When completing a prearrangement, you have two account options, funeral trust or funeral insurance. The following information will give you a brief overview of the these choices. Your funeral director can help you work through the many details and help you decide the best choice for your particular arrangements.
Trust or Insurance?
In Massachusetts, all preneed money must be placed in a proper third-party trust account or with a preneed insurance company duly licensed in the state. Whatever funeral home you ultimately choose, make sure you receive complete documentation of the transaction to prove that the money is secured properly. You should receive correspondence from the funeral home or financial institution at least once each year to notify you of any financial growth in the account. Keep your funeral director up to date on address changes so that correspondence can reach you without interruption.
Your choice of preneed trust or preneed insurance will depend upon many factors. Keep in mind that preneed funds belong to the preneed person not the funeral home. Here are a few concepts to help you understand the differences between a trust and insurance:
Funeral trusts work like bank accounts. They have formal legal documentation to satisfy Medicaid and the state board of registration. As with a bank account, you will receive a yearly statement of interest and this will become part of your taxable income for the year. Trust accounts work best for shorter-term circumstances where illness or age may suggest an imminent situation.
Preneed insurance, as the name implies, is an insurance policy. Unlike a funeral trust, the funds will grow without being taxed so that you will not have to file 1099 documents each year. In addition, you pay preneed insurance in monthly installments. After a waiting period, you will receive full coverage for the funeral service you have arranged, just like any insurance policy. (This may require you to answer health-related questions and disclose medical information during the application process.)
Ask Hathaway Family Funeral Homes for a more complete explanation of these options. Each circumstance is a little different and warrants a more thorough discussion.