How Do Prepaid Funeral Plans Work?

Prepaid funeral and cemetery plans combine two topics people typically try to avoid discussing: finances and death. If you don't consider how these issues intersect, however, you could leave your family with a considerable financial hardship that can be easily avoided.

Grieving while also facing costs they may not be prepared for can be an incredible strain on loved ones—but having a prepaid funeral plan helps to ease at least one of those burdens.

Prepaid funeral plans are a good choice for people who want the peace of mind that comes with knowing their families will not be unnecessarily burdened financially or emotionally when they pass away. They also allow you to specify every detail of your wishes, right down to food, flowers and favors, which ensures that your funeral, memorial or celebration of life is exactly the way you want it.

In this article, you will learn:

• How prepaid funeral plans work
• Which arrangements you can make
• What expenses are covered by a prepaid funeral plan
• What's not covered by a prepaid funeral plan
• How to pay for a funeral in advance
• If prepaid funeral expenses are tax deductible

Unlike final expense insurance, when you make a prepaid funeral plan, you specify your final wishes in advance and lock in today's prices on funeral goods and services. This approach offers both financial and emotional protection to loved ones, allowing them to focus on their grief at the time of your passing. Adult children often tell us this is one of the best gifts they ever received from their parents.

There are five simple steps to making a prepaid funeral plan:

1. Think about your wishes. Would you like a traditional funeral or celebration of life? A cremation with ash scattering in a special place, cremation with burial, or traditional burial? There are many decisions to be made, and the choices you make will impact the final cost. Our Personal Planning Guide can help you understand and document your wishes. Get the guide now.
2. Have the conversation with your spouse. Married couples most often want to make their plans together. But sometimes one partner is more ready to make these decisions than another. Here are some tips on how to have the conversation about your wishes after death. How to have "The Conversation."
3. Make an appointment with a prepaid funeral plan provider. Most funeral homes and cremation providers offer preneed planning to their client families. As the leading provider of prepaid funeral plans in the United States and Canada, Dignity Memorial^® offers unique benefits including Relocation Protection, Lifetime Flexibility and our 100% Service Guarantee. And with over 1,500 affiliated funeral homes, cremation providers and cemeteries, you may be surprised to learn there's a location right down the street. Find a provider now, or let us connect you with a pre-planning advisor in your area.
4. Sign a contract and fund your plan. During your appointment, you should get a clear idea of what your funeral plan would cost, and different ways to fund it, including in a lump sump or with monthly installment payments. When you're ready, your advisor will draw up a contract for signature and you will make your first payment.
5. Share your plan with your family. This may be the most important step of all. Your closest loved ones should know you have already made and funded your plan. The funeral provider will keep a copy, but they should have copies as well so they know what to do when the inevitable happens. This also gives your loved ones peace of mind, knowing that you've taken care of these important decisions so they don't have to.

Loved that my Mother-in-Law had planned and prepaid for most of the service and had given me the business card years earlier. Within hours of her death, I just called the number on the card and was meeting with Rebecca the same day. The planning and early appointment really helped ease our concerns over what to do. Also, Rebecca and Julie could not have done anything more or better. They were exceptional to work with and offered great suggestions along the way.

—Jeffrey Pinkerton, Chehalis, WA

A prepaid funeral plan differs from Burial insurance in that it funds specific arrangements. in that it funds specific funeral arrangements. Whereas funeral insurance provides the money your family needs to pay for a funeral or cremation, a prepaid funeral plan provides the money and the details of how you want that money allocated.

When you meet with a planning professional, he or she will get to know you. Start by sharing your story, your personality, your passions. You may talk about your religious customs, your family heritage, your culture and your personal preferences. You may already know whether you want a traditional burial or cremation. If it's the latter, you'll decide what type of cremation. Then you'll choose the products and services offered by the funeral provider that support that decision:

• Service type—traditional funeral, contemporary celebration of life, a blend of the two
• Visitation
• Location(s)
• Stationery
• Music and readings
• Flowers
• Reception—food and drink, decor, music
• Mementos for guests
• Keepsakes for family members

You can designate people you'd like to speak, what you'd like written in your obituary, if you'd like people to wear certain clothing (like sports jerseys or your favorite color), transportation (from white limousines to a horse-drawn caisson).

