In keeping with our longstanding position to help protect Michigan consumers, we have included this Consumer Alert page to provide important, timely information. Check back often as we will update this page as necessary.
This consumer-awareness article is intended to help consumers make educated choices when it comes time to plan and pay for funeral services in advance.
PROTECTING YOUR PRENEED MONEY
By Rodney C. Wakeman
When considering planning and paying for your funeral in advance, it is vital that you are armed with facts and information so when you do make an appointment with the funeral director you will understand the process and know where your prepaid funds will be held. This is truly a situation of the more you know the better.
The information here will give you the tools to better understand the preplanning process.
Basic Steps in the Preplanning Process
The full preplanning process is typically accomplished in three steps:
1) Providing initial information to the funeral home that will be necessary to complete certain required preplanning and at-need forms, obituary draft and more;
2) Selection of the services and merchandise corresponding to the arrangements requested; and
3) Prepayment of the services selected and execution of the prepaid contract documents.
Consumers Most Likely to Pre-plan and Prepay for a Funeral
Many consumers will seek the assistance of a funeral director to help them through the details associated with the preplanning and prepayment of a funeral. A preplanned funeral is typically arranged directly by the person or persons who the prearrangements are for, such as a husband and wife. However, anyone can set up a preplanned and prepaid funeral for someone else. People who are most likely to arrange for a service are those who understand its benefits or the need to prepare ahead of time, such as:
• Alleviate survivors from having to select the services at the time of need;
• A desire or need to pre-plan their funeral as a continuation of an overall estate plan;
• To lock in the price: Pay for tomorrow’s services at today’s prices; or
• Part of a sequence of events associated with establishing Medicaid assistance for a patient in a long term care facility, including the requirement to spend down certain cash assets or using current insurance assets to fund a prepaid funeral.
Prepare before You Prepay
It is vital for the consumer to perform due diligence and prepare for the transaction that will occur. The following steps will greatly help your decision-making by asking key questions and insist upon certain elements for the preplanned funeral, ultimately helping to protect yourself and your money.
Prior to discussing any element of a preplanned funeral, the first step is to insure you are speaking to an individual and a business entity that possesses all of the proper credentials. Verify that all professional licenses and registrations are valid.
Every funeral home must display their licenses and registrations in a conspicuous place within the facility. Insist that you view their VALID licenses and registrations. The following is a list of licenses and registrations you should have access to so you may verify their professional standing with the State of Michigan.
A funeral establishment is defined by Michigan Law (Section 339.1801(a) of the Occupational Code) as "a place of business used in the care and preparation for burial or transportation of a dead human body or a place where a person represents that the person is engaged in the profession of undertaking or the practice of mortuary science."
Any facility that holds itself out as a funeral home or mortuary by conducting business as described above MUST hold a VALID Establishment License. This license will contain the name of the manager of the facility and must be on display in the funeral home in a conspicuous place. The manager is a licensed funeral director and must be employed full-time and reside within one hour’s drive from the facility. The Establishment License is valid as long as the Expiration Date has not passed. If the license has expired the business is in violation of Michigan law and legally cannot provide any services until such license has been renewed. DO NOT conduct business with a funeral home whose Establishment License has lapsed. Also, in the event the funeral home has changed managers, a new Establishment License must be obtained from the State of Michigan.
Do NOT conduct business with any entity that holds itself out as a funeral home or appears to conduct funerals from a facility that is not licensed by the State of Michigan.
Individual Mortuary Science License
The activities of a funeral director is defined by Michigan Law (Section 339.1801(d) of the Occupational Code) as any person "engaging in or representing oneself as engaging in the supervising of the burial and disposal of a dead human body; maintaining a funeral establishment for the preparation, disposition, and care of a dead human body; or using, in connection with the user's name or funeral establishment, the word "funeral director", "funeral service professional", "undertaker", or "mortician", or any other title embodying the words "mortuary science" or otherwise implying that one is engaged as a funeral director."
Any individual who holds himself or herself out as a funeral director by providing mortuary services in the state of Michigan, as outlined above, MUST hold a VALID Michigan license and be employed by a duly licensed Michigan funeral home in order to provide mortuary services. The Mortuary Science License must be on display in the funeral home in a conspicuous place. Specific actions and activities that require a Mortuary Science License include embalming, signing paper death certificates and burial-transit permits or validating electronic death certificates and burial-transit permits, and leading funeral services at the funeral home, church or other place where the body is present. Additional actions and activities a licensed funeral director should take part in under a "best practices" policy include, delivery of the remains to the cemetery and directly oversee the burial; delivery of the remains to the mausoleum and directly oversee the entombment; and delivery of the remains to the crematory and directly oversee the placement of the remains into the retort. While the funeral director may delegate these additional actions and activities to an unlicensed member of his staff, it is our professional opinion these should be directly performed by a licensee.
