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T&E TALK: Watch Out For Pitfalls in Prepaid Funeral Plans

Scott T. Ditman, CPA/PFS 05.22.2017 | T&E TALK

The cost of a funeral has increased steadily during the past two decades. To relieve their families of the burden of planning and funding a funeral, some people plan their own and pay for them in advance. Unfortunately, prepaid funeral plans are fraught with potential traps.

Avoiding the Pitfalls of Prepaid Plans

Some plans end up costing more than the benefits they pay out. And there may be a risk that you’ll lose your investment if the funeral provider goes out of business or you want to change your plans. Some states offer protection — such as requiring a funeral home or cemetery to place funds in a trust or to purchase a life insurance policy to fund funeral costs — but many do not.

If you’re considering a prepaid plan, find out exactly what you’re paying for. Does the plan cover merchandise only (casket, vault, etc.) or are services included? Is the price locked in or is there a possibility that your family will have to pay additional amounts?

In addition, the Federal Trade Commission recommends that you ask the following questions:

  • What happens to the money you’ve prepaid?
  • What happens to the interest income on prepayments placed in a trust account?
  • Are you protected if the funeral provider goes out of business?
  • Can you cancel the contract and get a full refund if you change your mind?
  • What happens if you move or die while away from home? Can the plan be transferred? Is there an additional cost?

Another Option

One alternative that avoids the pitfalls of prepaid plans is to let your family know your desired arrangements and set aside funds in a payable-on-death (POD) bank account. Simply name the person who will handle your funeral arrangements as beneficiary. When you die, he or she will gain immediate access to the funds without the need for probate.

If you have questions on the best way to fund your funeral expenses, we’d be happy to be of assistance. I can be reached at SDitman@BerdonLLP.com or call your Berdon advisor.

Scott T. Ditman, a tax partner and Chair, Personal Wealth Services at Berdon LLP, advises high net worth individuals and family/owner-managed business clients on building, preserving, and transferring wealth, estate and income tax issues, and succession and financial planning.

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