Pre-planning your funeral gives you the opportunity to get as detailed as you'd like—or you can keep your choices very high level. You may also choose scattering assistance for cremation, and if the funeral home you choose is affiliated with a cemetery, you may also want to explore cemetery options for either cremation or traditional burial.

Keep in mind that the more specific your funeral plan, the fewer decisions your family will have to make, which can be a huge relief for loved ones who are grieving. Read more about what's included in funeral costs.

Mom had prepaid everything 24 years ago and they honored everything she paid for without any request for more money and even provided a refund for the obituary that we felt wasn’t necessary (adjusted for 24 years interest charges!).

—Teresa Cawston, Port Alberni, BC

Prepaid funeral plans typically don't include items the funeral home you're working with doesn't provide and for which prices cannot be locked in. For example, cemetery property purchases are handled by the cemetery, which charges grave opening and closing costs. Working with a combined funeral home and cemetery location can make buying cemetery space easier, and opening and closing costs can then be included in your plan.

Generally, anything provided by a third-party won't be covered. These can include things like:

• funeral flowers
• death certificate fees
• sales tax
• newspaper postings
• police escorts
• state permits

However, many funeral homes make it possible to put aside money in your prepaid plan (called "cash advance items") to cover these third-party costs.

The cost of your prepaid funeral plan will depend, of course, on the products and services you choose to include. You can pay the whole amount at once or pay in installments, usually for three to 10 years. Payment amounts vary based on terms, funeral wishes and your age.

If you choose to make payments, the funeral home secures your monthly payments with a trust (revocable or irrevocable) or insurance policy on your behalf. And as with any big purchase, your payments continue until the balance on your plan is zero.

Revocable trust: The funeral home deposits your payments into an interest-bearing account. You retain control of the funds while you are still living. At the time of need, the trustee has immediate access to the funds to pay for your prearranged funeral. You can make changes to the trust, such as trustees and beneficiaries, at any time. You can also cash out or cancel if you'd like.

Irrevocable trust: Families usually designate a trust as irrevocable only as a state requirement for Medicare or Medicaid assistance. With this type of trust, you give control of the money in the trust to someone else, and you cannot make changes or dissolve the trust without the permission of the trustee. An irrevocable trust cannot be cancelled and the money in the trust cannot be removed. 

Learn more about monthly installment plans.

Prepaid funeral plans are not on the list of deductions for individuals. However, IRS guidelines recognize funeral expenses as estate tax deductions in some cases, which means that even if you have a prepaid funeral plan, the executor of an estate can purchase additional products and services for your funeral and the costs may be deductible. Please speak with your tax advisor for more information.

Plan a funeral ahead of time

People plan ahead for many big purchases—weddings, homes, cars, education, vacations. A funeral should be no different. A few reasons to plan ahead: 

• A price guarantee protects against rising costs and inflation. Prices for products and services can be locked in at today's rates. When needed at the time of death, your loved ones won't pay extra.
• You remove a financial and emotional burden from your loved ones. Families tell us that funeral planning can be incredibly overwhelming when grieving, and that having a plan to follow helps.
• Affordable monthly payment plans make it easy to budget for final expenses. 
• There are no rushed decisions and you can learn about your options in a relaxed environment.
• You give your loved ones the gift of saying goodbye without the extra stress of trying to guess what you would have wanted.
• With Dignity Memorial providers, you get relocation flexibility. Prepaid funeral and cemetery plans can be transferred to other Dignity Memorial funeral homes or cemeteries more than 75 miles away.*