For many families, it makes sense to anticipate the funeral and burial costs associated
with the death of a loved one. There are a variety of ways to prepay a funeral.
The funeral director can set up a trust to hold the money that will be used to pay
for the funeral. A life insurance policy can be purchased equal to the value of
the funeral. Or, you can establish a bank account or a Certificate of Deposit (CD)
at a bank that is designated as "payable on death" (POD) to the funeral home.
There are a number of questions you should ask when making pre-need financial arrangements,
including:
- What happens to any interest the account earns?
- Who pays taxes on the interest?
- Is the prepayment refundable?
- Who is responsible for covering any increases in the costs of the funeral over time?
- Can the prepayment be transferred to another funeral home, if you move?
- What happens if the funeral home is sold or closes?
If you do decide to make arrangements in advance, keep these important issues in
mind:
- Choose a licensed funeral director who has a good reputation in the community.
- Make sure your funds are invested appropriately so that they will cover the costs
of the funeral when the time comes.
- Make sure the plan is flexible, taking into account the fact that you might move
or want to make changes to your plan.
- Consider carefully before accepting an irrevocable (non-cancelable) agreement. This
type of agreement may make the most sense when eligibility for public benefits such
as Medicaid and Social Security are being determined.
- Have a family member sit in and help plan while you are making arrangements.
- Read the contract carefully before signing.
- Keep a copy of your plan in a safe place and be sure to let someone close to you
know where to find it.
- Make sure everything you talk about is put into writing.
Another important piece of the pre-need planning effort is creating a will. You
will need to consult a lawyer to do this properly, but before sitting down with
him or her, you should start thinking about what you’d like to have happen when
you die. Keep in mind, too, that a will does not override the beneficiary designations
you make when you purchase insurance policies and set up investment accounts – be
sure to keep those up to date as well.
Here are some key points to consider as you begin the process of drawing up a will.
Among other things, you will need to specify:
- The executor of the will – Who will be comfortable making any decisions regarding
managing the process of executing the will?
- Guardianship of children – With whom will they live?
- Establishment of trusts – Is it appropriate to create a trust for the assets you
will leave?
- Bequests – To whom would you like to leave your things?