Pre-Paying, Insurance, Trusts

Pre-Pay or Save?

Pre-Paying: someone else get the money. Saving: you hold the money.

In most cases, we recommend saving-with-instructions, rather than pre-paying.

Why? What could go wrong?

Each option described on this page includes some caveats about what could go wrong.  It is impossible to create a comprehensive list of everything that can go wrong.  In general, it is fair to recognize that banks and credit unions are a more secure safeguard of your money than any other institution.

Pre-payment Options

Terms vary, so understand the details before signing anything.

Pay a Funeral Home in advance of your demise

An agreement with a funeral home where you paid for selected services before your demise.

Pros: 

  1. You make all the decisions about what you want for yourself.
  2. This expense can be used as Medicaid spend-down if you are going into a nursing home, up to state-allowed limit.

Cons:

  1. You likely have little or no recourse if things go wrong and misuse of funds is a known danger.
  2. The funeral home can go out of business.
  3. You can die too far away from your selected funeral home or its network (no matter how big they claim it is).
  4. If you change your mind about what you want, you are unlikely to get your money back.
  5. Your successors can get unhappily surprised that the funeral home cannot or will not deliver on something that was promised.
  6. If prices are not guaranteed, you successors may have to pay more honor your intentions.
  7. The expenses are not tax deductible when they might be if they were paid by your estate.
  8. Locking the funds into this contract reduces your successor’s ability to use funds for other matters, such as medical expenses.
  9. Your successors cannot locate the paperwork…or find it too late.

An agreement with a funeral home where you paid for selected services where the money is in an interest-bearing account.

Pros: 

  1. If you change your mind, you are supposed to get your money back, although likely with fees deducted.
  2. Your account pays interest.
  3. You make all the decisions about what you want for yourself.

Cons:

  1. A REVOCABLE trust does NOT qualify for  Medicaid exclusion.
  2. Administrative fees are likely to be charged (possibly more than the interest paid).
  3. You likely have little or no recourse if things go wrong and misuse of funds is a known danger.
  4. The funeral home can go out of business, substanially complicating your ability to get your money back.
  5. You can die too far away from your selected funeral home or its network (no matter how big they claim it is).
  6. Your successors get unhappily surprised that the funeral home cannot or will not deliver on something that was promised.
  7. If prices are not guaranteed, you successors may have to pay more honor your intentions.
  8. The expenses are not tax deductible when they might be if they were paid by your estate.
  9. Locking the funds into this contract reduces your successor’s ability to use funds for other matters, such as medical expenses.
  10. Your successors cannot locate the paperwork…or find it too late.

An agreement with a funeral home where you paid for selected services where the money is in an interest-bearing account.

Pros: 

  1. Your account pays interest.
  2. You make all the decisions about what you want for yourself.
  3. An IRREVOCABLE trust DOES qualify for  Medicaid exclusion, up to state-allowed limit.

Cons:

  1. IRREVOCABLE means it cannot be changed.
  2. Administrative fees are likely to be charged (possibly more than the interest paid).
  3. You likely have little or no recourse if things go wrong and misuse of funds is a known danger.
  4. The funeral home can go out of business, substanially complicating your ability to get your money back.
  5. You can die too far away from your selected funeral home or its network (no matter how big they claim it is).
  6. Your successors get unhappily surprised that the funeral home cannot or will not deliver on something that was promised.
  7. If prices are not guaranteed, you successors may have to pay more honor your intentions.
  8. The expenses are not tax deductible when they might be if they were paid by your estate.
  9. Locking the funds into this contract reduces your successor’s ability to use funds for other matters, such as medical expenses.
  10. Your successors cannot locate the paperwork…or find it too late.

An insurance policy where the benefits are intended (but not required) for funeral and related expenses.

Pros: 

  1. The insurance benefit will likely cover most or all of the cost.
  2. The beneficiaries can use the money for anything, offering the most flexibility.
  3. Beneficiaries can choose any provider, any final resting place, any associated services.

Cons:

  1. You lose the benefit if the policy is not paid.
  2. The beneficiaries can use the money for anything; possibly counter to your wishes.
  3. If you live long enough, policy premium payments can total more than the benefit paid out.
  4. Your successors cannot locate the paperwork.

An insurance policy intended for survivors’ support after your gone, which can be used for funeral costs.

Pros: 

  1. The insurance benefit will likely cover most or all of the cost.
  2. The beneficiaries can use the money for anything, offering the most flexibility.
  3. Beneficiaries can choose any provider, any final resting place, any associated services.

Cons:

  1. You lose the benefit if the policy is not paid.
  2. The beneficiaries can use the money for anything; possibly counter to your wishes.
  3. If you live long enough, policy premium payments can total more than the benefit paid out.
  4. Your successors cannot locate the paperwork.
  5. If you are much older and/or in poor health, you may not find an insurance provider.

Savings Options

RECOMMENDED

Joint Savings Account

A bank/credit union account with more than one person with full access.

Pros: 

  1. EASY.  Available at any bank or credit union.
  2. The survivor retains full and immediate access after you are gone.
  3. The survivor can use the money for anything, offering the most flexibility.
  4. The survivor does not need to keep track of any paperwork; just have identification.

Cons:

  1. The other person retains full access even before you are gone.
  2. The survivor can use the money for anything; possibly counter to your wishes.

A bank/credit union account with a Payable on Death (to the named beneficiaries) stipulation in the bank’s records.

Pros: 

  1. Moderately easy. Should be available at any bank or credit union.
  2. The survivor gains access only after you are gone.
  3. The survivor can use the money for anything, offering the most flexibility.
  4. The survivor does not need to keep track of any paperwork; just have identification and your death certificate. 

Cons:

  1. Institutions vary on how many hurdles are involved before access is granted, but it should be less than the probate process.
  2. The survivor can use the money for anything; possibly counter to your wishes.
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