Prepaid funeral expenses cover all funeral home services but exclude cemetery or crematory expenses, clergy expenses, and death certificate costs. Prepayment can be made directly or through a savings account with the funeral home. Regulations prevent abuse and offer tax breaks. Preplanning or prepaying can be done. Unregulated prepaid funeral expenses can lead to funeral homes closing before obligations are met or substituting inferior merchandise. Properly regulated prepaid funeral expenses require the funeral home to place the money in an interest-bearing savings account.
Prepaid funeral expenses are funeral expenses that are arranged and paid for before a person’s death. These expenses include all charges assessed by a funeral home for services, but generally exclude cemetery or crematory expenses, clergy expenses, and costs to obtain a death certificate. A person can manage these expenses by paying the funeral home directly in advance or by establishing a savings account with the funeral home as the beneficiary. Many jurisdictions offer tax breaks and other considerations for prepayment of funeral expenses and regulate the process to prevent abuse.
Many people choose to make arrangements for their eventual death in advance. This allows a person to decide how they would like their funeral to be conducted and takes the stress out of making these decisions on their loved ones at the time of bereavement. Funeral homes have capitalized on this desire by offering two ways to make these decisions in advance. People can pre-plan a funeral or prepay for it. A pre-planned funeral is simply a written plan expressing a person’s wishes that is kept on file with a selected funeral home, while a person actually doles out money for the prepaid funeral option.
Some jurisdictions regulate prepaid funeral expenses to prevent pushy sales tactics and misleading promises. The types of difficulties with prepaid funeral expenses that can arise in unregulated situations include funeral homes closing before outstanding prepaid obligations can be met and never paying the money back, substituting inferior merchandise as a result of increased costs, and never reporting to the family that the expenses have been paid in advance at the time of death. Public policy in many jurisdictions supports standardization of the prepayment process so that individuals are not left without recourse at death and the elderly are not left without money due to insufficient arrangements.
A properly regulated process for prepaid funeral expenses in situations where the person chooses to pay the funeral home directly often requires the home to place the money in an interest-bearing savings account, with the person as the beneficiary. The funeral home must report the establishment of the account to the competent jurisdiction. You must also submit a report on the status of the account to the beneficiary and to the tax authorities annually. This allows the jurisdiction to take possession of the money if it is never claimed and the tax authorities to require the beneficiary to pay tax on the interest. Generally, most jurisdictions allow taxpayers to deduct the principal account balance from income.
Smart Asset.
Protect your devices with Threat Protection by NordVPN
