The Perils of Prepayment Plans

Tips on shopping for funeral goods and services.

Shopping around for the most suitable and affordable funeral goods and services is a wise consumer idea. However, be extremely cautious about paying in advance -- or prepaying -- for them.

There are a number of legal controls on how the funeral industry can handle and invest funds earmarked for future services, but there are also many reported abuses, including mismanaged and stolen funds. A great many other abuses go unreported by family members too embarrassed or too grief-stricken to complain.

Consumers face additional pitfalls. When mortuaries go out of business, the consumer who has prepaid may be left without funds and without recourse. Also, many individuals who move to a new locale during their lifetimes are dismayed to find that their prepayment funds are nonrefundable -- or that there is a substantial financial penalty for withdrawing or transferring them. In addition, money paid now may not cover inflated costs of the future, meaning that survivors will be left to cover the substantially inflated costs.

If you are interested in setting aside a fund of money to pay for your final arrangements, a more prudent approach may be to contact a bank or savings institution to set up a Totten trust -- an account earmarked to pay for your final arrangements. Unlike money applied to traditional funeral prepayment plans, the trust funds are easily transferred or withdrawn if need be and you have complete control over the money during your life.