Planning for a funeral in advance of death is called a preplanned or prearranged funeral. Preplanned funerals may or may not be prefunded. Prearranged funerals offer a permissible vehicle to divest assets for those seeking public medical assistance due to long term care needs. Preplanning offers some other advantages.
—There are no time constraints.
—You will have the opportunity to
evaluate your needs, desires and
financial capabilities more carefully.
—You can leisurely contact area funeral
Michigan law does not gurantee that your preplanned choices will be carried out. The next-of-kin is empowered to alter your choices after death.
Escrow-Funded Funeral Plans...
Guarnatee Price Contract
This option allows you to plan a funeral at today's prices. You pay for the funeral in advance and your funds are placed in an escrow account.
This type of plan uses the interest collected in the escrow account to offset increase in costs because of inflation. You or your survivors will never be required to pay any additional money nor is the funeral director required to give you a refund if the funds in the account are more than is necessary to carry out your wishes. When this type of plan is chosen, the interest stays with the escrow fund and you do not collect it. You are responsible for income taxes on the interest. If this is a concern, ask your funeral director about several tax-exempt funds available. The funeral home may not touch these funds without proving the contract has been fullfilled. You may also cancel the contract at any time for any reason, unless it has been certified irrevocable by the Family Independence Agency. However, if you do, the funeral director is permitted to retain up to 10 percent of the principal and interest as a cancellation fee.
Non-Guarnatee Price Contract
This is similar to the above plan except that the prices are not guaranteed. Preplanning still occurs and the funds are placed in escrow, but the services and merchandise selected are charged at the prices in effect at the time of death. if there is not enough in the escrow account to cover the choices, the survivors would have to supplement the account or make different choices to accommodate the funds available. If there is an excess of funds in the account, the estate of the deceased or beneficiary named receives a refund from the escrow account.
The cancellation provisions for this plan are the same as for the previous plan, as is the responsibility for the taxes.
INSURANCE FUNDED FUNERAL PLANS...
With this option, you select funeral services in advance of death and purchase a life insurance policy (sometimes called "funeral insurance") sufficient to cover the anticipated costs of the funeral. The funeral director accepts the risk that the funds may not be sufficient to cover the costs when death occurs.
ADVANTAGES & DISADVANTAGES TO PREFUNDING PROGRAMS...
There are advantages and disadvantages to the insurance method of prefunding. The advantages are that you can sometimes purchase the funeral at a "discount" by making a one-time premium payment or you can sometimes pay by installments and have the funeral guaranteed even if death occurs before all the installment payments are made. However, you should clearly understand that you are purchasing an insurance plan and not an escrow plan. The major difference is that, under an escrow plan, if you cancel the plan, the funeral home may keep no more than ten percent of the escrow account. You receive everything else you have contributed, plus interest. If you cancel an insurance policy, you receive back only the cash value.
Insurance funded prearrangements may only be sold by persons who are licensed by the State Insurance Commission. If there are any questions about your contract for this type of plan you should call that agency for information.