Financing Funerals in Advance

Whenever I prepare for a journey, I prepare as though for death. Should I never return, all is in order.” ~ Katherine Mansfield, Writer

Reasons to finance your funeral in advance

Financing your funeral in advance can offer several advantages. Just as many people plan ahead for retirement, a child’s education and other life events, paying in advance for funerals can offer several conveniences:

  • Family members will not be faced with paying for your funeral expenses.
  • Paying in advance can offset inflationary price increases.
  • Certain funds designated for funeral expenses may not be counted as assets when applying for Medicaid in the U.S. Likewise, growth of prepaid funeral funds is not taxable in Canada according to section 148.1 of the Canada Tax Act.

Factors to consider before selecting a funding option:

Most areas have laws that govern the prepayment of funeral goods and services to ensure that funds are available to pay for funeral expenses when needed-- specific protections vary widely by state/province. Below are some general factors to consider:

  • Funds may be transferred to a different funeral home should you move. 
  • Covering inflationary price increases is not guaranteed and depends on adequate growth of the investment option you select.
  • A termination penalty may apply if you stop making payments into the investment option.
  • State/provincial regulations may allow the funeral home to retain a percentage of the balance.

How to pay for a funeral in advance

Common options for setting money aside for funeral expenses include the following (products and services vary by state/province):

Regulated trust
You may authorize a funeral home to invest money in a trust so that the original funds will grow over time and offset inflationary price increases. Trusts are regulated in most state/provinces. You may either contribute a lump sum or make a significant partial investment followed by additional payments over time.

Life insurance policy
You may purchase a life insurance policy equal to the value of the funeral and name the funeral home as the beneficiary. The policy may be purchased in one payment or through a series of payments over a set period of time.

“Payable on death” account (or Totten Trust)
You may designate a savings plan, money market or certificate of deposit for funeral expenses payable to a beneficiary of your choice. Naming the funeral home as beneficiary (“payable on death”) ensures that funds will be available for funeral expenses without going through time-consuming probate.

Questions to ask

Below are a few questions to ask your local Golden Rule Funeral Director about financing funerals in advance:

  1. If you authorize the funeral director to invest your funds, where will they be placed, how much interest is expected, and what happens to the interest?
  2. What happens if prices for the services and merchandise you select increase over time?
  3. What happens if your investment fund grows larger than the cost of your funeral?
  4. What happens if you cancel your preneed contract and to what refunds are you entitled to?
  5. Are you are able to transfer your funds to another funeral home if you move or if the funeral home goes out of business?
  6. What expenses won’t the preneed funds cover, such as transportation should you die away from home, obituaries or flowers?
  7. How long after death will funds be available to pay for funeral expenses?

List of additional resources

Below is a list of resources to help you learn more about financing funerals in advance:

Funeral Consumers Alliance → www.funerals.org

Funeral Ethics Organization → www.funeralethics.org 


Sources

National Funeral Directors Association (“Prefunding Options,” n.d.), Funeral Consumers Alliance (“Should You Prepay For Your Funeral? Safer Ways to Plan Ahead,” n.d.), U.S. News & World Report L.P. (“Should You Prepay Your Own Funeral Expenses?,” Feb. 15, 2008)


If you are a Golden Rule Funeral Home and want to give this information in print to families, click here.

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