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Pre-Need Funeral Contracts

Funerals are among the most expensive purchases most people ever make, ranking only behind the purchase of a home and an automobile. A traditional funeral, including a casket and vault, costs about $6,000, although "extras" like flowers, obituary notices, acknowledgment cards or limousines can add thousands of dollars to the bottom line. Many funerals run well over $10,000. This can be a great cost burden on many families. In most Title 19 situations, it makes a lot of sense to prepay the funerals for both spouses. It is often possible to pay for your funeral with funds which would otherwise go toward the cost of your long term care. Failing to prepay for your funeral can unnecessarily shift a major expense to your family.

For married couples especially, timing of the purchase can be critical! Unless you have already prepaid your funeral expenses, if you are married do not purchase a preneed funeral contract until told to do so in your individual Title 19 plan. Paying too soon can significantly lower the amount of assets that can be held by the well spouse. Because Ohio allows you to cancel a preneed funeral contract for 7 days after its purchase, delaying the purchase too long could cause both married and single Medicaid applicants to have to pay the nursing home an extra month, depending upon when this 7 day period ends.
Prepaid funerals, which in Title 19 jargon are called “preneed funeral contracts” or “preneed cemetery service and merchandisce contracts” are becoming more and more common. There are definite advantages to prepaying, including:

• By prepaying, you are spending dollars that would otherwise need to be spent on your long term care expenses.

• Most funeral and burial purchases are made when buyers are vulnerable emotionally and lack the time and information to negotiate prices effectively. Prepaying your funeral expenses greatly reduces this problem.

• Preplanning ensures that all of your final wishes will be fulfilled. Because death is a difficult subject to discuss, often times your true wishes may not be known or fully understood by your family.

• By prepaying for your arrangements, you can lock in your service at today's lower price.

• Preplanning provides you and your family with the peace-of-mind in knowing that everything has been "taken care of" in the manner you specified.

Preplanning vs. Prepaying

It is important not to confuse prepaying for your funeral with preplanning your funeral. Some individuals preplan for their own funerals and burials by comparing prices, discussing plans or leaving instructions with family, or making decisions about funeral and burial goods and services that do not require payment in advance. They may even set aside money in a bank account for the future purchase of funeral and burial goods and services by the appropriate survivor. While this type of preplanning does offer some of the advantages listed above, it is of not help whatsoever in the context of Title 19 planning. Individuals prepay for funerals and burials by entering into a preneed agreement, or contract, to pay in advance for goods or services they will receive upon death.

Legal Protections--Federal

Preneed funeral agreements are becoming increasingly complex, involving more decisions and more potential for fraudulent activity. In the past, preneed agreements often included only cemetery plots and therefore were sold primarily by cemeterians. Preneed agreements are now likely to include a package of both funeral and burial goods and services that may be sold by funeral directors and/or cemeterians. In addition, more third-party sellers (people who are neither funeral directors nor cemeterians) are offering preneed agreements.
Fortunately, the sale of prepaid funerals are regulated by both federal and state law. You need to be aware, however, that prepaid funerals, or parts of them, can be sold by funeral directors, by cemeteries, or by third parties. Not all sales are regulated. Purchasing directly from a reputable funeral director is the safest, but even then the manner of payment has a bearing on the types of protections that you have.
When purchasing a prepaid funeral, it is important to know your rights. The Federal Trade Commission has a so-called “Funeral Rule.” This rule requires funeral directors to give you itemized prices in person and, if you ask, over the phone. The Rule also requires funeral directors to give you other information about their goods and services. For example, if you ask about funeral arrangements in person, the funeral home must give you a written price list to keep that shows the goods and services the home offers. If you want to buy a casket or outer burial container, the funeral provider must show you descriptions of the available selections and the prices before actually showing you the caskets.

Many funeral providers offer various "packages" of commonly selected goods and services that make up a funeral. But when you arrange for a funeral, you have the right to buy individual goods and services. That is, you do not have to accept a package that may include items you do not want. Under the funeral rule, your rights include:

• You have the right to choose the funeral goods and services you want (with some exceptions), and the funeral provider must state this right in writing on the general price list.

• The funeral provider may not refuse, or charge a fee, to handle a casket you bought elsewhere.

• A funeral provider that offers cremations must make alternative containers available.

• A funeral home may not tell you that embalming is required by state law (it is not required in Ohio), nor may it embalm the body without permission.

Legal Protections—Ohio

The Ohio Revised Code governs “preneed funeral contracts” and "preneed cemetery merchandise and services contracts” and offers similar, but slightly different, protections for each.

A "preneed funeral contract" means a written contract to provide either “funeral services” or “funeral goods,” or both. If the contract includes funeral services (as opposed to a contract that only covers “funeral goods” such as a casket) it can only be sold by a licensed funeral director. A preneed cemetery merchandise and services contract,” on the other hand, covers things like outer burial container (i.e. a vault), monument, marker, urn, and grave opening and closing services. Neither contract includes the sale of the actual burial plot. A funeral director can sell both types of contracts, but a cemetery cannot sell a preneed funeral contract that includes funeral services.

Both types of contracts can be either revocable or irrevocable. Under revocable contracts, you can get most of your money back if you change your mind even years after the purchase. As discussed below, to offer any benefit for Title 19 planning, however, both types of contracts need to be irrevocable. All contracts, revocable or irrevocable, preneed funeral or preneed cemetery, have a 7 day cooling off period, during which you can change your mind and get a 100% refund. If you change your mind after 7 days (even years after the purchase), you are entitled to a 90% refund under a preneed funeral contract, and a 60% refund under a preneed cemetery contract, plus—for each type of contract--80% of the interest earned on your money.

