If you are beyond age 65 or have serious medical issues, there is no doubt you should pre-plan your funeral. It may be difficult to acknowledge your own mortality, but there are significant advantages to preplanned funerals:
- You spare your family the burden of making your funeral arrangements at a time when they are grieving; and
- You get to decide on the details: burial or cremation, type and location of services, specific music and readings to be used, preference of flowers or memorial donations. You can even pick your own casket and draft your own obituary.
There should be no cost to pre-plan your own funeral at a reputable funeral home.
“Should you pre-pay for your funeral?” is a thornier question. According to the Federal Trade Commission, individual state laws regulate the funeral industry. Protections vary widely from state to state, sometimes opening a window of opportunity for unscrupulous operators. Still, prepaying for your funeral can relieve your loved ones of an immediate financial burden, and it is a tax free death benefit, as well as being Medicaid exempt.
Your prepayment should never be placed in the general account of a specific funeral home. Most likely, your prepayment will purchase a life insurance policy from an A‑rated insurance company. Be sure to get an itemized contract showing which prices are and are not guaranteed. The value of the life insurance policy should keep pace with increases in the guaranteed items. It should also be transferable to another funeral home, should you move from your current locale.
An alternate way to ensure there is money available to pay for the funeral is to set up a payable-on-death account (POD) with your bank, or a transfer-on-death account (TOD) with your broker. Your beneficiary should be the trusted individual who will be handling your funeral arrangements. Make sure they know your plans and the purpose of the account. You or your investment adviser can invest the funds to keep pace with the anticipated increases in your funeral costs. You will maintain control of the money while you are alive, but it will be available immediately when you die, without having to go through probate.
The Federal Trade Commission has a lot to say on this issue. Please see their useful series of articles titled, “Shopping for Funeral Services.”