Pre-Planning Your Funeral Arrangements

What it Means

Pre-planning funeral arrangements means exactly that: planning a funeral for yourself, a relative or a friend, prior to death. It is possible to pre-plan funeral arrangements without spending any money by simply scheduling an appointment time with the funeral home and or cemetery of your choice. Most funeral homes and cemeteries will not charge you to come in and pre-plan funeral arrangements. They are able to do this by scheduling pre-arrangement conferences at times when they are not busy.

When calling a funeral home or cemetery to set up a pre-arrangement conference you should ask if there will be a charge for simply sitting down to make the arrangements. If so, you should ask how much and when payment will be due, so you can take that into consideration when selecting a site to conduct business. Attorney General Opinion #86-123 issued on August 27, 1986 states: "..a preneed seller is free to immediately deliver those services, receive payment in a lump sum or by installment... if a separate contract is entered into providing for those services, and for payment. If the payment for consulting services is made part of the pre-need contract, then all money thereunder must be deposited in trust."

More about the money aspect will be covered under pre-financing, but in most cases funeral homes and cemeteries will not charge you when pre-arranging a funeral. By asking if there will be any costs for simply making the pre-arrangements, you will eliminate what could be a fairly expensive and unnecessary surprise.

The Pre-Arrangement Process

It is helpful to bring along certain information when prearranging a funeral. Information such as: social security number, veteran discharge/benefit papers, a list of all surviving relatives, birth date, organization memberships, basic information to be used on the death certificate and in the newspaper obituary. The more paperwork completed ahead of time will help simplify things when actual death occurs. Details such as pallbearers, donations to certain organizations, musical selections and church officials to conduct the service can all be tentatively pre arranged, and then changed, if necessary, when making actual arrangements. It's a lot easier to go over information already on file looking for possible changes than to start from the beginning. You might even want to ask for prices on services/merchandise to get an idea of what kind of costs will be involved. When making pre-arrangements, you will be given the different pre financing options offered by the particular funeral home, cemetery or third party seller. Those options will be discussed later in this brochure.

If you are wanting to pre-arrange a funeral, then you will probably be given a copy of the arrangements you make. If you go as far as to select a casket and make cemetery arrangements, then you will have an idea of how much money to set aside for actual funeral costs--taking into consideration that inflation factors cause the price to increase with time.

Pre-Financing Funeral Arrangements

There are several different ways to pre-finance a funeral involving caskets, vaults and other articles of merchandise incidental to a funeral service, but not including grave lots, grave spaces, grave memorials, tombstones, crypts, niches, and mausoleums.

Pre-arranged funeral agreement

This is when the money to pay for the funeral is placed into a bank, credit union or savings and loan association in the name(s) of yourself (the purchaser of the merchandise or services) and the seller. In this scenario. the money is in your control (100%) and prior to death can only be withdrawn by the purchaser (you). The money and interest is 100% yours until such time that death occurs. Once death occurs the seller may withdraw the amount of the funeral bill once a verified statement and certified copy of the death certificate are furnished to the financial institution. Any remaining balance in the account goes to the estate of the purchaser unless assistance has been involved - in which case any remaining balance belongs to the Estate Recovery Unit of the Division of Health Policy and Finance. If you choose to withdraw any or all of the money (principal and/or interest) prior to death, the contract is generally considered null and void.

Some things to consider with this arrangement include:

Taxes on the interest earned, no matter what type of account your money goes into (savings, certificate of deposit...), in most cases (unless other arrangements have been made with your provider) you are responsible for paying income tax on earned interest. You should receive statements from the bank (probably quarterly), and at the end of the year you will receive a 1099 I.R.S. form, and you will need to report interest earned on the account to the l.R.S. and State Tax Officials. When you sign a contract on this kind of account, your social security number will be requested by the financial institution trusting the money. There may be a few tax-exempt contracts, but the greater majority require paying tax on interest earned.

Although in most instances you do have to report the interest earned for tax purposes, you do control the money and account. Should a financial crisis occur you would be able to withdraw money from the account at anytime. However, if the money was invested in say a two (2) year certificate of deposit (CD) and you withdraw money before the full two year period was up, you would pay the appropriate early withdrawal penalty.

