Prepaid Funeral Arrangements: Possible Downsides | McDougal Funeral Home (2024)

FAQs

What are the cons of a prepaid funeral? ›

"Preplanning a funeral is truly a gift to your family. But if you prepay, it's a gift to the funeral home." Ramsey believes that, if a person has the financial means to prepay funeral expenses, it is a better idea to put the money into an investment account and see it grow.

If there is money left over after paying the funeral bill, the excess would be returned to the family.

What if I change my mind, can I get a refund? Once you've bought your Prepaid Funeral Plan, you will have 30 days to change your mind. So whether you've paid a deposit or paid in full, your money will be refunded if you cancel with 30 days.

If you cannot afford a burial or cremation, you can sign a form with the county coroner's office and the state will bury or cremate the body for you. This will be at no cost, but you won't have any say in where or how.

Burial insurance explicitly covers funeral expenses, life insurance provides broader financial protection to beneficiaries, and prepaid funeral plans involve prearranging and prepaying for funeral services to alleviate the burden on loved ones.

Prepaying your funeral expenses doesn't leave any money for your family to pay for other end-of-life expenses you'll incur, such as medical expenses.

Essentially, they can be both an asset and a deduction. The value of the prepaid funeral should be listed on REV-1508 Schedule E - and the actual costs of the funeral services should be listed on REV-1511 Schedule H.

Funeral expenses aren't tax deductible for individuals, and they're only tax exempt for some estates. Estates worth $11.58 million or more need to file federal tax returns, and only 13 states require them.

Does the funeral rule allow funeral homes to mark up cash advance items? ›

According to the Funeral Rule, any mark-ups, rebates, commissions, and trade or volume discounts on cash advance items must be disclosed in writing to customers, although the exact amount of the mark-up does not have to be disclosed. Markups on cash advance items are not a common practice with cremations.

Does life insurance cover burial costs? Yes, life insurance policies will pay a lump sum when you die to a beneficiary of your choice. That money can be used to pay for your funeral or for any other general financial needs of your survivors.

If you prepay for your services, you're locking in today's price for tomorrow's rates. However, some funeral homes don't factor inflation, so before you sign anything, make sure to ask if the payment you're making is for a fixed price. Otherwise, your family may be hit with unexpected charges after you pass.

If you are paying by monthly payments:

you can upgrade or downgrade your funeral plan (providing the updated plan is right for you). Any upgrade can either be paid for as a lump sum or you can increase your monthly payment to take account of the change.

Instead of Form 1040, funeral expenses are allowable deductions to be included and itemized in Form 706 for estate tax returns under Schedule J: Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims.

Financial Risks: There's always a possibility that the funeral home might go out of business. Keep in mind that there isn't much regulatory oversight for prepaid funerals.

The other big disadvantage of funeral insurance is the fact that a funeral will still need to be arranged once the lump sum has been paid, so family members or friends will be adding another job to the list during what can be a very difficult time.

- Pay in instalments across a duration that suits your monthly budget – you can spread the cost of your funeral across up to 120 months (10 years), provided all payments are completed by the 80^th birthday of the person named on the plan.