PREARRANGEMENT is the funeral industry’s term for any activity that involves the written arrangements for a funeral and/or final disposition before a death occurs.

PREFUNDING is the providing of funds before death to pay for a funeral and/or final disposition.

Consumers prearrange and/or prefund a funeral for one or more of the following reasons:

To become acquainted with the requirements and events that accompanies a death.

To let survivors know what is desired and why and thereby relieve them of concerns they might have regarding funeral services and merchandise.

To provide essential information about themselves that otherwise may not be known.

To determine the price involved for a funeral based upon the consumer’s personal desires and decisions.

To provide protection from inflation.

To avoid problems caused by family separation.

To relieve the survivor(s) of the financial responsibility.

To give “peace of mind” to the person planning his or her funeral in advance of need.

 

Funeral Trusts and Prefunding.

In a trust program, the consumer arranges his or her funeral in advance of need. Monies to pay for the funeral at the time of need are deposited in a special grantor trust, such as a bank certificate of deposit. The funds in the trust account earn interest, which tend to offset the effect of inflation. The I.R.S. revenue ruling 87-127 determined that the purchaser will be treated for tax purposes as the grantor of the trust. As the owner of the trust funds, interest income earned on the trust fund is taxable to the purchaser as income. (Therefore, you are responsible for any taxes owed on the accumulated interest.) Monies paid to the funeral home are taxed to the funeral home as ordinary income at the time of distribution when money is actually received.

There are two basic preneed trust contracts.

When the price of the prearranged funeral is guaranteed, the funeral home would draw the money from the trust account for the actual cost of the services and merchandise and cash advances at the time these are furnished. The funds that are not used would be directed to the estate of survivors, whichever is appropriate. If there are insufficient funds in the trust to pay for the funeral as prearranged, the funeral home would make up the shortage.

When the price of the funeral is not guaranteed, the monies accumulated are applied to the price of the funeral. A shortfall is made up by the family or the value of the funeral services and/or merchandise delivered is adjusted.

The consumer arranges his or her funeral in advance of need and purchases a life insurance policy. The death benefit is intended to pay for the funeral. The funeral director receives an assignment of the future death benefit. Under current tax law, no taxes are paid annually on any increasing value of the life insurance policy.

S.S.I. - 100, an asset saver so it will not be counted as an asset under S.S.I. guidelines.

The following is a list of current excludable funeral and burial assets an S.S.I./M.A. applicant or recipient may have under eligibility criteria.

The purchase of a grave marker.

Up to $2,000.00 for funeral services in an Irrevocable Trust.

Funds placed in trust for the purchase of a casket of your choice.

Funds placed in trust for the purchase of an outer burial container (vault) of your choice.

Purchase of a life insurance policy, up to $1,500.00 face value.

Up to $1,000.00 may be used for the purchase of one grave space and for the cost of opening and closing the grave. If less than $1,000.00 is used for this cost, the balance cannot be used toward other funeral expenses.

A single person may still retain $2,000.00 in liquid assets - (i.e. - cash, bonds, checking and savings accounts, certificates of deposit, treasury notes, etc.).

Married couples may retain $3,000.00 in liquid assets, plus the items designated above.