This situation in Louisiana may serve as an example of problems elsewhere. Lee Norrgard, consumer affairs analyst for AARP, has been monitoring the problems of prepaid funerals. In Final Choices: Making End-of-Life Decisions(ABC-CLIO, 1992) he writes: “Is there adequate consumer protection for buyers of preneed plans? At this point, the answer is no. Regulations, investigations, and auditing are minimal in most states. In at least one instance, some of the worst abuses surfaced as a result of private legal actions rather than state enforcement activities…. Buyer beware!”

The Consumers Digestarticle reports that “about $50 million in preneed funds was stolen or reported missing nationwide.” As of 1997 only seven states had some sort of guarantee fund to protect consumers against such default: Florida, Indiana, Iowa, Missouri, Oregon, Vermont, and West Virginia.

Anyone who has paid for a funeral—or is thinking about it—should ask, “Where is the money invested and is it safe?” There are several ways to handle funeral financing in advance, some safer than others.

When you make out a check to the mortuary to pay for a pre-need funeral, there is noguarantee that the money will find its way to safekeeping. One funeral director complained that he hadn’t had a funeral in thirteen weeks and was worried about how to meet business obligations. When “Mildred” prepaid for her funeral, he used the money for his mortgage payments, despite the fact that the state required that 100 percent of the funds be placed in a federally insured institution. It’s likely that he had every intention of taking care of Mildred when she died, but when the state finally put him out of business for other misdeeds, officials discovered that $150,000 in prepaid funeral money—including Mildred’s—had vanished.

Few states require that all prepayments be placed in trust. Fewer still do any auditing. This is particularly true of cemetery prepayment and perpetual-care funds. The cemetery owners generally have unrestricted access, which accounts for the scandalously high incidence of misappropriation of endowment care funds. Without conscientious auditing, there can be no assurance that prepaid funds are safe. California, which is one of the few states that require 100 percent trusting of funeral prepayments, also leads the nation in the incidence and the magnitude of the thievery.

Perhaps most at risk are those in small towns—where everyone knows everyone—who place great trust in the local funeral director. In 1977, after receiving an estimate of $587 for the simple funeral she wanted, Annie Patterson sent a note to the man she thought of as “her” funeral director:

Annie told her children that “it was all taken care of,” and—because she was a meticulous and responsible person—no one doubted her.

When Annie died almost twenty years later, “her” funeral director had already passed away. A son had taken over the business, but Annie’s family felt comfortable calling the small-town funeral home she had trusted for her final care. The first sign of trouble came when they were told, “You know it will be more than $587, don’t you?” When a final funeral bill was presented for $3,695, there was no mention of the $587 that had been prepaid, let alone any interest that might have accumulated. The family was shocked. A simple cremation and graveside service was all they had arranged. A scramble through Annie’s shoe box of important papers turned up no receipts. Annie had never used checks; she always paid in cash.

Insurance policies generate a relatively low rate of appreciation. The seller gets a commission, and the insurance company pays itself to invest the funds. “Insurance-funded preneed arrangements are the fastest growing preneed product on the market,” says Lee Norrgard. A number of funeral-related companies are getting into the funeral insurance business. “Forethought”—which is sold through funeral homes—is managed by the Batesville Casket Company and guarantees to “freeze” the wholesale price of the casket to your funeral home. But the low rate of growth on the policy—estimated at 3.63 percent—doesn’t match overall funeral inflation. “I can handle that,” said one undertaker, “because my prices are where they should be” (high, one would find) “and I don’t mind guaranteeing the funeral price.” Unless the funeral home chooses to make such a commitment, survivors may be hit with additional costs.

Master trusts set up by morticians’ associations exist in thirty-two states. Only some of your prepaid funeral money may end up in the trust, depending on state law. Colorado, for example, requires a deposit of only 75 percent, allowing the funeral director or other sales agent to pocket a 25 percent commission. State associations that promote these trusts are paid a quarterly fee based on total investment—a strong motivation to push them. Commingled funds can be invested at a high rate of return which allows your account to grow at more than 5 percent on average while still covering the various fees. Some contracts use this growth to guarantee funeral goods and services; some do not. A few states permit a funeral home to withdraw an annual administrative fee, but most mortuaries leave it in the trust to grow, according to Nancy Gorchoff at the Access Financial Group, which manages such accounts for several states. The trust fund group takes care of reporting the interest. How much you get back if you were to cancel your arrangements would vary from state to state. Even the states that require 100 percent trusting permit the undertaker to claim an administrative fee.

A pay-on-death trust account at your local bank will give you the most control and flexibility. Sometimes called a “Totten Trust,” it can be moved easily if you do; it’s as safe as the bank it’s in. Pennsylvania attorney David Morrison, who specializes in elder law, recommends that you name yourself, or a close friend or next of kin—not the mortuary—as the beneficiary.

Whether you choose an irrevocable funeral plan or not will depend on whether you need to shelter assets prior to applying for SSI or Medicaid. Morticians are always eager to sell an irrevocable funeral contract, especially if you have arranged for a rather elaborate exit. Most people think that when it’s “irrevocable,” the body is all but in the hearse, and some funeral directors may use the “irrevocable” ploy to keep the arrangements fixed.

When her father died at a very old age, P.F. decided to opt for an immediate cremation rather than the funeral with viewing for which he had already paid. All her father’s friends had died, and the few scattered relatives would not be able to attend. When the funeral home refused to honor her request to change the plans, she walked out, then transferred the body—and the funeral funds—to another mortuary.

Mrs. S., after hearing a social worker at the senior center advise about protecting funeral money before ending up in a nursing home, promptly visited the local funeral director to make arrangements. She wanted to be embalmed before she was cremated, she said—just to make sure she was dead. The funeral director started adding various other charges to the list on his yellow legal pad (urn, urn vault, tent at the cemetery) until the total was over $3,200. Mrs. S., eager to protect her children from any worry or expense, wrote a check on the spot, made out to the local bank where her trust account would be held. But after a few weeks, she was troubled. She had selected cremation because she wanted to keep the cost down. A bill of $3,200 seemed like too much, so she wrote to the state Funeral Board. There was nothing the board could do, she was told—her plan was “irrevocable.” Only after the intervention of the local memorial society—which pointed out numerous FTC violations in the transaction—and the help of an interested employee in the Department of Banking and Insurance did the funeral home agree to refund her money.