If you’ve ever been involved in creating final arrangements for another person—making decisions about transporting and burying or disposing of the body, choosing a container or casket, planning a service or ceremony—you know there can be a lot of calls and judgments to make at a difficult time. You might also have had the cringe-making experience of attending a funeral or memorial service that seems completely out of character with the person who died.
You can help save survivors some handwringing and angst and also feel good about tackling one of the many “Shoulds” in life by doing some advance planning for final arrangements, or helping a loved one through the process.
While preferences are intensely personal and often colored by religious dictates and local or family customs, there is one universal truth: Dying costs money. In fact, for many people, after-death goods and services are the third most costly expense—just after a home and a car. While the average cost of funerals has decreased some in recent years because more people are opting for cremation rather than the more expensive body burial, the National Funeral Directors Association still puts it at about $8,000 for the simplest of treatments. Elaborate arrangements including a casket, viewing, and body burial in a cemetery can easily cost tens of thousands of dollars.
Beyond the peace of mind it can help provide, planning ahead can also help ensure that costs will be controlled or kept to a minimum if that is a priority for you or yours.
Potential Perils of Prepaying
Paying for a funeral in advance may seem like the best way to “deal with” a topic many don’t like to embrace. And high-pressure ads abound that beseech people to “do the right thing for their loved ones” by purchasing funeral insurance or setting up a trust with a funeral home that purport to cover the costs of final expenses ahead of time.
Consumer experts agree, however, that while it’s wise to pre-plan—to check out options for death goods and services and comparison shop among the providers—it’s usually not a good idea to prepay for them.
The one exception may be for those who need to “spend down” to meet the strict income limits to qualify for Social Security Income (SSI) or Medicaid benefits—called Medi-Cal in California. In such cases, it can be wise to set aside money in an irrevocable trust that will be excluded from your assets when determining eligibility.
Funeral Insurance. Policies offering “funeral insurance,” or “burial insurance” are nothing more than life insurance policies under the guise of a different name. Such policies usually have a low face value—from $5,000 to $50,000—and are purchased directly from an insurance company. When the policyholder dies, the person named as the beneficiary makes the claim and gets the money, ostensibly to pay funeral and burial costs. However, there are no laws controlling how the money is spent, so the beneficiary is legally free to spend it on anything he or she chooses.
Confusing semantics is one of the problems with so-called funeral insurance: Consumers are marketed and sold a product that simply doesn’t live up to its name. Many of the seniors who purchase it unwittingly duplicate coverage they already have. Other potential problems, highlighted in a recent study, include:
false claims that the company processes claims far faster than other types of insurance
erroneous assertions that the plans are “low cost,” and
repeated failures to pay accurate interest due.
Finally, some plans include a waiting period during which few or no benefits are paid at death; if the insured dies before that time, survivors are forced to pay the costs out of pocket.
Pre-Payment Plans With Funeral Homes. When selling consumers on a prepayment plan, the funeral home is wearing two hats: agreeing to provide the goods and services specified, and also acting as an insurance broker eligible to claim an additional fee as a commission. Some prepayment plans are paid in a lump sum or installments, with some or all of the money deposited in trust with the funeral home as trustee; others are funded as insurance contracts—in which the funeral home is the named beneficiary and owns the death benefits. Not only does the policy purchaser give up all rights to own and control the money invested, but the funeral home is generally free to pocket any interest earnings or growth in the benefit above that specified in the plan.
After copious consumer complaints and lawsuits, there are now a number of legal controls on how the funeral industry can handle and invest funds marked for future services. But the fixes have been far from perfect—and many people too grief-stricken, stressed, or confused to press for the legal protections that do exist. In addition, many states require funeral homes to put only a portion of the prepaid money into a managed trust. When disputes have arisen, only the portion of the pre-paid money in the trust, sometimes as little as 60% of the total, may be protected and available to the consumer.
Finally, there are still reported abuses of mismanaged “preneed” or “prearrangement” accounts—and a number of states prohibit the arrangement completely for burial goods and services. Some potential problems:
Purchasers who change their minds and want to cancel the plans may not be given a refund.
States have differing laws on prepayment plans. A purchaser who moves not be able to have the funds transferred—or may find that different, unanticipated rules apply.
If the contracted funeral home goes out of business or declares bankruptcy, those who prepaid their final arrangements or their survivors, will likely be hard-pressed to recover any money at all.
If services or goods that were purchased initially are not available when needed, or the items were not specified adequately, survivors may be forced to cover pricier or unexpected costs.
The Better Way: Pay-on-Death Accounts
As a simple alternative to entering a prepayment commitment, consider setting up a pay-on-death account earmarked to be used to pay for final arrangements. Also called Totten Trusts, transfer-on-death accounts or revocable pay-on-death accounts, most banks or savings institutions will do this free or for a slight, one-time charge. During their lifetimes, account owners are free to make deposits to transfer or withdraw from the accounts as they see fit. At death, the money simply passes to the trusted person named to take it—who should be made aware that the funds are to be used for the original account holder’s final expenses.
There are several advantages to this type of account, including that:
The beneficiary does not have access to the funds until the account holder dies.
The account does not pass through probate court when the account holder dies, so is available immediately.
The beneficiary of the account can be changed at any time, simply by going to the institution where it was established and filling out paperwork.
The account is insured by the Federal Deposit Insurance Corporation separately, up to $100,000 for each beneficiary.
Help From Government Programs
While government programs do not generally foot the bill for all final arrangements, they may offer some help to those in need.
Social Security. The Social Security Survivors Benefits program pays a one-time lump sum “Death Benefit” of $255 to help pay for funeral or burial costs for anyone qualified to receive Social Security benefits. The money is paid to a surviving spouse who lived in the same home as the deceased, or to the child of the deceased person if there is no surviving spouse. Find out about eligibility instantly online by using the Benefit Eligibility Screening Test.
Veterans Benefits. The Veterans Administration (VA) is an often-overlooked resource that may provide some help with covering some final costs. There are a number of conditions imposed to qualify, but the prime ones are that the veteran cannot have been discharged dishonorably, and the survivors cannot have been reimbursed by another government agency.
For those who qualify, the VA will pay up to $300 toward funeral expenses and $749 as a plot-interment allowance if the veteran is not buried in one of the 135 national cemeteries the VA maintains. If the veteran was hospitalized by the VA at death, the VA will pay $749 toward burial and funeral expenses. And if the death was “service-related,” the VA will pay $2,000 to help defray burial expenses.
State Indigent Care Programs. In some states, the programs run for indigent residents—usually under the umbrella of Welfare or Medicaid—may provide some nominal funeral benefit if the deceased meets certain qualifications. There is often an added requirement of using the funeral homes on an approved list. And finding such programs may require a bit of patience and sleuthwork. To begin, get in touch with the departments of Social Services run by the state, county, and city where the deceased lived.