Everything That You Should Know About Preplanning a Funeral
We encourage everyone to preplan their final wishes in one form or another, whether it is sitting down with a funeral professional or simply writing down your wishes then sharing that information with close family members afterward. It is important to communicate your plans both verbally and in writing to ensure that everyone is clear with one another. Although we promote preplanning, we do not always recommend prefunding. Like everything else in life, there is no such thing as a “one size fits all.” Everyone has unique situations that need consideration before making the right decision.
Reasons to Preplan
You may hear people say, “I don’t care what happens to me when I die.” However, we all have our thoughts on what we want or do not want, we just do not feel comfortable talking about it.
Preplanning gives us the opportunity to:
- Have our wishes expressed and written down. It is important to not only communicate what we want, but what we do not want as well.
- Take additional burden and grief away from family members. The death of a family member is difficult enough without the stress of having to coordinate funeral arrangements or final disposition.
- Give ourselves peace of mind. Once we take the time to communicate our wishes, there is no longer a need to think about it or discuss it again.
Reasons to Prefund
- Title 19 – If a person goes into long term care, oftentimes the government will need to assist financially before personal funds are depleted. The State of Wisconsin not only allows for people to shelter money in a funeral trust, but they also encourage the process before enrolling in the program.
- If you are without Life Insurance – There are pros and cons to having life insurance. If someone chooses not to have life insurance, then prefunding may be an option to consider. Again, everyone’s situation is different. This would be a good discussion to have with a funeral professional and a trusted independent financial advisor.
- If someone does not have a trusted family member or designee to take care of their final disposition, then prefunding may be a prudent option.
- If a person has funds set aside that are not designated for living expenses (i.e., mortgage, utilities, groceries, vacations, etc.), they may choose to prefund their final wishes in order to have everything taken care of so their family does not have to sort through financial issues at the time of death.
- Finally, some funeral homes offer a guarantee on a prefunded agreement. This does not mean that prices are fixed or locked in, but rather the trust guarantees that if there is not enough interest that accrues in the account to meet the funeral home’s current costs at the time of death, the family will not have to pay more toward those items. This only applies to funds set aside for goods and services of the funeral home. A person is also allowed to set aside funds for services that the funeral home does not supply, such as obituaries, flowers, luncheons, and cemetery expenses. However, these items are not guaranteed. Any monies designated for these items will always be available regardless of interest.
How to Prefund
The State of Wisconsin requires that all prefunded funerals be secured in a trust. A person cannot pay a funeral home a sum of money prior to a death and get a receipt stating a funeral is paid. This is done for the consumer’s protection. If the funeral home were to cease as a business, or if someone decides to choose another funeral home before or at the time of death, the funds remain with the purchaser. The funeral trust is in the name of the purchaser who has total control to choose any other funeral home regardless if they move or simply change their mind. Only the funeral home providing the service can collect the proceeds of any funeral trust.
There are two types of funeral trusts approved by the State of Wisconsin.
- Bank Trust – This type of trust has been available for over 60 years. However, it is rarely used. In fact, very few banks offer this service anymore. Funds are typically placed in a savings account. This bank trust may be useful for someone who would like to set funds aside a little at a time. Bank trusts are limited to the amount of money that can be sheltered for Title 19 situations. They allow up to $4500 for a service in addition to a casket, urn, and vault. They do not allow for cash advances such as cemetery expenses, lunches, flowers, church fees, etc.
- Funeral Insurance Policy – Thirty years ago, the State of Wisconsin approved insurance funded funeral trusts. This product was specifically created by the insurance industry to fund final expenses. This option allows for a person to completely fund everything including the items not allowed in a bank trust. Most funeral homes today utilize insurance trusts.
One of the most asked questions is, “What happens to my policy if the insurance company fails or goes out of business?”
The State of Wisconsin requires all insurance companies licensed to do business in Wisconsin to be a part of the Wisconsin Insurance Security Fund.
