will have their own forms that require a signature, in addition to the forms required by the funeral provider or agent. In some states, it is required that consumers receive an annual statement with all important account information. It must also be disclosed who will receive interest from the funds. State laws vary regarding the amount the trustee must put in a trust fund. The NFDA and FCA propose that 100% must be put in; currently, 23 states have this requirement. Hawaii and Alabama require the lowest percentage: 75%. Many experts recommend 100%, even if one’s state requires less. Most of the media coverage about preneed consists of stories about greedy providers who spent the preneed money. This is an issue that justifiably concerns customers. Always complete the following: ● Advise potential customers to have the contract reviewed by an attorney or a trusted adviser before they sign it. ● Use a written contract: Most states require the preneed contract to be in writing, often providing forms the funeral director must, or may, use. the purchaser didn’t comprehend it, the result is likely to be the same: angry consumers. ● Avoid potential problems by writing clear, detailed disclosures of possible charges. Require the purchaser to initial this disclosure to indicate he or she has been told this information. ● Several state statutes require contracts to further break down the monetary information. For example, Massachusetts requires the provider to designate the percentage of the total funeral costs attributable to goods and services that the funeral home provides, as well as the percentage attributable to goods and services that other suppliers or vendors provide. Irrevocable trusts or contracts can’t be dissolved—by the creator or by any other designated entity. The funds can’t be accessed until the terms of the trust or contract are satisfied. This means that the death must occur before the assets are paid out. This implies that irrevocable trusts are superior in that they are not subject to Medicaid spend-down rules and the assets cannot be paid out until after the trust pays for funeral expenses. The FCA recommends that when a customer revokes, he or she receives 100% of the principal and the interest. The FCA also recommends that no preneed contract is made irrevocable as a condition of the contract and that if the customer elects irrevocability, he or she is to be allowed 15 days, in some cases 30 days, to think about the decision after signing. Further, the FCA recommends that a plain language version of the life insurance policy terms is given to the customer.
Most states stipulate that the funds must be entrusted to a financial institution or financial depository; some states specify that the trustee act prudently. A typical example is Massachusetts: Chapter 203C: Section 3(a): “A trustee shall invest and manage trust assets as a prudent investor would, considering the purposes, terms, and other circumstances of the trust, including those set forth in subsection (c). In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.” The section goes on to list circumstances trustees must consider in each individual case. With life insurance, the purchaser is not taxed for interest income earned. However, the rate of return is usually lower than that of trust funds. Providers often receive a commission from the insurance company. A few states, such as New York, prohibit funeral directors from accepting preneed fund commissions from any third party, such as an insurance company or a trust fund. It is essential to advise the customer in writing where the funds are being invested. In many cases, these companies Terms of an advanced planning or preneed contract An advanced planning contract should list all goods and services purchased and must be signed by both the provider and the customer. A third party with no knowledge of the goods and services purchased should be able to know these details just by reading the contract. The customer should receive a copy of it. The following items should be listed on the contract: ● Itemized goods and services on the preneed contracts. ● “Cash advance” items and cemetery goods and plots. ● At least 15 excluded goods and services, due to the inability to anticipate their need in advance (for example, preparing a body after autopsy), or that are provided by third parties whose costs may change, such as cremation fees. Whether their contracts omitted this disclosure or Revocability versus irrevocability Understanding the two different types of funeral trusts is essential to choosing the right type for the needs of the consumer. Revocability, as its name implies, can be dissolved by the person who originally created it or by a designated person or entity at any time. The downside to a revocable trust or contract is that it does not receive favorable tax treatment and is not exempt from confiscation by hospitals, doctors, nursing homes, and other health care providers. Medicaid spend-down rules will be imposed on the trust before Medicaid-covered nursing home care is provided. Almost all states allow customers to cancel trusts or contracts, assuming the customer requests a revocable contract. Most states require the seller to refund the money within a specified period. In some states, however, the customer won’t receive a full refund; some states assess cancellation penalties. Although most states require all principal plus the interest, others exclude interest. Single pay versus multi-pay “Single-pay plans” are guaranteed issue, with no health questions asked. A face value is calculated at the agreement of payment. In most cases, the initial premium paid locks in the funeral cost, including goods and services, but generally excluding cash advances. Cash advances are products and services not controlled by the funeral home. Examples of cash advances include cemetery fees, death notices, and honoraria.
“Multi-pay plans” are issuable based on a few simple health questions on the application. They are available with an immediate full death benefit or, for those with health issues, a modified benefit for the first one or two years, depending on the policy issued. Fluctuations in premiums are based on a person’s health history, age, and affordability of services.
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Book Code: FTX1625
EliteLearning.com/Funeral
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