by Ron Threadgill • January 31, 2020
In our series on pre-planning and pre-paying we have covered the need to discuss your future funeral services and arrangements in Part 1, and how to navigate some of the challenges within family dynamics in Part 2.
With your favorite refreshment at your side, choose a good day to sit down with your loved one and imagine they just died. Your loved one is not to speak for the next 20 minutes while you consciously decide what the exact next steps are—who to call, where to find relevant documents, and so forth. Take note of the information you are unsure of or don’t know. Now, reverse roles with your loved one: you have just died. What are they going to do?
This simulation can often enlighten you to the responsibilities that many by surprise! It can also be a catalyst that begins the process of attaining peace of mind knowing a plan can be designed and put into place.
Repeat this simulation when you have the following information for yourself and your loved one:
- Vital statistics: legal name; place of birth; birth date; social security number; parents’ names (including mother’s maiden name); education level; job title and career industry; and, if a veteran, military discharge papers (DD-214)
- Estate planning documents (such as wills, advance directives, etc.)
- Cremation or burial decision, cemetery location, and contact information of the funeral home selected
With frequency, this discussion becomes more comfortable and more productive, thus providing you with greater peace of mind. Make this a regular topic in your home. All pre-arranged decisions can be reviewed and reconsidered over time or as new information or circumstances come to light.
Making pre-arrangements consist of providing some detailed information. Examples are a death certificate, completion of authorization forms (for burial or cremation), military documents (DD-214), the decision of a cremation or burial, and payment plans to pay for services. Some individuals choose to set cash aside or create a separate savings account with access granted to whoever can make decisions at the time of death. Other pre-payment options, such as pre-payment to a third-party administrator, can be discussed with your funeral provider or pre-arrangement counselor.
A third-party administrator is a disinterested party who holds funds in an interest-bearing account in the name of the person pre-paying. The selected funeral home can “price protect,” or price guarantee, the sum held by the third-party administrator; this protects the funds against inflation of future funeral price increases. The interest earned is used by the funeral home to offset inflation of future goods and services. These funds can be designated as “irrevocable,” meeting Medicaid and spend-down requirements. It also protects individuals from theft by misuse or unauthorized liquidation.
A third-party administrator offers two options: a pre-paid funeral insurance policy or a pre-paid funeral trust. I recommend a pre-paid funeral insurance policy paid in full at the beginning; this makes it complete, irrevocable, and resolved! Life insurance, with monthly payments, has higher premiums to cover the cost of the insurance along with the pre-paid plan. Most funeral insurance companies also set a graded death benefit with these policies. This means the full value of the intended death benefit does not meet the needs of a pre-paid funeral plan until the third or fourth year of the accumulated premium payments. There is an adverse risk with monthly payment life insurance. A missed payment will cause the policy to lapse, all funds paid will be forfeited, and no coverage will be available. To reinstate a lapsed policy has timeline restrictions.
In short, when monthly payments towards an insurance-based pre-paid funeral plan are considered, consult with an insurance professional and review a term or permanent insurance plan that will cover more family needs in addition to funeral costs.
The second option offered by a third-party administrator is a funeral trust. A funeral trust is a pre-paid funeral savings account with documents that “price protect” the selected funeral plan with a chosen funeral home. Part of a funeral trust is a payment schedule for a designated number of years until paid in full. This account earns a small interest amount annually and includes a year-end statement sent to the owner to be included on individual tax returns.
I typically recommend a funeral trust when pre-planning a funeral is desired, but vulnerable cash flow is a concern. With a funeral trust, funds contributed will not be forfeited if a payment is missed and can be used at the time of death. Always read the fine print and understand all facets of your chosen pre-payment plan.
Insurance or trust plans can be transferred to another Funeral Home should you move to another city or state, or decide to use a different funeral provider. If benefits are transferred, the new funeral provider does not have to honor the price guarantee of the pre-paid plan.
Ethical Pre-need sums up my pre-need philosophy. Decide for yourself when you are ready to implement a plan. It is my responsibility and privilege to provide you all the information necessary for you to make the best decision for you.
ABOUT THE AUTHOR
Ron Threadgill is a Funeral Director and co-owner of Threadgill’s Memorial Services LLC in Beaverton, Oregon, with over 20 years’ experience in the Funeral and Pre-planning industry. He has an extensive Estate Planning background and understands the variables of ethical final expense planning and how it fits into an estate. He has had an Oregon Insurance License for almost 25 years and previously held a Securities 6 & 63 license.