Planning for parents' end-of-life expenses is about the last thing most adult children want to deal with. At least not right now.
A traditional funeral costs about $6,000, although extras like flowers, obituary notices, acknowledgment cards and limousines can bring the total to well over $10,000. Families often overspend on a funeral or burial because they think of it as a reflection of their feelings for the deceased.
Dear Mary: My comment is in response to a letter on the Everyday Cheapskate website from Bonita in South Dakota titled "Where to Keep Money for Mom?" She was looking for input on how to invest $10,000 for her 62-year-old mother who has no savings or 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 zero dollars. A prepaid funeral policy is excluded from the asset base and 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
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 dear 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 the FTC recommends asking before signing up for a pre-need funeral arrangement. The questions are from the FTC booklet. See also the FTC "Shopping for Funeral Service" webpage.
What happens to the money you've prepaid? States have different requirements for handling those funds.
Who will get the interest income on money that is prepaid and then put into a trust account?
How will you be protected if the funeral provider or the insurance underwriter it uses goes out of business for some reason?
Can you cancel the contract and get a full refund if you change our minds?
What happens if you move to a different area or die while away from home?
Can your prepaid funeral plans be transferred, and if so, what is the additional cost?
Sometimes it's more convenient and less stressful to price-shop funeral homes by telephone. The Funeral Rule requires funeral directors to provide price information over the phone to any caller who asks for it.
If you run into problems or have questions about your state laws, most states have a licensing board that regulates the funeral industry.
For specific information on how to obtain the resources mentioned above, go to EverydayCheapskate.com/funeral.
Mary invites questions, comments and tips at mary@everydaycheapskate.com, or c/o Everyday Cheapskate, 12340 Seal Beach Blvd., Suite B-416, Seal Beach, CA 90740. This column will answer questions of general interest, but letters cannot be answered individually. Mary Hunt is the founder of www.DebtProofLiving.com, a personal finance member website and the author of "Debt-Proof Living," released in 2014. To find out more about Mary and read her past columns, please visit the Creators Syndicate webpage at www.creators.com.
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