In the last article I described some of the advantages and reasons for preplanning a funeral. Today I wish to discuss prefunding one's funeral arrangements, and what happens to the monies that are paid to the funeral home in advance.

          Firstly, let me state that in order to prearrange a funeral, YOU DO NOT NEED TO PAY ANY MONEY AHEAD OF TIME. Secondly, monies paid ahead of time are simply on deposit, and THE PRINCIPAL AND INTEREST REMAIN THE PROPERTY OF THE DEPOSITOR.

          Prearranging is simply a matter of putting statistical and personal information on file with the chosen funeral home and having this information and direction is invaluable in assisting the survivors when the death occurs. However, the next step is to prefund, or "prepay" those services, but that is an option, not a requirement of prearranging.

          Under Ontario Law, any monies that are deposited with the funeral home are deposited in either a "Trust Account" or a "Funeral Insurance Fund", and remain as part of the assets of the depositor until the death occurs and the legal representatives of the deceased direct the funeral home to use those monies to pay for the arrangements.

          Trust accounts have been the standard form of investing preneed monies. They are very similar to a savings account, where the initial deposit is made with a chartered bank or trust company, and the money earns interest and grows in size. That interest is used to offset inflation over time. The original depositor can (at no charge) request information pertaining to the current status of their account once per year, and can cancel their deposit at any time. The full amount of the account (principal plus interest) will be refunded to them less an administrative fee to the funeral home (currently a maximum of $200.) plus any cancellation fees that may be charged by the financial institution (most do not charge a fee). The interest is tax sheltered, and income taxes are only applicable if the account is cancelled or any interest is refunded. Monthly account reporting is done by the financial institution to the funeral home, and regular reconciliation and auditing is handled by the funeral home, their accountants and the Ontario Board of Funeral Services. The disadvantage of trust accounts is that monthly payment plans are not always available or practical, the interest rate may not always keep up with inflation (depending on how the funeral home invests it), the account can not normally be transferred between funeral homes, and the cost of administering the account is carried by the funeral home which ultimately is passed on to the consumer.

          Funeral insurance is a relatively new product in Ontario, but has been used extensively elsewhere to prefund funerals. The original deposit is used to purchase a funeral insurance policy, with the funeral home listed as the beneficiary. Unlike regular life insurance, the death benefit grows on a guaranteed annual basis to offset inflation (often the national inflation rate plus 1%). Like a trust account, the policy can be cancelled at any time, and the depositor will receive a refund of the principal plus a prescribed annual interest rate (less small administrative fees). The growth of the death benefit is tax sheltered, and similar to a trust account, income tax is only payable if there is a refund. Regular monthly reporting is very similar to a trust account, so the status of the funds is available at any time. Funeral insurance is now our preferred method of funding prearrangements because it offers so many different options: upfront discounts for lump-sum payments; flexible payment plans with full-death-benefit protection after the first two years; the policy is fully portable and can be easily transferred between funeral homes; and the administration costs are largely carried by the insurance company.

          Regardless of which method is used to fund your funeral prearrangement, both are safe and guaranteed by the government (through banking and insurance legislation), the Ontario Board of Funeral Services, and most funeral establishments are bonded and insured to cover any unforeseen occurrences. Even if the funeral home is sold, or closes, your original deposit plus interest is safe and secure. While on rare occasions financial institutions and funeral homes have gone under, NO PRENEED FUNERAL DEPOSITOR HAS SUFFERED IN THE PROVINCE OF ONTARIO! Preneed funeral funding is so closely regulated and guarded that it is probably one of the safest forms of investment in this province.

          Whether or not you chose to prefund your funeral is a personal choice, that should be made after careful consideration. From a purely financial perspective, you may wish to discuss the benefits with your financial advisor. Only that person can truly counsel you on the interest rates of your existing investments and the benefits to you of a tax sheltered funeral plan. However, ultimately a prepaid funeral relieves the financial pressure from your loved ones at the time of your death, and that may be the best for you and your family. For a private consultation, feel free to call me or your funeral director of choice. We're here to help.

Next Topic, "Funeral Options in Today's Marketplace".