Pre-Planning...more information

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Pre-Need Funeral Planning

When planning a service, we record all the information that is required in order to complete the death certificate and to publish the obituary. Details, such as church officials to conduct the service, pallbearers, musical selections and memorial donations to charitable organizations can all be tentatively noted and then changed, if necessary, when finalizing the actual arrangements.

We are prepared to explain all of the costs and options available to you when making your arrangements. If you decide to select the casket and vault, we make a record of the selections that you make. We cannot guarantee that the same casket and vault models will be obtainable at death, but similar models will most likely be available.   

If you desire to fund the pre-arrangement, there are a number of options that need to be considered. Any money received by a funeral home on a pre-need funeral must be handled in accordance with the laws and regulations established by the State. All pre-need contracts between funeral homes and customers are regulated by the N. C. Board of Funeral Service (NCBFS). All funded pre-arrangements must be recorded with the NCBFS and a filing fee of $20.00 is required. The NCBFS will acknowledge to the purchaser that the contract has been properly filed. Annually, they audit the funeral home records to make certain that the funds remain on deposit and that proper record keeping is followed.

Your money can not be put into a funeral home operating account.  It must always maintain a separate identity.  That is why your social security number is necessary for the contract.  The concept is that this money remains as yours until needed; the funeral home has no claim on this money until it has provided those services and merchandise that you have selected.  The funeral home can withdraw the funds only after a Certificate of Performance is completed.
 
In North Carolina there are two choices as to where a funeral home can place pre-need funds, with a bank or with an insurance company.

The information that follows details the different types of contracts that are available and some of the advantages and disadvantages.  It will be helpful to be familiar with the following terms:

Irrevocable Trust
This type of trust cannot be withdrawn by the purchaser at any time during his or her lifetime.  Since the money cannot be withdrawn, an irrevocable trust qualifies as a “spend down” situation for anyone trying to qualify for Medicare assistance.  If the funeral home does not provide services or merchandise, the money is refunded to the estate of the deceased or possibly paid to the funeral home that does perform the services.

Revocable Trust
This type of trust can be withdrawn by the owner.  It would not be a good idea to withdraw a revocable insurance trust because you would generally receive less money than you have paid in as premium.

Standard Trust
With standard trusts, at the time of death, the costs of the funeral are listed at the current prices and the trust amount is deducted from those expenses.  A standard bank trust will grow as the bank posts interest to the account.  A standard insurance trust will have an increasing death benefit as provided by the insurance company.  Any resulting overage will be refunded to the estate of the deceased and any shortage is to be paid by the responsible family member. 

Inflation-Proof Trust
The funeral home agrees to accept the proceeds of the insurance policy as payment in full for all of the guaranteed charges selected by the family such as service items and funeral merchandise.  Charges that do not qualify for guaranteed status include such items as cemetery charges, paid obituaries, sales tax, flowers, etc.  Any overages are retained by the funeral home and any deficiencies are absorbed by the funeral home.

 

Standard Trusts

Bank Trust or Insurance Trust

 

BANK TRUST- Standard

Money is deposited at First Citizens Bank.

Interest is compounded daily.

At the end of each year, the depositor receives a 1099 for the annual interest earned.

At death, the total amount is withdrawn from the bank to pay funeral expenses.  Funeral expenses are charged at the current prices at the time of death.   If there is an amount owed it is the responsibility of the family.  If there is money left over, it is refunded to the estate of the deceased.

Advantages of Bank Trust

SUPERIOR GROWTH
Over a long period of time, the bank trust will usually have superior growth as compared to an insurance trust.  (This is not always the case.  It depends on the age of the person and how long the person lives.)

PROTECTION OF PRINCIPAL AND INTEREST
You will never “lose” money on a bank trust.  You will always have available all of the principal that was put in and the interest that was earned. 

FLEXIBILITY
You are not “locked in” to a rigid payment schedule like you would be with insurance premiums.

Disadvantages of Bank Trust

POSSIBLE TAX CONSEQUENCES
Interest income is taxable. (This will create a tax liability if the depositor is filing tax returns and paying taxes.)

SHORTFALL IN PAYING FUNERAL EXPENSES
If you are planning to fund the bank trust with periodic payments and then don’t adequately fund the trust, there will not be enough money to pay the expenses as originally selected.  It is also possible that a shortfall will result if interest earnings do not keep pace with the increase in expenses.

INSURANCE TRUST - Standard

An insurance policy is written through Homesteaders Life Company.  Except for single pay policies, all policies are subject to health questions and a two year contestable period.

Premium payment periods are either for 3, 5 or 10 years.  (Some ages do not qualify for all payment periods.)  Single pay premiums are also available.  The shorter the payment period, the higher the premium, but also the less total premium paid in if all of the scheduled premium payments are made.

