or that of a loved one is oven the last thing most people want to discuss. However planning and paying for funeral and burial expenses is a reality all of us will face.

Although this can be a difficult topic, prepaying for a funeral may ease the burden for your grieving loved ones as one less thing to worry about and consider during an already difficult time.

Some Quick Takes:

  1. According to a 2021 study by the National Funeral Directors Association (NFDA), the cost of a funeral is approximately $7,000-8,000 depending on the type of burial. You may also need to factor in the costs of purchasing a plot at a cemetery.
  2. Using consumer advocacy websites like Funeralocity or Funeral Alliance can help ensure that you are paying reasonable prices. Don’t be afraid to shop around and bring a trusted friend or relative with you.
  3. According to the Federal Trade Commission, there is a Funeral Rule which states that funeral homes must provide fees to you over the phone if you request it. This rule also allows you to purchase only the goods and services want, meaning that you cannot be forced to buy a package plan.
  4. If you are concerned about costs, you can consider direct cremation options through The Cremation Society of America.

Ways to Prepay for Funeral/Burial Expenses

  • With traditional life insurance or final expense policy, your beneficiary will receive a death benefit payout that can be used to pay for your final expenses after filing a claim.
  • Joint savings accounts can be used by your joint account holder to pay for final arrangements. Keep in mind that a person named on a joint account will also have access to the funds while you are alive.
  • Totten Trusts, or Payable on Death accounts, can be used to pay for final expenses or any other purpose. Just like regular bank accounts you can deposit or withdraw funds. The funds, however, cannot be accessed by your beneficiary until your death. These accounts allow your beneficiary to avoid probate court, typically speeding up the process of accessing the funds.
  • Some states offer funeral and burial assistance for those who cannot afford it.
  • If you are a veteran, you may be able to be buried at a national cemetery and save some of the expenses of burial.
  • Some families resort to crowdfunding for funeral and final expenses using online organizations like GoFundMe or Fund the Funeral. While this method of fundraising may work for you and your family, this may not be a viable option for everyone.

Many of the traditional pre-payment or death benefit payment options depend on your having a trusted friend or loved one to count on to handle the payment of final expenses in a responsible way.

This may not be a reality for some, though, and there are other options for those who do not wish to name a beneficiary or trustee with whom they have a personal relationship.

Pre-need Policies and Funeral Trusts

Most life insurance policies do not allow the insured to name a funeral home as a beneficiary, however, a pre-need policy can be purchased directly from a funeral home. These plans often lock in pricing and save money, however, they often are not transferable and could tie up money that you might be able to invest instead and gain interest.

Some people also elect to create a funeral trust specifically to pay funeral expenses. You can name a funeral home or a close or distant friend or relative to carry out your final wishes. 

Some of the trusts can be changed (revocable), while others are locked in (irrevocable). The trusts have pros and cons that you will need to consider:

Pros of a Funeral Trust:

  • Often you can lock in the fees at current rates if you agree to name the funeral home as the beneficiary. This could save a lot of money, especially if costs rise.
  • If you choose an irrevocable, or locked in trust, you may be able to exclude those monies when you are attempting to qualify for Medicaid. It’s important to check restrictions in your state to determine limits.
  • If you do not have a loved one who can take the responsibility of planning for your funeral and burial, naming the funeral home directly can ease the burden for you and your family or friends.

Cons of a Funeral Trust:

  • If you name a funeral home as a beneficiary to your trust, your money may not be secure if the funeral home goes out of business. If you move to another state, you may not be able to have the funds transfer to another funeral home.
  • If your trust is revocable, it could impact your ability to qualify for Medicaid, and there may be taxes due on the interest income earned.

It’s important to know that there is no obligation to have a funeral, and no one can be forced to pay for one. A court may appoint an executor to make final arrangements, but they will not be responsible for payment. No matter what you choose for your final arrangements, it’s important to know that you have options for how you would like your funeral and burial plans to be arranged, whether by you, a funeral home or a loved one.

Are you lost for words when having talks about end of life? Check out this blog for tips.

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