Author Topic: Prepaid (monthly payment plan) funeral costs  (Read 305 times)

jeromedawg

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Prepaid (monthly payment plan) funeral costs
« on: July 30, 2019, 01:09:25 PM »
Hey guys,

So my in-laws have been bugging my wife to help them with looking into prepaying for funeral expenses, etc. They've already bought their plots so this would be for all the costs associated with the funeral and everything else that goes with it. It doesn't really seem like a great idea to me but she's just doing her due diligence in asking around and talking to different people. I figured I'd post here as well to get some feedback. What her parents were wanting to do was to just give us the lump sum of money that it would cost, then have us go on the interest-free monthly payment plan (it's like $500/mo) for X amount of years. I don't have the specifics of the overall cost but that's generally how it would work.

I'm thinking it's better for them just to invest that money and grow it elsewhere rather than getting locked into monthly payment plans for something like this. Then again, they are in their 70s and I'm not sure what they could most 'safely' invest in right now... one of our financial planner friends suggested looking into annuities (she is *not* our CFP or acting on our or our in-laws' behalves, but she is a registered principal at LPL) but that's a whole different topic.

Anyway, just seeking some feedback.

secondcor521

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Re: Prepaid (monthly payment plan) funeral costs
« Reply #1 on: July 30, 2019, 01:33:21 PM »
Usually the funeral costs are just one of the final expenses that would get paid out of their estate.  From a process point of view, it would be simpler for them to do nothing rather than give you money to give to a prepaid plan to give to the funeral home.

Funerals can be expensive, so one reasonable issue is cash flow right after death.  In other words, the funeral home may want to be paid immediately, and it will take time for your partner to get named as executor and have access to their funds to pay for their funeral.

One way to handle the cash flow issue would be for you to pay for the funeral out of your pocket and then reimburse yourself from the estate.  Another way would be for them to add your partner as POD (payable on death) or beneficiary to a bank or investment account that has enough to cover the funeral(s).  A third way is for the funeral home to put the balance on a payment plan after the funeral - I'm sure funeral homes deal with the cash flow issue all the time.

I would not do an annuity.  Annuities are pretty bad investment products and they're generally designed to provide a stream of income during life, not a lump sum at death.

If you could convince them, the best thing would be for them to invest the money themselves.  Maybe, if it helps them feel better, they could open a separate account specifically designated for funeral costs, and then put whatever lump sum in that account they think they need.  That would also make the beneficiary / POD approach much cleaner and simpler as well, since it would make sense to them that you would need to be added to that one account.

As far as investing safely goes, the joint life expectancy for a couple of 70 year old folks is surprisingly high.  Another thing to keep in mind is that you probably won't have to deal with both funerals at once.

Good luck!

GizmoTX

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Re: Prepaid (monthly payment plan) funeral costs
« Reply #2 on: July 30, 2019, 01:46:05 PM »
Have they defined what they want or expect regarding funeral expenses? Since they already have plots, this assumes casket burial. Where the plots are located determines the fees for digging, encasing the casket, & any other related fees; this will likely increase with inflation. The casket itself can run the gamut of budget to gold plated. Will there be an open viewing, thus requiring embalming & a fee for a viewing room & refreshments? Then there's the headstone. I suggest you/they price it all out & decide what is reasonable.

I am concerned that any funeral company collecting money to cover 'funeral expenses' would still be solvent & able to deliver when the time comes, especially if they're guaranteeing no increase in costs. It's better & safer to not give anything in advance to a funeral company. 

My brother lost his spouse to a stroke a year ago. They had discussed the full burial route, but my brother is disabled & without savings. He ended up doing a cremation & church service reception for about $500. He has decided he wants the same for himself, with both cremains interred in an existing family plot where the only additional expense will be digging and flat plaques for headstones.

frugaliknowit

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Re: Prepaid (monthly payment plan) funeral costs
« Reply #3 on: July 30, 2019, 02:04:22 PM »
Usually the funeral costs are just one of the final expenses that would get paid out of their estate.  From a process point of view, it would be simpler for them to do nothing rather than give you money to give to a prepaid plan to give to the funeral home.

Funerals can be expensive, so one reasonable issue is cash flow right after death.  In other words, the funeral home may want to be paid immediately, and it will take time for your partner to get named as executor and have access to their funds to pay for their funeral.

One way to handle the cash flow issue would be for you to pay for the funeral out of your pocket and then reimburse yourself from the estate.  Another way would be for them to add your partner as POD (payable on death) or beneficiary to a bank or investment account that has enough to cover the funeral(s).  A third way is for the funeral home to put the balance on a payment plan after the funeral - I'm sure funeral homes deal with the cash flow issue all the time.

I would not do an annuity.  Annuities are pretty bad investment products and they're generally designed to provide a stream of income during life, not a lump sum at death.

If you could convince them, the best thing would be for them to invest the money themselves.  Maybe, if it helps them feel better, they could open a separate account specifically designated for funeral costs, and then put whatever lump sum in that account they think they need.  That would also make the beneficiary / POD approach much cleaner and simpler as well, since it would make sense to them that you would need to be added to that one account.

As far as investing safely goes, the joint life expectancy for a couple of 70 year old folks is surprisingly high.  Another thing to keep in mind is that you probably won't have to deal with both funerals at once.

Good luck!

+1

My $.02:  What they might consider is estimate in today's dollars the total cost of both funerals/final expenses (not including what they have already bought).  Take that sum (pretend it's $30,000..) , invest in in a balanced fund or funds (for example Vanguard Wessley, Vanguard Tax Managed Balanced fund, and the like...) naming their daughter (and maybe the siblings) as beneficiaries.  This way, regardless of who dies when, they should roughly keep up with inflation without getting ripped off by anyone.

Otherwise, if they have an estate or life insurance (naming family members as beneficiaries) of at least the amount of both funerals, there really isn't a need to do much of anything.

In my parent's case, my mother paid for my father's (some insurance).  When my mother passed, my brother and I fronted the cost (he with some cash, me with a credit card).  My brother and I were partially reimbursed by insurance, the rest by the estate.

BeanCounter

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Re: Prepaid (monthly payment plan) funeral costs
« Reply #4 on: July 30, 2019, 02:28:36 PM »
Don't do a prepaid funeral plan with a funeral home. Shop around now and figure out what your in-laws want and which funeral home offers the best price, location and services. Then have your inlaws put the money (in one lump sum or annually) into a Totten Trust or just a regular bank account with POD to your wife. Then the funds bypass probate and can be paid out immediately upon producing a death certificate.
The funeral home just wants cash flow and a guarantee of business now. But you don't know when your in-laws will pass and if circumstances or their wishes could change in the future. Best to plan ahead but keep your own money.

edit- I should have added that the only time one should consider pre-paying funeral costs is if you are doing a Medicaid spend down.
« Last Edit: July 30, 2019, 02:31:35 PM by BeanCounter »