A person who does not possess a Mortuary Science License may own a funeral home. However, they MUST employ a full-time Mortuary Science Licensee who is named as Manager on the firm’s Establishment License, letterheads, business cards, and in advertisements. An unlicensed owner MUST NOT embalm, sign death certificates or burial-transit permits, lead a funeral without the presence of a licensed funeral director, or identify themselves in person, on letterhead, business card, or in any advertisement as "funeral director", "funeral service professional", "undertaker", or "mortician", or any other title embodying the words "mortuary science" or otherwise implying that one is engaged as a funeral director.
Prepaid Funeral Seller/Provider Registration
Not all prepaid funeral sellers in Michigan are licensed funeral directors or funeral homes. Any entity that offers to sell prepaid funeral contracts or provide the services of a prepaid funeral contract MUST hold a VALID Prepaid Funeral and Cemetery Sales Seller/Provider Registration. Prior to any prepaid discussions, insist that the Prepaid Funeral Seller show you their registration. The registration must be on display in the facility in a conspicuous place. You have a right to view the document. Make certain that their registration has not lapsed by reading the Expiration Date on the document. If they cannot produce a VALID registration upon your request, DO NOT engage in a prepaid funeral with them!
While Michigan law does not require a prepaid funeral seller to be a licensed funeral director or funeral home, the prepaid funeral provider must be a licensed funeral home, as only a funeral director can perform these services.
You may conveniently verify licenses and registrations for any funeral home, individual mortuary science licensee (funeral director), or prepaid funeral seller/provider registrant in Michigan by logging on to the State of Michigan Department of Licensing and Regulatory Affairs website and search by Name, License Number, or License Type or Location. Then select from one of the following funeral-related options:
"Funeral Homes" to verify licenses of funeral homes;
"Mortuary Science" to verify licenses of individual mortuary science licensees (funeral directors); or
"Prepaid Funeral Providers" to verify registrations for prepaid funeral sellers/providers.
The Michigan Prepaid Funeral and Cemetery Sales Act is regarded as containing some of the strongest prepaid funeral laws in the country and includes many consumer protections. However, there are certain facts you need to be aware of when discussions lead to the actual prepayment of the services and merchandise selected. Some of its most key elements include:
• It’s Your Money – The consumer remains owner of all funds used for the prepayment of a funeral (except when applying for Medicaid assistance, which is commonly necessary when a person is placed into a nursing home).
• One-Hundred Percent Trusting – All of the funds used for the prepayment must be deposited.
• Third Party Trustee – It is required that all of the prepaid money is to be deposited with and held by a third party trustee. Every funeral home or other prepaid seller MUST use a qualified third party trustee to hold the prepaid funds. Ask the prepaid seller you wish to do business with who they use as their trustee. Prepaid funeral funds can be deposited with an association or group of 250 or more members that has formed a Master Trust or with the trust department of a federal bank.
In the event the prepaid money is paid directly to the funeral home or other prepaid seller, the law requires that the funeral home or other prepaid seller transfer the funds to a third party trustee within 30 days. The third party trustee must send a letter of confirmation to the prepaid contract owner (the consumer) immediately upon their receipt of the funds as proof of the deposit. Please review the “Who to Pay” section below for further details and recommendations on this matter.
• Right to Cancel, Right to a Refund – Since the prepaid contract is a revocable contract, the consumer has the right to cancel the contract and receive a refund of a minimum of 90% of principal and interest. The contract seller may hold back up to 10% as a cancellation fee. These details will be included on the prepaid contract. You should ask the prepaid seller about their cancellation policy.*
*The only time the consumer waives their right to a cancellation of the contract and to a refund is if the individual is approved for Medicaid benefits. In this situation, the original Revocable Guaranteed Price Contract must be converted and certified as an Irrevocable Guaranteed Price Contract, per Medicaid rules. Furthermore, once a prepaid funeral agreement has been certified Irrevocable, Medicaid rules do not allow a refund at the time of need, such as if a decrease in the level of service or quality of merchandise is requested by the family. A contract certified Irrevocable by Medicaid does not allow a refund of any kind.
