Planning for end-of-life expenses brings peace but is about the last thing most adults want to deal with. At least not right now.
A traditional funeral with end-of-life services with extras like flowers, obituary notices, acknowledgment cards and limousines can bring the total to $15,000 or more. Families often overspend on a funeral or burial because they think of it as a reflection of their feelings for the deceased.
Recently, I heard from one of my Everyday Cheapskate readers, responding to a previous column. She brought up an important topic, one that is not an easy to address. Here’s her letter:
Dear Cheapskate: My comment is in response to “Where to Keep Money for Mom?” and to Bonita in South Dakota, who was looking for input on how to invest $10,000 for her 62-year-old mother who has no savings, no life insurance and lives on disability.
I would recommend they go to any funeral home and work with the person there who handles prepaid funerals. Essentially, you are purchasing an insurance policy to cover the funeral costs. We did this for my dad before he moved into a long-term care facility, which was going to drain his remaining assets to $0. A prepaid funeral policy is excluded from the asset base, is protected once the assets are gone and a person goes on medical assistance.
With all the other drama that comes with aging parents, it is nice for my sister and me to know that the end is covered and won’t create another drain/strain on everything. — Molly
My response to Molly:
Dear Molly: Thanks for this wise advice. In fact, many elder law attorneys advise prepayment as a way to invest in assets that will not be countable by Medicaid or SSI.
However, I want my readers to know that there are pitfalls on the road to prepaid end-of-life arrangements, which they need to know about in order to avoid falling into them. Buyers beware.
Consumers lose millions of dollars every year when pre-need funeral funds are misspent or misappropriated. A funeral provider could mishandle, mismanage or embezzle the funds. Some go out of business before the need for the prepaid funeral arises. Others sell policies that are virtually worthless.
Consumers received some protection from unscrupulous funeral providers with the creation of the Funeral Rule in 1984. This rule, administered by the Federal Trade Commission, requires funeral providers to give consumers accurate, itemized price information and other specific disclosures about funeral goods and services. The problem is that many of these kinds of end-of-life contracts are governed by state laws and vary greatly from one state to another.
Following are some questions that the FTC recommends asking before signing up for a pre-need funeral arrangement. The questions are from the FTC’s booklet, “Shopping for Funeral Services.”
- What happens to the money you’ve prepaid? States have different requirements for handling funds paid for prearranged funeral services.
- What happens to the interest income on money that is prepaid and put into a trust account?
- Are you protected if the organization you dealt with goes out of business?
- Can you cancel the contract and get a full refund if you change your mind?
- What happens if you move to a different area or die while away from home?
- Can your end-of-life prepaid funeral plans be transferred?
Sometimes it’s more convenient and less stressful to price shop funeral homes by phone. The Funeral Rule requires funeral directors to provide price information over the phone to any caller who asks for it.
Should you run into problems or have questions about your state’s laws, most states have a licensing board that regulates its funeral industry.
Mary Hunt is the founder of EverydayCheapskate.com, a frugal living blog. Visit her at EverydayCheapskate.com. For questions/comments, contact her at https://www.everydaycheapskate.com/contact/, “Ask Mary.”