Prepaid Funeral and Burial Plans
by Lee Beneze, Attorney at Law and Legal Services Developer, Illinois Department of Aging

        The use of prepaid funeral contracts has grown considerably over the last decade. In some part, this is due to the value they have for purposes of Medicaid estate planning. The purchase of a pre-paid burial policies is one of the transfers of assets that is permitted under Medicaid rules. Other reasons involve the purchaser's desire to prepare for the future and relieve next of kin of the burden of planning and paying for the funeral. The purchase of a pre-paid policy can allow purchasers to plan the kind of funeral and services that reflects their desires.
        With the costs of the average funeral approaching $6,000, and probably continuing to rise in the future, it can also be a wise estate planning move as it can lock in the cost of a future funeral now. The Washington Post reported that about one-third of the two million American funerals each year involve some prepaid burial insurance. Americans for many years have been buying burial plots in advance, primarily to insure that members of the family, particularly spouses, can be buried together.
        The pre-paid plan might cover the casket, embalming services, flowers, transportation to the cemetery, interment, and even such things as transportation from another locale if the insured dies away from home.
        The Illinois statute covering pre-paid funeral services and equipment contracts provides that sellers of such contracts must be licensed, the contracts themselves must have been approved by the State of Illinois Comptroller's office as conforming with the law, and a booklet from the Comptroller's office describing the consumer's rights, must be included in the transaction by the seller. Further, the proceeds from the sale must be held in a trust, life insurance policy, or annuity. The law states that all such contracts are covered by the Federal Trade Commission's "cooling off" rule which allows the consumer to cancel the contract within three days.
        If the pre-paid funeral contract does not cover all of the anticipated costs of the future funeral, the contract must indicate this. If it does cover all costs, the contract will show that it is a "price guaranteed" pre-paid contract. Finally, the seller of the contract must either be a licensed funeral services provider, or must have a permanent contract with a funeral home.
        The law covering cemetery services and equipment pre-paid contracts is similar. The sellers of such contracts must be licensed with the Comptroller's office. In the case of cemetery pre-paid contracts (those being where there is no contemplated delivery of services and equipment for 120 days), only 50% must be held in a trust fund. However, the seller of the contract must deposit $5 with the Comptroller's office on each sale to go into the Cemetery Consumer Protection Fund. This fund reimburses those who have been defrauded in such transactions.
        Unlike the statute governing pre-paid contracts on funeral services, the law on cemetery services and equipment pre-paid contracts does not allow for any extra charges to be later levied for anything covered under the contract (the plot, the interment costs, etc.). All such contracts must be on a "guaranteed price" basis.
        There are some potential problems to watch out for. The first is when the buyer has not received what he/she believes has been purchased. For example, a policy may exclude the cost of transporting the deceased from out of state, where that person passed away. The family may be surprised to learn that the contract does not cover certain services for which the funeral home is seeking to levy extra charges. The unscrupulous funeral tome (fortunately fairly rare) may seek to substitute cheaper caskets, and other equipment, for the items specified in the contract. Illinois law requires that any substitution of equipment (e.g„ caskets) be of at least equal value and quality, and similar in kind and style.
        The funeral home could tell the family that the policy was not paid for. In one case, the surviving family members had to go through their deceased mother's records looking for the canceled check to prove she had paid for the policy before the funeral home would provide the services.
        In other cases, prepaid funds have been lost because of improper investment, or the funds were actually embezzled. In such cases, the Comptroller's office can take action on behalf of the family, whether the cause was malfeasance or mismanagement. For example, in 1999 the Illinois Comptroller, for the first time ever, revoked a cemetery's license for failure to maintain and care for the cemetery grounds.
        As with any consumer contract, the buyer should read the contract carefully before signing it.

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