Preneed Contract Types
When it comes time to actually prepay for the services you have requested, it is imperative that you understand the process and know exactly how your prepaid funds will be held. The person who the prepaid funeral is set up for is known as the contract owner.
The funeral home may offer you any one of the following contract types:
• Guaranteed Price Contract – This form of contract locks in today’s price for each item listed on the contract. The consumer will not be required to pay any additional funds on any item included on the contract. If additional services or merchandise are later requested by you, only these additions will be required to be paid. A guaranteed contract is required when applying to the state for Medicaid assistance, such as in association with long-term care expenses.
• Non-Guaranteed Price Contract – This form of contract does not lock in today’s price for any item included on the contract.
Once a choice has been made between a guaranteed or non-guaranteed price contract, the funeral director must place the prepaid funds with a third party and he may offer you any one of the funding options listed below (the manner and location in which the preneed money will be held). Please note: not all funeral homes may offer all of the options listed here for philosophical or other business reasons.
• Trust – A trust account is typically used for a single, lump-sum (paid-in-full) payment. Inquire to the funeral director about the range of trust options available. Since money in prepaid trusts are still owned by the consumer, accumulated interest is treated as income for tax purposes. One kind of trust that may be offered is a Trust-Pays-Tax option. A Trust-Pays-Tax fund offers automatic payment of the Income Tax to the government from proceeds in the fund, alleviating the consumer from submitting the tax payment themselves.
• Insurance Policy – Often referred to as “funeral insurance,” this preneed funding option provides a variety of ways for the funeral to be funded, including lump-sum (paid-in-full) or through a range of pay-over-time options. Payment plans will usually require the applicant to answer health questions. Some funeral insurance products have a two-year contestable period for those who want a payment option but would not otherwise qualify for traditional insurance due to poor health history.
• Insurance Trust – Typically used in conjunction with making application for Medicaid funds while protecting an existing insurance policy from cancellation. Usually, under a situation of applying for Medicaid, any policy owned by the applicant that has cash value may be subject to cancellation per Medicaid rules. The insurance trust option can protect the policy from cancellation by placing the whole policy in a trust and using the proceeds from the policy to pay for the arrangements at the time of need. In this situation, other than a small administrative fee to set up the trust, no money is actually exchanged at the time of prearrangement.
Who to Pay
Perhaps the single, most important step you can take to help ensure the safety and security of your prepaid funds falls within the concept of who to pay. When it comes time to actually pay for the prepaid services and merchandise selected, insist on issuing the payment directly to the third-party trustee and NOT in the name of the funeral home or other prepaid seller. Also, NEVER issue payment to any individual person. Following these steps will greatly reduce, if not remove altogether, any chance a funeral home or other prepaid seller mishandling or misappropriating your prepaid money prior to depositing the funds with the third-party trustee.
When the Preneed becomes At-Need
At no time will the funeral home be able to access the prepaid money deposited with the third party trustee or insurance company until death occurs. Even here, the funeral home must provide the trustee or insurance company documents as proof of death.
The Preplanning Conference
Now with all of the facts before you, and only after you are satisfied with their answers to each of the elements described above, you should feel confident in moving forward with the preplanned arrangement.
The general process to complete a preplanned funeral is a very similar process to plan for an at-need funeral—except by prepaying, the funds will not be kept by the funeral home or other prepaid seller.
You will be asked a series of questions that are necessary to complete a variety of documents, including the eventual death certificate, social security and veteran forms, obituary, and the prepaid funeral service contract and supporting documents. The funeral director is also required to provide you a General Price List. This document is mandated by the Federal Trade Commission “Funeral Rule” and provides you with a description of services available at the funeral home along with the prices for each service. It is intended for you to retain this document. If the services you request include the need for a casket, vault or other merchandise, you will also be provided pricing information for these products.
After all of the selections have been made by you, the funeral home must furnish you with a detailed estimate of charges complete with a total price for all selections. It is your decision at this point to prepay for the services selected or leave the information on file with the funeral home to pay at a later date or at the time of need (when death occurs). If it is your decision to pay later, you will be subject to the prices at the later date.
For additional information on preneed, we invite you to visit the Plan Ahead section of our website.
If at any time you find that a funeral home or other prepaid funeral seller is operating without a proper license or have information on improper preneed practices, it may be necessary to alert authorities of the improper activity. Please visit the Michigan Department of Licensing and Regulatory Affairs website or call the Enforcement Division at (517) 241-9280 to file a complaint.