I am considering planning my funeral in advance so my children will not have to later. Is it wise to prepay for a funeral that may not be needed for a while?

Planning your funeral in advance is a wise move. Not only does it give you the opportunity to make a thoughtful decision on the type of service you desire, but it also allows you to explore your options with reputable funeral providers. Planning ahead will also help spare your adult children the burden of making these decisions at an emotional time.

Preplanning a funeral does not mean you have to prepay too. In fact, the Funeral Consumers Alliance, a national nonprofit funeral consumer protection organization, does not recommend prepaying unless you need to spend down your financial resources to qualify for Medicaid. Here are some things you should consider as you begin planning.

Preneed Arrangements

Most funeral homes today offer what is known as “preneed plans” which allow you to prearrange for the type of funeral services you want and prepay with a lump sum or through installments. The funeral home either puts your money in a trust fund with the payout that is triggered by your death or buys an insurance policy naming itself as the beneficiary.

If you are interested in this route, make sure you are guaranteed the services you specify at the contracted price. Some contracts call for additional payments for final expense funding, which means that if the funeral home’s fees increase between the time you sign up and the time of need, somebody will have to pay the difference. Here are some additional questions you should ask before committing: 

• Can you cancel the contract and get a full refund if you change your mind?
• Will your money earn interest? If so, how much and who receives the interest?
• If there is an insurance policy, is there a waiting period before it takes effect? How long is the waiting period?
• Are the prices locked in or will an additional payment be required at the time of death?  
• Are you protected if the funeral home goes out of business or if it is bought out by another company?
• What happens if you move? Can the plan be transferred to another funeral home in a different state?
• If there is money left over after your funeral is paid for, will your heirs receive the balance of the money?

If you decide to prepay, be sure to get all the details of the agreement in writing and provide copies to your family so they know what is expected. If they are not aware that you have made plans, your wishes may not be carried out. Additionally, if they do not know that you have prepaid the funeral costs, they could end up paying for the same arrangements.

Other Payment Options

While prepaying for your funeral may seem like a convenient way to go, from a financial point of view, there may be better options available. For example, if you have a life insurance policy, many policies will pay a lump sum to your beneficiaries after you pass away, which can be used for your funeral expenses. The payment is made soon after you die and does not have to go through probate if beneficiaries are named.

Alternatively, you could set up a payable-on-death (POD) account at your bank or credit union, naming the person you want to handle your arrangements as the beneficiary. POD accounts are also called Totten Trusts. With this type of account, you maintain control of your money during lifetime, so you can use the funds, collect the interest and change the beneficiary. When you die, your beneficiary collects the balance without the delay of probate.

Communicating Your Wishes

Communicating your wishes to loved ones can be helpful so they know what you want and can make the necessary arrangements. You can simply talk with your family or leave behind a letter with your documented wishes. While these forms of communication are not binding, they can be informative and help ease the burden of planning for your loved ones.

You also have the option of including your wishes in your will or other estate planning documents. You can designate a specific amount of money for your funeral and name someone to be responsible for the arrangements. It will be helpful to work with an estate planning attorney to ensure your estate plan accurately reflects your wishes.

Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living” book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization’s official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.