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Pre-paid funerals: is this an option for you?

by Susan E. Lanza

Planning ahead and paying for your own funeral can seem like a grizzly task but it is a way of making your specific wishes known to your loved ones while relieving them of the financial burden. How do you know if this option will work for you? Take a look at the pluses and minuses of this new alternative in after care services.

You have worked hard all your life and been careful with your money and assets. To ensure that your health care wishes will be heard if you ever are incapacitated, you've designated a health care proxy or person to represent you in critical health care decisions. You've been responsible to make a will outlining the disposition of your estate when you die and your insurance policies are up to date. The beneficiaries are clearly identified. Despite all that organization and planning have you thought of your funeral needs, and even more importantly, how any funeral or burial expenses be will paid by your remaining kin?

For many seniors, contemplating funeral arrangements for yourself may be the furthest thing from your mind. Some seniors may have done the pre-planning of how they may want to be remembered in death such as "no public viewing" or "I want to be cremated". However, as funeral and burial service costs continue to escalate, paying in advance or pre-paying for funerals is emerging as a choice that can make sense.

What is a Pre-Paid Funeral?

A pre-paid funeral is an agreement made with a funeral home or service company for you to pay in advance for the funeral and burial services that you select. This agreement or contract can vary depending on your state, but usually it spells out the total cost of the arrangements that you would like along with how you will pay, either a lump sum payment or installment payments over a period of time.

Advantages of a Pre-Paid Funeral

The greatest benefit of orchestrating a pre-paid funeral is the peace of mind for yourself and loved ones that arrangements are in place for your funeral. This alleviates the worry for survivors about how the bills will be paid as well as whether all your desires were met. Usually the contract with the funeral home will also outline basic services plus how to handle situations that could arise later such as additional funds that may be required or who should get any remaining funeral planning money if it all isn't used.

One of the occasions when pre-paying makes the most sense is for those seniors who are applying for financial assistance such as Medicaid for long-term care and cannot exceed a certain asset level. Medicaid will allow a certain dollar limit to be set aside for pre-paid funeral arrangements that are not counted toward assets. The pre-paid funeral amount permitted by Medicaid may vary from state to state but $1500.00 is the standard amount. In this case, these seniors would be able to set funds aside for funeral arrangements without jeopardizing their financial aid. This can also assist them with "spend-down" requirements when applicants need to reduce their assets in order to qualify for Medicaid.

Disadvantages of a Pre-Paid Funeral

As positive as this option may sound, it does have drawbacks that you need to be aware of. First, the terms of any funeral service contract have to be clear and favorable to you as the purchaser. A contract that allows you to change your mind and get your money back would be a better choice than an agreement that is irrevocable.

You also need to see where and how your money is being held for you. Is it in an interest bearing account owned by the funeral home? What options do you have if the funeral home goes out of business? Or is it in a separate account in your name, payable to a family member or certain funeral home upon your death? What if you move to a different state - will the agreement still be valid? These are all questions that should be explored before signing any pre-paid agreement. In any industry scam artists do exist, so be sure to protect yourself.

Establishing a dialogue with a funeral home that you are familiar with should ease your anxieties. Make an appointment with a funeral home director to go over all your questions and don't commit anything to writing until you have all your answers. It would also be wise to alert your next of kin about your pre-planning and pre-paying of your funeral arrangements to avoid paying again for services that you have already handled.

If pre-paying now still doesn't seem right for you, consider your loved ones by at least outlining your wishes and notifying them of how this should be paid. In the long line of adult tasks we each have to do, this is one final detail that will bring relief at a trying time.