What is the Wisconsin Insurance Security Fund?
The Wisconsin Insurance Security Fund was created by the Wisconsin legislature to protect state residents who are policyholders and beneficiaries of policies issued by an insolvent insurance company, up to specified limits. All insurance companies (with limited exceptions) licensed to write life and health insurance or annuities in Wisconsin are required, as a condition of doing business in the state, to be members of the guaranty association. If a member company becomes insolvent, money to continue coverage and pay claims is obtained through assessments of the guaranty association’s other member insurance companies writing the same line or lines of insurance as the insolvent company. All fifty states, the District of Columbia, and Puerto Rico have life and health insurance guaranty associations.
Another common question is, “Can I ever get my money back after I purchase a policy?”
It is strongly advised that funeral trust policies be made irrevocable. This means that any funds set aside cannot be used until after the death has occurred and services are rendered. Wisconsin does require all funeral trusts to be irrevocable if someone is applying or already enrolled with Title 19.
Making a trust irrevocable also prevents family members and POA’s from cashing in a policy before it is needed for funeral expenses.
It is not required to make an insurance trust irrevocable if Title 19 is not involved. Wisconsin law requires a 30-day period that allows a purchaser to change their mind and receive their money back in full. If the policy is not made irrevocable, like any insurance policy, one can cancel or cash out their policy after the 30-day period. However, there will be a financial penalty for doing so.
Unless the purchaser is comfortable knowing that a funeral insurance trust is meant to be untouched until the death has occurred, the purchaser should consider other options.
If you do decide that a funeral insurance trust is right for you, it is especially important to make sure that you share this policy information with family members, so they know such a plan exists.
For Those That Have Life Insurance
There are reasons to own life insurance. Some people want to make sure their family is taken care of if an unexpected death occurs. Others want to ensure that immediate expenses are met after they pass away. It is always encouraged to consult an independent financial advisor to see if life insurance is appropriate for your situation.
Some funeral homes require payment before their services take place. If you have a life insurance policy meant for your funeral expenses, it is common for the insurance company to utilize the full thirty business day requirement to distribute the policy’s proceeds. This can create an inconvenient issue for the beneficiary. For those who are unable to pay for the service and wait for their insurance proceeds, there is an option to consider. Our funeral home uses a third-party company that will process the claim with the insurance company and pay the funeral home for their services within a few days, provided all the required documents are received (i.e., death certificate, claim form, and assignment.) They also will charge a fee (usually 3-4%) for the amount advanced. This is helpful for other costs the family will have to consider such as cemetery , flowers, minister and church honorariums, luncheons, and newspaper notices. These are all expenses that would need to be paid at the time of the service.
There is an option of assigning a life insurance policy to a funeral home before the death occurs. In the case of Title 19, it may be required.
Hopefully, this resource will assist you and your family’s decision regarding preplanning your final arrangements. Again, the most important part of this process is communication with family or trusted friends. It is important that your wishes, plans, and copies of any documents are distributed to the people that will be making the decisions after death has occurred. Make sure the beneficiaries of your life insurance policies know they are beneficiaries. Make sure they have a copy or know where to find your policies. Make a list of all your important financial institutions, retirement plans, titles, wills, and trusts so your family does not have the burden of trying to locate this essential information when needed. Also, please make sure the appropriate people know about a funeral trust or prearrangement.
You may also want to consider designating a trusted family member or friend as P.O.D. (Payable on Death) on certain accounts that would allow them to access money to pay for any expenses that are needed at the time of death before insurance proceeds are able to be processed and distributed.
Finally, make sure you speak with a funeral home professional to find out what your options are and what may be best for you and your family. Again, everyone’s situation is different and there is never a “one size fits all” option.
Please call us at 262-552-9000 to set up an appointment to discuss pre-planning with a caring professional or complete the online pre-planning form.
Please Note: This is a FREE service with NO OBLIGATION, designed specifically to provide you with a way to plan your arrangements.