It is very important to discuss funeral plans and prefunding
details with your family. If you choose to prefund a funeral, select the
payment option that best meets your specific needs. The following options
are commonly available to fund a funeral in advance.
National Funeral Directors Association [NFDA] does not endorse any type of
advance-funding arrangement, company or product. This website is for
informational purposes only to help consumers make decisions about their
Trusts may be used to prefund funerals in most states in
accordance with specific state laws. Depending on the type of trust, it
may be managed by the funeral home, cemetery, a bank, a state association or
the state itself. Funeral trusts may or may not be guaranteed to keep up
with inflation for a specified period of time. With a guaranteed, fully
funded trust, there generally is no balance due at the time of death. If
a trust contract is not guaranteed or fully funded, there may be a balance due
to the funeral provider at the time of death. Trust proceeds are usually
taxable to the purchaser. If you are unclear about your trust protection,
discuss your state’s trust funding laws with the funeral provider or a state
regulator. State laws vary.
A form of whole life insurance, preneed insurance products may
be used to prefund funerals in most states in accordance with state laws.
The consumer purchases a specialized insurance policy that has growth value,
meaning that the face amount or death benefit will increase over time to pay
for funeral costs at time of death. Preneed insurance may be paid by a
one-time cash premium with no further premiums due for the term of the
contract, or by installment. Policy growth and the payout amount are not
taxable to the purchaser. If you are unclear about your preneed insurance
protection, discuss your state’s preneed laws with the funeral provider or a
state regulator. State laws vary.
Payable-on-death (POD) accounts may be established in some states for the
purpose of paying for funerals, often when death is imminent. Typically,
a POD is held jointly by the consumer and the funeral home. Upon the
consumer’s death, the account automatically goes to the funeral home. POD
accounts do not guarantee that a funeral will be paid for in full – the family
or estate is responsible for any shortfall.
of deposit (CDs) or savings accounts, jointly held with a family
member who has “right of survivorship”, provide funeral benefits similar to a
POD account, with the funds passing to the joint owner outside of probate.
trust funds for the
purpose of paying for a funeral are established by some individuals at their
accounts or life insurance are
existing assets that may be earmarked in advance for funeral costs.
However, you must ensure that your family and attorney have been informed and
that provisions are made to access the funds upon your death. In most
states, you are allowed to assign the benefits of an existing life insurance
policy to a funeral home.
Annuities may, in some circumstances, be adapted for
preneed, usually for individuals of advanced age or with chronic health
problems or in other circumstances.
all of the above types of funding, state laws controlling what is allowed and
disallowed vary, including how excess funds, if any, are handled.