A person can enter into a written agreement with a funeral director to arrange for his or her own funeral. This agreement spells out the particular goods and services being purchased and the corresponding costs, total price and payment method. The funeral director is supposed to hold the money until death, at which time the money is to be applied to the services performed as set forth in the agreement.The funeral director must deposit 70% of the monies received in the burial trust account at a bank within 30 days after final payment by the purchaser. In an installment contract, the funeral director must deposit 70% of each installment in a burial trust account.
Advantages
Prepaid funeral arrangements have some advantages. They give an individual the opportunity to control the details and costs of his or her own funeral. The funeral director is bound to deliver the goods and services at the price agreed upon in the contract. They also relieve family members of the responsibility of making these arrangements at a time when it may be difficult for them to do so. In the event there are no family members or friends who will take care of funeral arrangements at the time of death, the pre-arranged funeral contract gives assurance that the individual's wishes will be carried out.
If you are applying for Medical Assistance (MA), having a prepaid funeral or an irrevocable burial trust account is an "exempt" resource.
Disadvantages
The main disadvantage of prepaid funeral plans is the potential for fraud. Before signing a prepaid funeral agreement, the individual should understand it thoroughly. It is particularly important to know what provisions for cancellation the contract has in the event of a move to another place or the need to cancel for other similar reasons.
If the purchaser defaults, the funeral director may keep 30% of the contract price as liquidated damages, but must return the remainder. If the purchaser moves out of state, the purchaser can cancel the contract. Upon cancellation, the purchaser is entitled to get the principal amount of deposit back from the bank and the funeral director is allowed to keep the interest.
It is also possible to set up an irrevocable burial trust account in a bank for the purpose of covering burial or funeral costs. The account can be set up in a way that allows a particular funeral director or cemetery to receive the proceeds in the account at the time of the client's death. It is not necessary to designate a particular funeral director or cemetery. That decision may be left to the discretion of an executor or other representative. In the event there is a surplus in the account after expenses are paid, the surplus is payable to the estate. The burial trust account eliminates the potential for fraud; however, the individual does not "lock in" the costs (as in a prepaid funeral contract).