Methods of Payment

There are two basic ways you can pay for a preneed funeral contract:

 by The Life Insurance Method. You can pay for a preneed funeral contract by assigning the ownership of an existing paid up life insurance policy to the funeral home, or by buying a new life insurance policy from the funeral director.

 The Trust Method. You can pay cash. Unless the contract authorizes the funeral director to use your money to buy insurance on your life, within 15 days after the purchase the funeral director is required by law to deposit your money into a trust account.

Nothing in Ohio law requires a funeral home to offer you a choice between the trust method or the life insurance method. Some funeral directors package life insurance plans together with funeral contracts. Because the funeral director is the beneficiary, when you die the insurance company pays the death benefit directly to the funeral home. If you assign an existing insurance policy, or if your money is used to buy a new insurance policy on your life, under Ohio law the funeral director cannot collect the death proceeds without certifying to the insurance company that the services called for under the contract have been performed. The funeral director receives a commission from the insurance company on the value of the funeral you buy. The more expensive the funeral, the larger the commission.

If you decide to use an existing insurance policy to pay for your preneed funeral contract, the proceeds must be used for burial expenses. The assignment of an existing policy to the funeral home in payment of a preneed funeral contract is not a divestment because you have received fair market value in exchange. However, the cash surrender value ("investment") of the life insurance cannot exceed the contract price for your funeral goods and services. The "excess" will be treated as a divestment at the time of purchase.

Burial Plots --- Cemetery Lots

When you are purchasing a cemetery plot, consider the location of the cemetery and whether it meets the requirements of your family's religion. Other considerations include what, if any, restrictions the cemetery places on burial vaults purchased elsewhere, the type of monuments or memorials it allows, and whether flowers or other remembrances may be placed on graves. Most, but not all, cemeteries require you to purchase a grave liner, which will cost several hundred dollars. Note that there are charges - usually hundreds of dollars - to open a grave for interment and additional charges to fill it in. Perpetual care on a cemetery plot sometimes is included in the purchase price, but it's important to clarify that point before you buy the site or service. If it's not included, look for a separate endowment care fee for maintenance and groundskeeping.

Exempt resources for Title 19 purposes include “the value of one burial space for each eligible individual, his or her spouse, and members of the individual's immediate family….” What exactly is a “burial space?” The Ohio Medicaid regulations have an expansive definition, including a burial plot, gravesite, crypt, mausoleum, casket, urn, or niche, as well as “necessary and reasonable improvements or additions to such spaces” including but not limited to vaults, headstones, markers, or plaques, burial containers (e.g. caskets), arrangements for the opening and closing of the gravesite, and contracts for care and maintenance of the gravesite, sometimes referred to as an endowment or perpetual care agreements. If all of these items are purchased for all eligible family members and their spouses, quite a bit of money can be sheltered. If you decide to buy burial spaces as well as the above-listed additional items, anticipate the need to prove to the Medicaid worker that these items are actually intended for the family members.

Cremation

Many families that opt to have their loved ones cremated rent a casket from the funeral home for the visitation and funeral, eliminating the cost of buying a casket. If you opt for visitation and cremation, ask about the rental option. For those who choose a direct cremation without a viewing or other ceremony where the body is present, the funeral provider must offer an inexpensive unfinished wood box or alternative container, a non-metal enclosure - pressboard, cardboard or canvas - that is cremated with the body.
Under the Funeral Rule, funeral directors who offer direct cremations:

• may not tell you that state or local law requires a casket for direct cremations, because none do;

• must disclose in writing your right to buy an unfinished wood box or an alternative container for a direct cremation; and

• must make an unfinished wood box or other alternative container available for direct cremations.

If You Are a Veteran

All veterans are entitled to a free burial in a national cemetery and a grave marker. This eligibility also extends to some civilians who have provided military-related service and some Public Health Service personnel. Spouses and dependent children also are entitled to a lot and marker when buried in a national cemetery. There are no charges for opening or closing the grave, for a vault or liner, or for setting the marker in a national cemetery. The family generally is responsible for other expenses, including transportation to the cemetery. For more information, visit the Department of Veterans Affairs' website at www.cem.va.gov. To reach the regional Veterans office in your area, call 1-800-827-1000.

Beware of commercial cemeteries that advertise so-called "veterans' specials." These cemeteries sometimes offer a free plot for the veteran, but charge exorbitant rates for an adjoining plot for the spouse, as well as high fees for opening and closing each grave. Evaluate the bottom-line cost to be sure the special is as special as you may be led to believe.
Tips on planning funerals from the
United States Federal Trade Commission

Planning for a Funeral

1. Shop around in advance. Compare prices from at least two funeral homes. Remember that you can supply your own casket or urn.

2. Ask for a price list. The law requires funeral homes to give you written price lists for products and services.

3. Resist pressure to buy goods and services you don't really want or need.

4. Avoid emotional overspending. It's not necessary to have the fanciest casket or the most elaborate funeral to properly honor a loved one.

5. Recognize your rights. Laws regarding funerals and burials vary from state to state. It's a smart move to know which goods or services the law requires you to purchase and which are optional.

6. Apply the same smart shopping techniques you use for other major purchases. You can cut costs by limiting the viewing to one day or one hour before the funeral, and by dressing your loved one in a favorite outfit instead of costly burial clothing.

7. Plan ahead. It allows you to comparison shop without time constraints, creates an opportunity for family discussion, and lifts some of the burden from your family.