Pre-Payment Options
It is helpful to know that prepaid funeral options vary from state to state, as these contracts are regulated on the state level.
The prepayment of funeral services is regulated in the Commonwealth of Massachusetts by specific regulations outlined in 239 CMR 4.00. Massachusetts funeral homes are allowed to establish funeral trusts, traditional or preneed insurance policies or annuities, or separate bank accounts on behalf of those who wish to prepay their funeral expenses.
In Massachusetts there are usually three documents that make up the prepaid funeral arrangement, all of which comply with state statutes and are acceptable to federal agencies. The first is the Pre-Need Contract, which is a state generated form. The second is the Pre-Paid Agreement, which is a form that outlines the terms and conditions for the trustee/insurance company, funeral home and the purchaser. The last is the Statement of Goods and Services, which outlines the cost for specific funeral and/or cremation options.
Pre-paying may protect you and your family from most future inflationary trends and the attachment of funds meant for future funeral expenses for medical and/or long term care costs, while providing the piece of mind of knowing that they will be cared for after you are gone. If you would like to request an appointment after you have reviewed this information, our licensed funeral director will meet with you to review additional questions and concerns.
Your Options:
Pre-Paid Funeral Trusts
At our funeral homes, the preferred method of funding the prepaid contract is with a prepaid funeral trust account. The contract can be written specific to the particular goods and services selected, budgeting for the various fees for the type of funeral requested. Or one may opt to fund the contract with a set amount of money without specifying how the funds are to be spent, leaving some of the details to be decided according to the loved one's wishes.
The contracts may be worded "revocable" or "irrevocable" depending on the situation and both offer advantages and disadvantages. Revocable contacts allow the principal plus interest minus any bank fees to be returned to purchaser or transferred to another funeral home at any time by sending written notice to the funeral home. However the revocable contract funds are considered part of the purchaser's assets and may be attached for long term care expenses. An irrevocable contact does not allow for the funds to be returned to the purchaser, however the money is no longer considered part of the purchaser's assets and is not taken into account when applying for Mass Health or Medicaid. Irrevocable accounts may be transferred to another funeral home at any time, but it is left to the discretion of the updated funeral home to honor the specifics of the original contract.
Funeral trusts may also be cost protected, or non-cost protected. Cost protected means the interest earned by the principal remains with the funeral home to offset price increases.
The trust does generate interest that are used to offset price increases over the years. The purchaser may be responsible for the taxes on interest earned, or we can set up the account so the trust pays the taxes.
We use a management company, Cooperative Funeral Funds, to assist us with the recordkeeping for the pre-paid trust contracts. The trust company is First State Trust, a division of Citigroup, located in Boston, MA. For more information, you may visit http://www.cooperativefuneralfund.com
Life Insurance
Many people have existing paid-up life insurance policy that is meant to pay for their future funeral expenses. However the policy is considered an asset when applying for assistance for medical expenses and long term care, and will be attached for those expenses. In this situation and depending on the particular insurance company rules, the owner of the policy may absolutely assign the policy to the funeral home, and/or change the ownership and beneficiary of the policy to the funeral home for future expenses. This is usually a better option than cashing in the policy to fund a prepaid trust, as with many policies the cash value is less than the value paid at the time of the claim due to death. The first step is to contact the insurance company for the correct forms, then contact the funeral home for assistance in completing the documents.