Revocable/lrrevocable: Revocable contracts are refundable to you (the consumer) anytime prior to death. Irrevocable contracts cannot be refunded, but they work to your advantage if you are under S.R.S. or Social Security assistance. Irrevocable contracts can exempt up to $7,000 as an asset. If certificates for merchandise (casket / outer container) are purchased, additional monies can also be sheltered to not count as assets. Be sure you understand what kind of agreement you're purchasing. so you know what options are available!

Pre-need money deposited in a trust

This is very similar to the pre-arranged funeral agreement. The larger funeral providers and/or state associations will sometimes set up their own trusts. Often times these trusts may draw better interest rates as many individual accounts are invested collectively in a single fund maintained by the corporate trustee. Once again reasonable costs of administering the trust may be imposed against individual accounts. Often times pre-need trust accounts are irrevocable, a term that we will be defining for you later. One of the possible advantages with a trust is that certain types have tax exempt provisions.

Cemetery merchandise contracts/trusts

These contracts can include: burial vaults, grave liners, grave boxes, urns, memorials, markers, vases, memorial vases, tombstones, lawn crypts, niches and mausoleum spaces and all merchandise commonly sold or used in cemeteries. Items not included under cemetery merchandise include: caskets, grave lots, grave spaces, burial or interment rights, developed or existing lawn crypts, mausoleum spaces or niches. Cemetery merchandise contracts are very different from the previously mentioned 100% protected agreements. They are offered by cemeteries, funeral home/cemetery combinations or third party sellers affiliated with a cemetery. Unlike the 100% trust requirement of funeral agreements the minimum funding requirement on cemetery merchandise contracts is 110% of the wholesale cost FOB to the cemetery corporation of the cemetery merchandise covered in a prepaid merchandise contract. Two of the positive things about these contracts is that they generally guarantee prices and do not require interest reporting. If you should move to another state or more than 150 miles from the designated cemetery, you may cancel your contract. By doing so, you face the possibility of receiving only 85% of your original investment. You would lose all interest as well as 15% of the original investment. In addition if you purchase an item such as a vault for $500, it may have only cost the cemetery $100 (wholesale). Your refund would only be $110 (110% of $100 and not $550 (110% of $500)). These factors also should be considered! Cemeteries selling caskets must trust monies at 100%.

Insurance

Insurance products (general whole life policies, annuities...) can be used as a means to finance funeral contracts in the state of Kansas. When using insurance to finance a funeral, you have an insurance policy for a certain amount of money that is used to finance a contract for the actual funeral. It is important to look these policies and contracts over carefully as there are many different kinds available. When using an insurance policy to pre-finance a funeral, you want to make sure that the price of the pre-arranged contract is guaranteed! In other words, the amount of the insurance policy plus the interest earned (which will generally list a funeral home as the beneficiary) should equal the amount of the funeral contract as it costs once death occurs. That contract should guarantee all prices at a set amount, otherwise you may end up paying much more at the time of need. If you purchase an insurance contract and sign an agreement with a funeral provider that does not guarantee costs, you could end up paying two (2) separate mark-ups! The word guaranteed can be confusing as it generally means that the amount of the policy, including all earned interest, should guarantee that no additional funds on your behalf should be necessary. In other words, the earned interest guarantees that all increased funeral costs will be covered by the policy. Any additional purchases or changes of merchandise/services previously not selected will obviously result in increased costs - amending the guaranteed aspect of the agreement.

Two words to become familiar with in the area of pre-financing a funeral are: revocable and irrevocable.

A revocable contract allows you to withdraw your principal and interest and to cancel at any time, and

An irrevocable contract is one that cannot be canceled, although its benefits can be transferred to any provider of your choice anytime prior to need. Irrevocable contracts were originally established to aid people under S.R.S. subsistence. The maximum level of an irrevocable account was established by statute at $7,000 plus the cost of a casket and outer container/um. For people under S.R.S. subsistence up to $7,000 may be placed in an irrevocable account, and that money should not count against you as a resource. Irrevocable contracts are not refundable, but you may move them to the funeral provider of your choice anytime prior to death. Merchandise, such as caskets and outer containers/urns, can go above the $7,000 limit. Revocable contracts can be canceled anytime by simply withdrawing money from the account.

