A Few Thoughts
Many people are interested in making funeral arrangements well in advance of the need. Any paperwork completed ahead of time will help simplify things when death occurs. Taking charge of your own planning insures your wishes are carried out and spares loved ones from the emotionally draining task of doing so later. Preplanning allows you to make advance financial arrangements. Finally, preplanning can be a valuable tool if Medicaid planning for long-term care becomes a necessity.
Details such as pallbearers, memorial donations to certain organizations and church officials to conduct the service can all be tentatively arranged and then changed, if necessary, when finalizing actual arrangements. It is easier to go over information already on file looking for possible changes than to start from the beginning. Also, many churches have formal or informal systems for keeping your funeral wishes on file – talk to your pastor, priest or other clergy.
When meeting with a licensed funeral director, you might want to ask for prices on everything to get an idea of what kind of cost will be involved. When making pre-arrangements, the funeral home representative will give you the different preneed options offered by the funeral home. Those options will be discussed further below.
You may be interested only in pre-arranging the funeral service and/or type of funeral and may not be interested in making specific selections of merchandise such as caskets, vaults, etc. If you select merchandise and actually make specific funeral arrangements, you will have an idea of how much money to set aside for the funeral. In either case the funeral home will be able to give you a copy of the arrangements decided upon. Remember to take into considerations that inflation may cause the price to increase with time.
There are a number of common ways to insure a funeral is properly paid for in advance.
PRENEED FUNERAL CONTRACTS
Preneed contracts are being marketed extensively and offer the opportunity for a person to fully consider his or her needs and wishes and control the cost and nature of funeral services desired. The contracts vary in terms of coverage and should, like any other purchase involving a substantial sum of money, be reviewed carefully before execution. We will be happy to work with you in that part of your overall estate planning process.
Preneed funeral contracts are governed by Article 13D of Chapter 90 of the General Statutes of NC and are under the jurisdiction of the NC Board of Funeral Service. NC law requires that any seller of contracts for preneed funeral arrangements must apply for and obtain a license from the NC Board of Funeral Service. Discussions concerning arrangements and/or pre-arrangements may only be handled by a person licensed by the State Board of Funeral Service, insuring that a trained professional provide you with correct information and advice. Do not contract with any seller who does not have such a license. With most well-known and established funeral service providers, this should not be a problem.
PRE-FINANCING ARRANGEMENTS
Two words to become familiar with in the area of pre-financing a funeral are revocable and irrevocable. A revocable contract may be canceled at any time by the purchaser. An irrevocable contract cannot be canceled but its benefits can be transferred to any provider of your choice at any time prior to need.
In order to qualify for medical assistance (Medicaid) an individual is allowed to shelter funds set aside from payment of funeral expenses as long as the funds are put aside in an irrevocable contract. Many of the preneed contracts are set aside as irrevocable for this purpose. See The Medicaid Planning Process.
TYPES OF CONTRACTS
In North Carolina there are primarily two different ways to pre-finance or pre-pay for a funeral which should cover all costs incidental to a funeral service.
I. PRENEED TRUST AGREEMENTS. In such an arrangement, money to pay for the funeral is placed in a bank, trust company, savings bank, or savings and loan association in North Carolina. The licensed funeral home which acts as trustee for the funds may withdraw the funds put in trust once it has performed the preneed contract.
Some things to consider with this contract include:
A. Taxes on the interest earned — No matter what type of account your money goes into (savings, CD, etc.) income taxes must be paid on the interest earned. The funeral home acting as trustee for the account should advise you as to the amount of earnings on the account and should provide you with reporting information.
B. Earnings on the account — The interest earned on the account will be added to the trust, therefore, allowing it to grow until the funds are needed to actually pay for the funeral. Hopefully the earnings on the account will cause the trust to grow to keep up with inflation. Some funeral homes offer inflation-proof contracts which guarantee the purchaser that the pre-arranged funeral will be handled no matter what the cost at the time of death.
C. Fees — If you, as purchaser, agree and the contract is funded by a trust deposit, the funeral home may retain up to 10% of the payments as administrative expenses provided; however, it gives credit for the amount retained at the time of need. If the trust is transferred to another funeral home, the original funeral home may retain up to 10% of the trust amount as administrative expenses and does not have to give credit for the retained amount.
II. INSURED PRENEED ARRANGEMENTS. Insurance policies can be used as a means to finance preneed contracts in North Carolina. The proceeds of a specially designed policy, for a specified amount of money, pay the preneed contract amount at the time of need.
Because there are many different kinds of insurance options available, you should look over the policies and plans carefully. For example, in addition to trust-funded inflation-proof preneed contracts, you will also find inflation-proof insurance-funded contracts.
All preneed contracts, whether trust funded or insurance funded, must be recorded with the North Carolina Board of Funeral Service. A filing fee of $18.00 must accompany each contract. After filing and within thirty days, the recording of the contract is acknowledged in writing to you, as purchaser, by the Board.
