A prepaid funeral contract is a legal agreement which requires payment in advance for funeral services, cemetery services or merchandise and the physical delivery and retention of which would occur after death. You can pay for the contract outright, through an insurance policy, or by an investment that you own. A prepaid funeral contract can be funded by a trust or by insurance. The seller may offer one or both of the following funding types:
- For a trust-funded prepaid funeral contract where payments are placed in an approved interest-bearing restricted bank account or formal trust account to pay for the future cost of the selected funeral goods and services. Payments on the contract are made to the seller.
- For an insurance-funded prepaid funeral contract where payments are used to purchase an insurance policy or annuity to pay for the future cost of the selected funeral goods and services. Payments are not made to the seller but to the insurance company that is funding the contract.
Before purchasing a prepaid funeral contract, you should:
- Find out if the funeral home is properly licensed, has a good reputation, and is financially stable. Not all funeral homes have a license to sell prepaid contracts. Ask family and friends for a recommendation. Shop around and interview several funeral homes. To verify a funeral home or funeral director's license, and to check for disciplinary action, you may contact the Corporations, Securities, and Commercial Licensing Bureau at: 517-241-9288.
- Be prepared. When you visit or call a funeral home, the personnel may try to sell you a contract. Have a checklist ready of items you want for your funeral and any questions you may have. Take a trusted individual when you visit each funeral home and ask that person to take notes for you. Make sure all of your questions are sufficiently answered.
- Obtain a written explanation of exactly how your money will be protected in each transaction and whether the pre-need contract is guaranteed, revocable, refundable, transferable, and portable.
After purchasing a prepaid funeral contract, you should:
- Be sure to tell your family about the plans you've made.
- Give a copy of your contract to someone you trust, such as a relative, friend, lawyer, or doctor.
- Keep the original contract with your important documents.
- If you live at a nursing home or hospital, give the facility a copy of your contract.
Prepaid Funeral Contracts and Medicaid
Buying a funeral contract and/or burial plot can help you "spend down" your assets to qualify for Medicaid. For more information about funeral contracts and eligibility for Medicaid, please contact your local MDHHS office.
Note: A funeral contract is different than "burial insurance," which is usually considered an asset. Consult your estate planning professional for more information on the differences between prepaid contracts and burial insurance.
Your Rights Under the FTC Funeral Rule
The Funeral Rule, enforced by the Federal Trade Commission (FTC), makes it possible for you to choose only those goods and services you want or need and to pay only for those you select, whether you are making arrangements when a death occurs or in advance. Your rights under the FTC Funeral Rule can be found at www.consumer.ftc.gov.
