Pre-Paid Burial Plan

According to the United States Senate Special Committee on Aging report in 2000, the traditional funeral in our country averages $7,520, with costs over $10,000 not unusual.

Although it’s not a pleasant thing to think about, every one of us will eventually die. If all our funds are spent on nursing home care or other items, it will be up to family and friends to pay for our final arrangements.

Have you heard the one about the small-town funeral home director who applied the trust money to pay for his mortgages rather than invest it, reasoning he’d honor the funeral arrangements when the time came?

In many states, not all the money you pay in actually goes into an interest-bearing account. In fact, in some states as little as 60% is required to be put on deposit, plus the funeral director is allowed to keep 10% or more as ‘Administrative Fees’, so now you’re down to perhaps 50% of your money actually working for you.

The rest is working for the funeral director.  Don’t leave this important event up to chance, there is a better way! 

An irrevocable funeral trust (IFT) is a tool that prevents a overly zealous funeral director from misusing your prepaid funeral funds.  Additionally, should you need medicaid assistance the IFT prevents those individual’s assets from being confiscated or forced to be spent down in order to receive government assistance in paying for care over an extended period in a nursing home or long term care facility.

What are the benefits of prefunding my funeral?

When you prearrange and prefund your funeral you ensure, that the funeral reflects your wishes, that there is sufficient money readily available to pay for your funeral, and that your family or friends are not burdened with having to make important decisions or face financial concerns at a very stressful time.

When pre-planning a funeral, all of your thoughts and wishes are planned for. Your family will know what you want, and not what they think you want.

Pre-planning is the first step. Many forward-thinking people are considering ways to fund their funeral. Funding the funeral assures that the goods and services selected will be provided at the time of need.

Pre-planning along with pre-funding work together because they offer peace of mind. Your survivors will not be burdened with decisions regarding your funeral.

***The Deficit Reduction Act of 2005 (DRA) — signed into law in February 2006 — has further reduced senior citizens’ opportunities to reposition their assets. Among other issues, the DRA extends the look-back rule from 36 months to 60 months.  Should you need care in a long term care facility you could have a need to use the Medicaid program, however, there are limitations.

Medicaid is a needs based program. As long as an individual has money available to him, he is expected to use that money to pay for his medical and/or nursing home care. Medicaid applicants must “spend down” their available assets until they reach a qualifying level ($1,500 for a single person/roughly $21,000 – $92,000 for a married couple). Certain assets are considered “exempt” under the Medicaid rules. These include:

• household contents
• one automobile for the spouse at home
• life insurance with a face value of $1,500 or less
• burial spaces for immediate family
• property used in business or trade
• the home, if a spouse or other qualified dependent resides there
• life estates that cannot be transferred or sold
• irrevocable burial contracts

Any assets disposed of during that prior five-year period will be considered a countable asset — still belonging to the individual — for the purposes of determining eligibility for public assistance. In essence, the assets, or their cash equivalent at the time of disposition, must be returned to the original owner and used to pay for their care until these funds are spent down to approximately $2,000.

This is hardly a sufficient amount to pay for a proper, dignified burial for the deceased, with current funeral expenses requiring $7,500 or more.

What’s a person — or their family — to do to plan ahead for funeral costs and still comply with the new terms of the DRA? One option is to obtain an irrevocable funeral trust (or IFT)* as soon as possible.

Prepaying a burial may not be a timely investment in many cases since it returns no interest or dividends, but purchasing an irrevocable burial plan is an important part of the Medicaid spend down.

An irrevocable trust that is not counted as a financial asset(IFT). These funds are designated solely for funeral services and cannot be otherwise spent. If you ever need to apply for social services such as Medicaid, irrevocable trusts are a great option.

Tax advantages of Pre-need Insurance

• Most pre-need insurance plans are not taxable
• Pre-need funeral policies do not negatively affect eligibility for Medicare or Medicaid
• Most policies can be transferred between funeral homes and states
• Some policies will even leave money behind for the survivors after funeral services have been paid

Burial insurance that are written to include all the services and products you require or want.

These can include:

• The casket or urn
• Embalming if necessary
• Grave liner or burial vault
• Hearse
• Flowers
• Digging and filling the grave
• Grave marker
• Cemetery plot

An IFT is a tool that prevents an individual’s assets from being confiscated or forced to be spent down in order to receive government assistance in paying for care over an extended period in a nursing home or long term care facility.

An IFT also protects those monies from being sought out by doctors, lawyers, drug stores, or any other providers or entities that would seek payment for bills or for any other purpose. A person facing serious health or mental challenges hardly needs to have bill collectors harass them for legitimate or illegitimate charges for any type of service.

• By placing up to $12,500 in an IFT, the money is preserved from those seeking reimbursement for bills or expenses. A good rule of thumb concerning IFTs is that if a person doesn’t have long term care insurance (LTCI) and cannot afford an LTCI policy, they should obtain an IFT. It is estimated that more than 90 percent of all seniors do not have LTCI. Since an IFT is an irrevocable trust, no one — not even the insured — can access these monies until that person has passed away.
• An IFT is issued by a select group of insurance carriers. The IFT is a single premium whole life policy that is wrapped into an irrevocable trust by the carrier immediately upon issue. The carrier also creates and absorbs the costs for creating the actual trust document, eliminating the complications, time, and costs of retaining an attorney.
• Even more conveniently, the insurance carrier also assigns a company officer as a trustee of the IFT. Upon the insured’s passing and the trustee’s receipt of legal proof of the death, as well as an invoice for the expenses associated with the proper disposition of the deceased by a funeral home or other authorized agency, the carrier will issue a check, usually within 24 to 48 hours. If there are any remaining funds in the trust after all the final expenses are paid for, they are returned to the estate of the deceased.
• Since the insured is paying the entire cost for the IFT in advance, there is no need for underwriting, further expediting the IFT issuing process. It is issued for individuals up to 99 years of age. There is also a guaranteed issue provision for those applicants already in a custodial situation. In many states, seniors seeking to reposition additional assets can purchase IFTs for their children, helping them shield additional financial resources.
• A major benefit of the IFT is that it can be used for any final expenses. There are up to double-digit percentage comm­issions that you can earn, depending on the age of the applicant.
• An IFT is the one of the last and only remaining legal methods to reposition assets so that the individual can enjoy peace of mind.

Make sure the burial plan you purchase includes everything that may be needed. The more you prepay with money that will otherwise need to go to nursing home care, the less your loved ones will need to provide at the end.