Prepaid funeral plans involve conversations around everyone’s least favorite topics — money and death. There are also some serious built-in downsides to prepaying for a funeral. But if you don’t want to leave your loved ones a hefty funeral bill, it’s something to consider.
What you need to decide is whether you want to work with a funeral home that offers prepaid funeral plans — or if you want to create your own prepaid funeral plan, such as buying funeral insurance or simply putting a lot of money into a checking account that your family can use someday to give you a proper send-off.
According to the National Funeral Directors Association, the national median cost of a funeral with a viewing and burial was $7,848 in 2021, the most recent numbers available.
And that’s not factoring in other costs, like what you might spend on flowers, an obituary or a gravestone. So, not planning to pay for a funeral could leave your family members in a financial lurch.
If you’re considering prepaying for a funeral, here’s what you should know.
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How to Plan a Prepaid Funeral
A prepaid funeral is just what it sounds like — a funeral that you pay for while you’re alive and hopefully well. You’re simply making and paying for funeral arrangements before you or a loved one passes away.
The most compelling reason some people prepay for a funeral is so that you won’t have to worry that someday your family will be dealing with both a heavy emotional and financial burden while grieving. You might also be very organized and see this as a way of really staying on top of things.
But how to plan a prepaid funeral? Essentially, if you’re working with a funeral home, you have one step: Contact the place where you’d like your future funeral to be, and ask if they offer preplanning or prepaying services. You probably don’t even have to call and ask. Chances are, the information will be on the website.
Obviously, there’s a little more to it.
“Talk to your loved ones about your wishes,” advises Joseph Fresard, an attorney at Simasko Law, elder law attorney and partner at Simasko Law in Mount Clements, Michigan. Fresard says that you’ll want to look carefully at your assets to decide if prepaying for a funeral is a good option.
But assuming you do want a prepaid funeral — and you want to work directly with a funeral home — it’s a pretty straightforward process: You’ll discuss the prepayment plan with the staff and make surreal decisions, such as choosing your casket, or maybe the music you’ll want played at the ceremony. But much of the planning that goes into a prepaid funeral is simply deciding whether you want to prepay or not.
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How Do You Set up a Prepaid Funeral?
If you work with a funeral home, they’ll explain how their funeral home operates its prepaid funerals. You may end up paying for the entire funeral upfront, or you might make payments over the next three, five or 10 years.
There may be administrative fees involved. The funeral home may put the money in a trust fund and not actually spend it until your passing.
All funeral homes work differently, and you’ll need to ask a lot of questions. If you end up moving to another part of the country, for instance, will the funeral home be able to transfer the money to another funeral home? Or does your family need to bring your body back to this particular one to have the funeral paid for?
If you make this a do-it-yourself type of prepaid funeral, you have several options.
— Set up a bank account for your funeral expenses. You could set up a prepaid funeral by creating a joint bank account with a loved one solely for the purposes of paying for a funeral. Why a joint account? That way, the surviving family member has access to it to use for your funeral. Otherwise, your family members may be able to get access to your checking account, but not until the estate is settled, which can take weeks or months.
— Set up a payable on death account through your bank. In this case, you would name a beneficiary, and when the time comes, the money would be available to that person to use for your funeral. The only downside might be if you don’t put in enough to cover the funeral (but some money toward the funeral is better than nothing), or if you put in enough but at some point along the way you need the money and raid the account, then never replenish it.
— You could also buy funeral insurance. Also known as burial insurance or a final expense insurance policy, funeral insurance is designed to cover the cost of funeral expenses. Typically, this type of insurance coverage costs $50 to $100 a month, and generally, people purchase a $10,000 policy. You may spend more or less per month, depending on your age, gender and health.
What Are the Benefits of Prepaying a Funeral to a Specific Funeral Home?
The main benefits are saving your family and friends their money and time.
You also might want some say in how you go out. Maybe you’ve got an attachment to a certain funeral home — you’ve had other relatives pass through there and it was a good experience, so you’d like to give the funeral home your business, too.
Another benefit is that a prepaid funeral can be a good way to spend down assets to quality for Medicaid. But if you’re going to do a Medicaid spend down correctly, if the funeral home puts the money into a trust, it has to be an irrevocable trust one that can’t be changed.
What Are the Risks of Paying a Specific Funeral Home?
Some experts say there are too many risks with prepaying a funeral home to make it worth your while.
For instance, the Funeral Alliance Council website states: “The truth is that it is usually not wise to pay ahead. No matter how attractive the business makes it sound, there are serious drawbacks to prepaying that the seller will not tell you about.”
Some of the drawbacks include:
— If you’re in good or reasonable health, you might outlive the funeral home, which could go out of business.
— Perhaps the funeral home management will change, and it won’t be a place you think your family will be happy working with.
— Maybe you’ll want to move to another part of the country, where the climate is warmer and your kids have moved. That may not be a problem if the funeral home has a policy of sending your prepaid income to a different funeral home, but it could be an issue if the funeral home won’t do that and your body and family members are 2,000 miles away.
“If you are considering a prepaid funeral contract, be sure to read the fine print and understand exactly what you are getting,” says David DuFault, estate planning attorney with Sodoma Law in Charlotte, North Carolina.
If you spend money on a prepaid funeral, DuFault suggests keeping the contract with the rest of your estate planning documents and alerting your family members about it.
How to Make Prepaid Funeral Plans With a Funeral Home
You could set up a revocable trust with a funeral home to make prepaid funeral arrangements. Typically, you would sign a contract to pay for your funeral in installments, and the funeral director would deposit your payments into an interest-bearing account. When you pass away, the funeral director, who is also the trustee, would use that money to for your funeral.
Keep in mind that there may be other funeral costs with which the funeral home doesn’t involve itself. Your funeral home probably is a separate business from the cemetery, so if you want to pay for everything, keep those ancillary costs — such as a headstone and flowers — in mind.
Whatever you decide about a funeral, if you prepay for one, it can’t be said enough — share your plans with loved ones, perhaps several times. The last thing you would want, for instance, is to get into a prepaid funeral arrangement and then 10 or 20 years or more pass and everybody’s moved on and forgotten about that nice gesture you did, and your kids or grandkids pay for another one.
Most people who prepay for a funeral do it to help out their family and friends. If all goes as planned, you’d likely rather your loved ones grieve over you, not your funeral bill.
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How Prepaid Funerals Work originally appeared on usnews.com
Update 07/19/23: This story was published at an earlier date and has been updated with new information.