Pricing

If you are concerned with pricing, then you should make an effort to visit with several different funeral directors, pre-need providers or cemeterians to compare prices. When doing this, please make sure you are pricing all equal services and merchandise, otherwise the prices you will receive will not allow you to make fair comparisons. A suggestion here would be to price the same or similar merchandise (for example an 18 gauge steel sealing casket with a two-piece concrete box) and services to be provided (for example a one (1 ) day in-state and chapel service followed by a grave side service) at all funeral homes and/or cemeteries visited.

Alternatives to a Traditional Funeral

A general meaning of a "traditional funeral" is a funeral consisting of a casket, services, visitation and earth burial. Some alternatives to a traditional funeral include options such as cremation or burial at sea. Cremation can be handled in several different ways:

• Immediate cremation: direct removal to a crematory with either memorial or no services afterwards. This is generally the least expensive method of cremation.
• Cremation following services: the same basic procedure as a traditional funeral minus the grave side services. The body is cremated following funeral services. A wood or rental casket (if available) can be used in this situation.
• Inurnment: where the ashes are placed in an urn and a service is held at the cemetery.

These are just three (3) of many possibilities involving cremation. Other options include grave side services only, where you save the expense of an in-state and church/chapel services. All of these options can be explained in greater detail by the funeral provider of your choice.

Regulating the Funeral Industry

Funeral homes are regulated by the Kansas State Board of Mortuary Arts. (address previously mentioned)

Insurance agents are regulated by:

Kansas Insurance Department
420 SW 9th Street Topeka
Kansas 66612-1678
1-800-432-2484
(785) 296-2283
kid.commissioner@ks.gov

When an insurance agent is representing a particular funeral home, then they are also restricted from doing certain things governed by the Kansas State Board of Mortuary Arts.

For-profit cemeteries selling cemetery pre-need merchandise are governed by the:

Kansas Secretary of State
Memorial Hall 1st Floor
120 SW 10th Street
Topeka, Kansas 66612-1594
(785) 296-1848
kssos@sos.ks.gov

The Consumer Protection/Antitrust Division of the Kansas Attorney General's office regulates anything not covered by the above authorities. Their address:

Consumer Protection/Antitrust Division
Kansas Attorney General's Office
120 SW 10th Street, Suite 430
Topeka, Kansas 66612-1597
(785) 296-3751
1-800-432-2310
Complaint Center

Some Things to Remember

Verify that your money got to where it was suppose to go!!! You should receive a written verification from either the insurance company or financial institution that your money has been appropriately deposited. Whenever possible you should make your check out to the insurance company or financial institution. Financial institutions and insurance companies should send you appropriate verification within 7-30 days, as well as regular up-dates ranging from monthly to annually depending on the type of account you purchased. Once the money has been properly deposited the only way a funeral home can withdraw it is after death occurs, and when appropriate documentation has been presented to the financial institution or insurance company. The following is a checklist worth reviewing--especially if you are dealing with a sales person:

1. Ask all salespersons to identify themselves, the company and/or funeral home they represent, and what services they are selling. Ask for a phone number and a business card.
2. Take notes, ask questions and possibly consider requesting permission to tape record your conversation
3. Read over all contracts carefully before signing. Have a trusted advisor, such as your minister, attorney, banker or accountant look over the documentation with you first.
4. Make certain anything promised orally is put in writing and attached to the contract-- including your right to change your mind and cancel the deal within three (3) days.
5. Ask for explanation of anything you are not sure of--written in plain language that you understand.
6. Find out exactly what is covered. If you buy a casket, vault and cemetery lot, will you still require the services of a funeral director? Eliminate all doubts by asking for clarification of anything you do not completely understand!
7. Don't agree to make payment until you know the rate of interest and the total amount you will pay.
8. Find out the name of the financial institution or insurance company that is acting as the trustee of the plan. Ask if your funds are protected and transferrable - or if there are additional fees or penalties to transfer the plan or to withdraw the money.
9. Keep a copy of any contract or insurance policy you sign in a safe place that your family knows about.

If you have any doubts or concerns, then please feel free to call our office prior to finalizing anything.