Preneed Funeral Plans: What You Need to Know

What Exactly is Preneed Funeral Planning?

Preneed Funeral Planning, a term widely used in the funeral industry, refers to the process of arranging and paying for a funeral before death. It’s a thoughtful approach to ensure that your wishes are respected and to relieve your loved ones of decision-making during a challenging time. Often, ‘Pre-arrangement’ is used synonymously with Preneed Funeral Planning, though it’s possible to prearrange without prepaying.

The Rising Trend of Preneed Funeral Planning

In recent times, the funeral industry has seen a surge in the promotion of Preneed Funeral Planning. From insurance companies to for-profit cremation societies and preneed associations, there’s an increased effort in advertising the benefits of these plans. But as with any decision, it’s important to be well-informed about the options and potential pitfalls. As the saying goes, “Let the buyer beware.”

Benefits of Preneed Funeral Planning

Preplanning your funeral comes with several advantages:

• Personal Choice: You have the autonomy to choose the type of funeral service that reflects your wishes.
• Reducing Stress for Loved Ones: Preneed Funeral Planning spares your family from making difficult decisions during bereavement.
• Informed Decisions: It allows you to shop around and compare services and prices at different mortuaries.
• Family Discussions: It promotes open discussions and shared decision-making within the family.

Options for Financing Preneed Funeral Planning

There are three primary methods to financially prepare for Preneed Funeral Planning:

1. Totten Trusts or Pay-on-Death Accounts: These are personal trusts or savings plans specifically set aside for funeral expenses. You retain control over the account, with the funds readily available upon death, bypassing probate delays.
2. Regulated Trusts: Most states regulate the sale of commercial trust agreements, providing a layer of consumer protection and ensuring a portion of your money is safely deposited in a bank or savings and loan.
3. Insurance-Funded Plans: These might include life insurance or annuity contracts, offering a growing death benefit to offset inflation. However, these typically don’t grow as quickly as bank savings.

The Upside of Pre-Paying for Your Funeral

Pre-paying for your funeral can be beneficial as it:

• Ensures Availability of Funds: Guarantees that finances are in place for your funeral service.
• Provides Peace of Mind: Especially if you don’t have anyone else to handle your arrangements.
• Asset Protection: It helps in setting aside funds distinct from other assets, particularly when applying for Medicaid.

Important Considerations in Preneed Funeral Planning

While comparison shopping is crucial in choosing funeral arrangements, be mindful of the varying costs for items like caskets and professional services. Also, make sure you understand what’s included in these services.

Pitfalls to Be Wary Of

Despite the advantages, there are drawbacks to pre-paying:

• Refund Policies: In many states, changing plans can mean not receiving a full refund.
• Inflation vs. Payment: The amount paid today might not cover increased future costs.
• Market Fluctuations: As the market evolves, so do the costs of funeral services.
• Financial Emergencies: Funds allocated for funeral arrangements may be needed for unforeseen emergencies.

Additional Pitfalls to Consider

• Incomplete Payments: Incomplete installment payments could lead to a significant reduction in your refund.
• Insurance Value: The cash value in insurance can be minimal.
• Business Continuity: The service provider might not be operational when the time comes.
• Interest Earnings: Part of the interest earned may be deducted yearly for administrative fees.

Key Considerations Before Committing

Before committing to a Preneed Funeral Plan:

• Refund Options: Ensure the plan allows for a full refund with minimal penalties.
• Safety of Funds: Your money should be in a federally insured bank.
• Plan Transferability: The plan should be transferable in case of relocation.
• Coverage Guarantee: Some funeral homes may not guarantee full coverage of arrangements in the future.

Medicaid Spend-Down and Preneed Funeral Planning

If you’re considering a Medicaid spend-down, certain states allow the allocation of specific funeral funds. For instance, Washington permits setting aside up to $1,500 for funeral expenses. A simple way to manage this is through a Pay-on-Death or Totten Trust. For burial preferences, a prepaid funeral plan might be more advantageous.

Conclusion: Approach with Care

Preneed Funeral Planning is a thoughtful way to prepare for the future. It’s about making decisions today that reflect your wishes and ease the burden on your loved ones. We encourage pre-planning, but advise caution when pre-paying.