When a final funeral bill was presented for $3,695, there was no mention of the $587 that had been prepaid, let alone any interest that might have accumulated. The family was shocked. A simple cremation and graveside service was all they had arranged. A scramble through Annie’s shoe box of important papers turned up no receipts. Annie had never used checks; she always paid in cash.
Insurance policies generate a relatively low rate of appreciation. The seller gets a commission, and the insurance company pays itself to invest the funds. “Insurance-funded preneed arrangements are the fastest growing preneed product on the market,” says Lee Norrgard. A number of funeral-related companies are getting into the funeral insurance business. “Forethought”—which is sold through funeral homes—is managed by the Batesville Casket Company and guarantees to “freeze” the wholesale price of the casket to your funeral home. But the low rate of growth on the policy—estimated at 3.63 percent—doesn’t match overall funeral inflation. “I can handle that,” said one undertaker, “because my prices are where they should be” (high, one would find) “and I don’t mind guaranteeing the funeral price.” Unless the funeral home chooses to make such a commitment, survivors may be hit with additional costs.
Master trusts set up by morticians’ associations exist in thirty-two states. Only some of your prepaid funeral money may end up in the trust, depending on state law. Colorado, for example, requires a deposit of only 75 percent, allowing the funeral director or other sales agent to pocket a 25 percent commission. State associations that promote these trusts are paid a quarterly fee based on total investment—a strong motivation to push them. Commingled funds can be invested at a high rate of return which allows your account to grow at more than 5 percent on average while still covering the various fees. Some contracts use this growth to guarantee funeral goods and services; some do not. A few states permit a funeral home to withdraw an annual administrative fee, but most mortuaries leave it in the trust to grow, according to Nancy Gorchoff at the Access Financial Group, which manages such accounts for several states. The trust fund group takes care of reporting the interest. How much you get back if you were to cancel your arrangements would vary from state to state. Even the states that require 100 percent trusting permit the undertaker to claim an administrative fee.
A pay-on-death trust account at your local bank will give you the most control and flexibility. Sometimes called a “Totten Trust,” it can be moved easily if you do; it’s as safe as the bank it’s in. Pennsylvania attorney David Morrison, who specializes in elder law, recommends that you name yourself, or a close friend or next of kin—not the mortuary—as the beneficiary.
Whether you choose an irrevocable funeral plan or not will depend on whether you need to shelter assets prior to applying for SSI or Medicaid. Morticians are always eager to sell an irrevocable funeral contract, especially if you have arranged for a rather elaborate exit. Most people think that when it’s “irrevocable,” the body is all but in the hearse, and some funeral directors may use the “irrevocable” ploy to keep the arrangements fixed.
When her father died at a very old age, P.F. decided to opt for an immediate cremation rather than the funeral with viewing for which he had already paid. All her father’s friends had died, and the few scattered relatives would not be able to attend. When the funeral home refused to honor her request to change the plans, she walked out, then transferred the body—and the funeral funds—to another mortuary.
Mrs. S., after hearing a social worker at the senior center advise about protecting funeral money before ending up in a nursing home, promptly visited the local funeral director to make arrangements. She wanted to be embalmed before she was cremated, she said—just to make sure she was dead. The funeral director started adding various other charges to the list on his yellow legal pad (urn, urn vault, tent at the cemetery) until the total was over $3,200. Mrs. S., eager to protect her children from any worry or expense, wrote a check on the spot, made out to the local bank where her trust account would be held. But after a few weeks, she was troubled. She had selected cremation because she wanted to keep the cost down. A bill of $3,200 seemed like too much, so she wrote to the state Funeral Board. There was nothing the board could do, she was told—her plan was “irrevocable.” Only after the intervention of the local memorial society—which pointed out numerous FTC violations in the transaction—and the help of an interested employee in the Department of Banking and Insurance did the funeral home agree to refund her money.
Irrevocable plans can almost always be transferred from one funeral home to another, but few morticians will offer this information. When Mrs. H. moved in, the nursing home insisted that funeral arrangements be made without delay. Her daughter—without any consultation—arranged for a $4,000-plus funeral at the only funeral home in town, written up in an irrevocable funeral contract and paid for from Mrs. H.’s own checking account. It had been difficult for Mrs. H. to manage her affairs—arthritis had taken away her sense of independence and control, and she’d depended on her daughter to write her checks, among other things. But she knew that the $4,000 funeral was not to her liking. With the help of a Senior Law Project attorney, she was able to transfer her “irrevocable” funeral plan to another funeral home. After writing up an irrevocable agreement for a $695 cremation, the new funeral director instructed the bank to refund the difference.
In short, an “irrevocable” trust does not require you to give up all rights to control your investment. If a funeral director attempts to take undue advantage of your situation, you may have legal recourse.
In most cases, shielding assets in order to qualify for government benefits is the only sound reason for paying for a funeral in advance. The only way to do that is with an irrevocable trust. But keep in mind that even though your trust account is irrevocable, you will be responsible for declaring the interest income because it will ultimately be used for your benefit. Mrs. M., in South Carolina, was irate: “The funeral home sent me a statement showing how much interest I’m supposed to declare on my income tax return. I don’t have that money anymore, and when I die the funeral home will get it all. Why should I have to pay taxes?”
20. NEW HOPE FOR THE DEAD
At the June 1996 Nashville gathering of nonprofit funeral and memorial societies, Lisa Carlson—the executive director of the Funeral and Memorial Societies of America (FAMSA)—issued a call for social activism:
If every mortuary in the country offered fair prices and a wide range of options, did not indulge in manipulation of the grieving, did not hide the low-cost caskets, did not dominate the funeral boards with self- serving regulations, did not limit the options for caring for your own dead in certain states or who can sell caskets, there would be no reason for our societies. We are the only national group monitoring the funeral industry for consumers. We have an obligation to protect the public at large, not just our members, especially given the high rate of noncompliance with the Funeral Rule.
The following year—with the cooperation of other consumer groups including AARP and the Consumer Federation of America—FAMSA petitioned the FTC to reopen the Funeral Rule for new amendments. Key objectives will be: to outlaw the nondeclinable fee, to legitimize private viewing of unembalmed bodies, to specify costs in connection with body donation, and to bring cemeteries under the coverage of the Funeral Rule. The situation will demand close attention from consumers, given the predictable response from the industry—which is happy, indeed, with the rule as it stands.
Who are these meddlesome do-gooders willing to take on a well-heeled and powerful industry? “Unitarians, Quakers, eggheads, and old farts who are nothing more than a middleman for the industry and a cheap funeral,” was one glib characterization. Carlson cheerfully acknowledged that she qualifies for “at least three of those four.”
The practice of group planning for funeral arrangements started early in the century in the Farm Grange organization in the Northwestern United States. From there the idea spread to the cities, mainly under church leadership. The People’s Memorial Association of Seattle, organized in 1939 by a Unitarian minister, was the first urban group. Organizations spread gradually along the coast, then eastward across the United States, and again northward into Canada. Vancouver boasts the largest such society today, with over 100,000 members.
By 1963 the societies had become a continent-wide movement, and the Cooperative League of the USA called a meeting in Chicago, where Canadian and American societies together formed the Continental Association of Funeral and Memorial Societies. Canadian societies later dropped out, and the name was changed to the “Funeral and Memorial Societies of America” in 1996.
