Funeral FAQs #3
Q1. What happens to pre-payment money? What are some cautions/suggestions prepaid plans?
A1.Chris and Stephanie Goes, Goes Funeral Care & Crematory:
The Colorado Division of Insurance is cracking down more and more on poor funeral funding practices. There is hope that they will begin to audit funeral homes books regarding pre-payment plans in the very near future. They have been lax in this in the past. Most pre-paid money is now well invested, but it is highly recommended that the opinion of a trusted advisor be considered prior to pre-paying for funeral services.
Pre-paid funeral money is placed by funeral homes in either their funeral home trust or into a life insurance policy. It is recommended here that such funds be placed into a life insurance policy, or some other self directed investment, that being the safest option. The owner, purchaser, retains control and can use the proceeds anywhere upon death, as opposed to a trust or provider owned account where the money may be partially or fully spent and is tied to only one funeral home. Insurance is also a safety measure against the possibility of the funeral home going out of business(money disappears) or making any early withdrawals(or money disappears). Legally in Colorado, a funeral provider may spend a percentage of trusted money for current cash flow needs (25%) and keep any growth when money is placed into a “funeral trust”. This is done in exchange for guaranteeing prices in the future. A lot of folks like the idea of guaranteed prices without giving any thought to what will happen at the other end if something changes. Whole life insurance may not be the best possible “investment” but is still a good vehicle in which to place funeral expense money and to insure peace of mind. In any event, consulting with a trusted financial advisor, not a salesman, is always a good idea. Make sure the beneficiary is either the estate of the person or a family member or other individual with insurable interest. That would never be the funeral home or sales person. Funeral homes can be listed as the assignee of funeral benefits as their interests may be. Some states have their own state trust accounts that are 100% trusted. The investment will grow and all of it can be used at any funeral home anywhere in the country. We are hopeful that Colorado will consider this in the near future.
There is such a contract as an irrevocable and permanently assigned plan. Such a contract is only necessary if and when the owner needs to apply for Medicaid or public assistance and wants to or needs to preserve their money for the type of funeral plan desired. The irrevocability removes the money as an asset and sets it aside strictly for funeral use;
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