The death benefit of the policy grows according to an interest rate established annually by the insurance company.

At death, the death benefit is paid to the funeral home.  Funeral expenses are charged at the current prices.   If there is an amount owed it is the responsibility of the family.  If there is money left over, it is refunded to the estate of the deceased.

 Advantages of Insurance Trust

INSURANCE VALUE
If you qualify health-wise, you could immediately be covered for the full amount of insurance death benefit, even if you have paid in much less in premium. (Any insurance policy is contestable for the first two years.)

Again, assuming you qualify health-wise, you will have a much higher death benefit value in the early years if you are making premium payments as compared to depositing that same amount in a bank trust.  (The longer the premium payments are made, the less insurance holds this advantage over bank trusts.  In fact, it is possible to pay more in than what the death benefit will be.)

TAX-FREE GROWTH
The increasing death benefit does not result in taxable income.

INFLATION-PROOF TRUST
If you qualify, you can receive a contract that locks-in the price for funeral services and merchandise so that your family will not pay any more for those items that you have selected.   (Some of the costs associated with a funeral like cemetery fees, flowers, sales tax and others cannot be guaranteed.)

Disadvantages of Insurance Trust

POSSIBLE LOSS OF PRINCIPAL
If you are unable to make scheduled premium payments, the death benefit amount will likely be reduced to an amount that is less than what was paid in as principle. 

It is possible to pay more money in as premium than the death benefit amount.

SHORTFALL IN PAYING FUNERAL EXPENSES
We recommend “overfunding” an insurance trust, as over a long period of time, inflation is very likely to increase more that the rate of increase on the death benefit. 

  

Inflation-Proof Contracts

Insurance Trusts Only

QUALIFICATIONS  FOR AN INFLATION-PROOF CONTRACT

1.) The insured must be between the ages of 56 to 80 years of age. 

2.) The insured must sign the insurance application.  (The insurance company pays a reduced growth rate if the insured is not able to sign the insurance application.)

3.) If a casket is selected it must be an Aurora or an Edgecombe casket. (These companies participate in a program to control price increases.)

Insurance Trusts

Inflation-Proof Contract – An inflation-proof contract locks in the price for all of those funeral expenses that the funeral home is willing to guarantee.  This lock-in feature means that the funeral home will accept as payment in full the death benefit amount received from the insurance company for those guaranteed items such as charges for conducting the service and funeral merchandise.  The funeral home will NOT guarantee any cash advance items such as NC Sales Tax, cemetery charges, newspaper obituary charges, honorariums for funeral participants.  These non-guaranteed items may be included on the contract and will receive the same growth rate as the guaranteed items, they are just not locked-in.  If the family changes the guaranteed funeral selections after the death of the insured by reducing services or merchandise, the contract will be treated as a standard contract where the current costs of the funeral are subtracted from the death benefit with any overages returned to the estate.  If a shortage results from treating the contract as a standard contract, the funeral home will provide those services and merchandise that the family has substituted at no additional charge to the family for those items.  If the family changes the funeral selections after the death of the insured by increasing services or merchandise the additional charge to the family will be the difference between the current costs of those services and/or merchandise.   

Advantages of Insurance Trust

GUARANTEED COSTS ARE PAID IN FULL
If you qualify health-wise, you could immediately be covered for the full amount of the guaranteed funeral expenses, even if you have paid in much less in premium. (Any insurance policy is contestable for the first two years except for single pay policies.)

TAX-FREE GROWTH
The increasing death benefit does not result in taxable income.

 Disadvantages of Insurance Trust

POSSIBLE LOSS OF PRINCIPAL
If you are unable to make scheduled premium payments, you will no longer have an inflation proof contract where the guaranteed costs are locked-in AND the death benefit amount will likely be reduced to an amount that is less than what was paid in as principal.

It is possible to pay more money in as premium than the death benefit amount.

 

We take very seriously our responsibility to ensure that your money is safe. Regardless of where you decide to pre-plan or pre-fund, be certain to ask what happens to your money; how it grows, is it taxable or refundable?   Make sure that all of the services that you elected have been included and if you selected merchandise, that it is adequately described.  Be certain that you are given a copy of the General Price List and the Statement of Goods and Services.  And finally, ask who owns the funeral home.   As a family owned and operated funeral home we have been here since 1932 to serve the needs of those in the community and expect to be here for many years to come.

Cemetery property, lots, grave markers and mausoleum spaces may be purchased in advance. Unlike pre-need funerals, deeds can be issued for a specific cemetery property. Therefore, this money does not have to be deposited into pre-need contracts and allows you to lock-in at current prices.