With the costs of funerals and land plots within cemeteries rising, it is always good practice to shop around for an affordable funeral. However, you should be very wary of funeral payments that are called for in advance, or prepayments. There are a number of pitfalls that come with funeral prepayments.
This article is designed to point out some of the considerations you should make when deciding on how to pay for a funeral, especially prepayment plans. See Funeral Planning Guide FAQ and Estate Planning Checklist for more information.
Despite the many laws and regulations that are in place that specify how money given to funeral homes as a prepayment for services should be earmarked and managed, many funeral homes and service providers misuse, lose and steal these funds. To exacerbate these problems, many of these thefts and mismanagements are never reported to authorities because the people that would report it are quite often grief stricken and do not wish to dwell on the problem.
There are other potential pitfalls that consumers should be aware of. If you prepay a funeral home for services and it goes out of business, or declares bankruptcy, you may have little to no recourse in getting your money back. As well, if you prepay for funeral services in one city, and then move to another city, you may be dismayed to find out that the money you gave is non-refundable, or that you agreed to a substantial penalty for pulling your money out. Finally, if you prepay now, you may not be considering the future cost of funeral services. If land prices skyrocket between now and you funeral, you may leave your surviving family members with a large bill that they may not be able to pay.
According to U.S. News and World Report, about over 20% of people over the age of 50 have prepaid, either partly or in full, the costs of their funeral in order to save their families from having to deal with funeral payments during their grieving process. However, there are other options available to you aside from paying a funeral home up front. Instead, you should considering going to your bank and setting up a Totten Trust that will be used to pay for your funeral expenses (you can also specify how you want the money in the trust to be used after your death).
By setting up a trust with a bank instead of allowing a funeral home to place your money in a trust, you cut out a substantial risk of monetary loss. If you move and want your funeral in your new city, you do not have to move the money with you, as you have not selected your desired funeral spot. Banks are also usually much better at not squandering or mismanaging money. And, depending on how you set up the trust, you can remain in control of the money up until your death.
If you need additional help planning your funeral payments, consider speaking with an estate planning lawyer in your area.