Pre-paid funerals - The Last Word

How will your funeral, celebration of life or other send-off be paid for?

I consulted with representatives of three local funeral homes this past week and a basic cremation will run you close to $3,500 including taxes.

And that’s bare bones - no “viewing” or service, the only casket being a wood bottomed, carboard sided cremation tray. Ashes will come in a plastic bag with a cardboard box.

I reviewed dizzying price lists of added products and services. Various package options are available, each with lists of products and services with associated prices. There are modest savings by packaging them together. A basic cremation package with a memorial service is in the range of $8,000 to $9,000.

I don’t have a clear recollection of making arrangements 25 years ago for our stillborn son, Devon. I remember tremendous kindness of funeral home representatives, but also the unwelcomed stress and energy of making decisions at a time when I was least equipped to do so.

I have an almost photographic memory of elements of the service, though, like it was yesterday.

The service wasn’t for Devon, of course. It was for us. It was important and worth every penny.

Other services I’ve attended have felt similarly important.

We can’t blame funeral homes for charging for their services any more than we can cast blame for the cost of weddings. Just like a wedding, every detail of a funeral needs to be sorted out and every product or service comes with a price.

In my column last week, I advocated sorting out those details for our own funerals, saving our loved ones from that stressful work while they’re in intense grief after our passing.

Lovely. But how will they pay for it?

They will be getting something of an inheritance but your assets will be tied up in the court process of achieving an estate grant (probate).

The reasonable policy of the funeral homes I consulted is that they get paid at the time services are provided.

Even if you’ve sorted out all the details, your loved ones will still be sitting down with a funeral home representative going through the choices you made and the cost of those choices because it will be up to your executor to make the final decisions. These issues can be eliminated if you pre-pay for your funeral.

Your choices, set out in a funeral services contract, will be binding on your executor as mandated in section 6 of the Cremation, Interment and Funeral Services Act. You can access that section here. (https://www.bclaws.gov.bc.ca/civix/document/id/complete/statreg/04035_01#section6).

Historical concerns about paying a business in advance for future services, such as misappropriation of funds, the business shutting down or going bankrupt, etc., have been rectified by consumer protection legislation that has led to an interesting system of insurance.

Your advance payment of the cost of your funeral isn’t paid to the funeral home. It’s paid to an insurance company. If you pay as a lump sum, there’s nothing being insured, but it’s still set up as an insurance policy. It’s your policy, not the funeral home’s. It will name the funeral home as the beneficiary, but that’s not written in stone.

You can change the beneficiary funeral home any time you wish and you can cancel the policy altogether. If you’ve prepaid as a lump sum, you get it all back.

Each of the funeral homes I consulted have contracts that guarantee the proceeds of the policy will cover the cost of their services. They use language of locking in the cost of your funeral.

We’ve experienced significant inflation over the past few years. Funeral services today cost a fair bit more than they cost five years ago. But with the guarantee, the proceeds of the policy set up when you pre-paid for your funeral five years ago would cover a higher cost funeral occurring today.

I spoke to an agent for the insurance company holding the vast majority of these policies in Canada: TruStage Life of Canada. The pre-paid cost of the funeral accrues a very small rate of interest, currently ranging from 1.25% to 2.5%, depending on their arrangements with the particular funeral home.

That small amount of interest accrues tax-free because of tax laws that treat investments for funerals similar to a TFSA. The funeral home gets that interest to help offset the increase in funeral cost.

Things can get a bit complicated when there’s a mix of products and services provided by the funeral home and those provided by outside service providers like caterers, florists and event venues outside the funeral home.

You can pre-pay allowances for those services as well, which will also accrue tax-free interest, but the funeral home has no control over increased pricing over time and cannot guarantee that the allowances with interest will cover the increased pricing. It is wise to make larger allowances to account for price increases. Any excess goes to your estate.

The representatives I talked to said the consultation with loved ones is completely different when the deceased has pre-paid for their funeral. Complex decisions have already been made. Disagreements that often occur among loved ones with differing values are avoided and the hurdle of coming up with thousands of dollars to pay for it all is removed.

The information I’ve provided is based on interviews I conducted this past week and my review of the contracts I was been given. I have provided only nutshells of key information that might not apply to the funeral home you consult with nor the contracts you are asked to sign.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.