News Summary

Consumer advocates, financial planners and funeral directors agree — preplanning a funeral is a good idea.

"You can go into any funeral home and preplan and spend about an hour and a half," said Todd Fowler, a licensed funeral director and Questar Capital financial planner in Hamilton. "But that time could save you a lot of emotional stress, and also thousands of dollars. This is the only purchase you make on a very bad day."

But on prepaying a funeral they disagree.

"To my mind, it doesn't make sense to give your money to a funeral home in advance," said David A. Kay, a certified financial planner in Centerville. "Anytime you pay in advance for anything, you're benefiting the people you're paying in advance."

The average funeral in America runs $6,500, not including headstone and burial costs, according to the National Funeral Directors Association.

So to head off an even costlier funeral, more Americans — particularly baby boomers — are planning and paying for their funerals ahead of time, accounting for about 40 percent of all funerals today, according to the NFDA.

"If the family wants to have everything taken care of and really they just want to buy peace of mind, that's the time to do that," Fowler said.

Along with their rising popularity, pre-need funeral plans are also the No. 1 reason consumers call the Ohio Board of Embalmers and Funeral Directors to complain.

Of 157 complaints in fiscal 2006, more than a third, or 62, concerned pre-need contracts. This year, board staffers predict up to 80 percent of the complaints will concern pre-need.

"It's a variety of things, not one (type of complaint) stands out," said Ann Cunningham, the funeral board's executive director.

Oftentimes, Cunningham said, the consumer's confused over what's covered under the contract and what's not covered — preacher fees, flowers, obituaries, etc. Perhaps they haven't read the contract carefully, nor have they shared it with family members.

Also, some don't realize the accrued interest in a pre-need account is intended to cover the cost of inflation; it's not a return on investment for the family to inherit after death, she said.

"We need to educate both sides," Cunningham said. "We need to lay down the law and say to the funeral director, 'This is what you tell them, you disclose everything and you pray they read it.' And to the consumer, you ask every question you can think of. There's no dumb question."

There are two main types of pre-need funerals: insurance-funded plans and those placed in an interest-bearing trust fund. Whether insurance funded or in a trust, the key question consumers should ask is if the contract is guaranteed, said Stephen J. Gehlert, executive director of the Ohio Funeral Directors Association.

"In other words, what I buy today at $5,000, if it costs $10,000 when I die, is the money going to be there and are you guaranteeing it?" Gehlert said.

If the money is in a trust fund, the consumer typically will receive a letter from the financial institution confirming the money is trusted. But if it's funded by an insurance policy, there's no assurance the money safely went to the insurance company.

The funeral board is working with the Ohio Funeral Directors Association, the Ohio Department of Insurance and others on legislation they say will strengthen consumer protections.

One proposed measure requires financial institutions and insurance companies to send a letter to the consumer within 60 days confirming receipt of the funds or that the insurance policy has been issued.

The draft legislation also would create a statewide recovery fund to reimburse families who lose pre-need funds to unscrupulous funeral directors.

If the legislation becomes law, Cunningham said the board will need additional staff to handle the extra work.

"We're looking at different states, trying to figure out what works best," she said.

Consumer advocates warn of other pitfalls with pre-need contracts. In Ohio, if you want to cancel or transfer your pre-need plan that's in a trust, the funeral home can keep 10 percent of the principal and 20 percent of the accrued interest.

"This needs to stop," said Joshua Slocum, executive director of the national Funeral Consumers Alliance in South Burlington, Vt. "Ohio needs to follow the lead of many other states that have 100 percent trusting and refund (such as New York). This is not the funeral home's money until they perform the funeral. It is the consumer's money."

Gehlert, whose association administers a trust fund for pre-need funeral money, said a primary motivator for purchasing prefunded funerals is the money can't be counted against a consumer who might one day try to qualify for Medicaid, the state and federal government health insurance program for the poor.

"It's a very valuable tool, and probably 75 percent of the money in the OFDA trust is irrevocable contracts that are being used for Medicaid purposes," Gehlert said.

Slocum cautions that consumers shouldn't bind their money to a pre-need funeral contract unless Medicaid is "imminent — not years away."

His funeral alliance and AARP, the nonprofit advocacy group for Americans 50 and over, suggest putting your money in a "pay-on-death" account, a private, irrevocable trust at a bank with a designated beneficiary.