by Jim Marasco, The Daily Record, June 2015 Even at death, you can still fall victim to financial fraud. Last year the FBI investigated a funeral fraud scheme that involved nearly 100,000 victims in sixteen states and $450 million in stolen funds.

Funeral Planning

Considerable exposure exists in the funeral planning process. In the case referenced above, people were duped into paying a fraudulent company to prearrange their funerals. The company acted as a “middle man” between the funeral home and consumer. As people found out the hard way, it was nothing more than a Ponzi scheme. States have different rules governing how funerals are administered. According to the New York State Department of Health, NY’s regulations are one of the strongest in the U.S. As the planning process commences, it’s important to know the options, terms and what they involve.

• Prepaying – Funerals can be prepaid before death by paying into an account held by the funeral home as trustee for you or through a separate bank account for the benefit of the funeral home. A formal contract will identify the services that will be offered and the financial terms.
• Preplanning – Preplanning a funeral involves making all the arrangements and keeping the plan on file with a funeral home of your choosing, but without actually paying for it ahead of time.
• Guaranteed – In a guaranteed funeral, the funeral home guarantees to provide the services, merchandise and facilities that you select for a fixed sum of money, regardless of inflation. However, they do keep the interest earned on the principal you prepay, as long as it doesn’t exceed the actual price of the services provided. Guaranteed funerals usually don’t include items such as cemetery costs, clergy fees, etc.
• Nonguaranteed – A non-guaranteed funeral is an arrangement in which the funeral home agrees to provide certain services, but at the prices in effect at the time of death. The prepaid account balance will be applied and the estate will have to cover any difference that is owed. 

The Advantages and Risks with Prepaying

While New York Sate helps mitigate some of the risks by requiring a Trust Fund to be established, issues remain. Make sure a contract or pre-need agreement exists which clearly identifies what services are negotiated. Choose a reputable funeral home and appoint someone you trust to handle your affairs and share the agreement with them so they know one exists. The funeral director must deposit your money within 10 days in an interest-bearing account or government-backed investment and inform you where it was deposited within 30 days of the deposit date. Keep a receipt for your deposit and look for year-end tax reporting by the funeral home each year which reports the interest you’ve earned on your account. You are required to pay tax on those earnings. The greatest advantage by prepaying for your funeral is piece of mind. As long as things are spelled out in a pre-need agreement, your survivors will have less to worry about. If you decide to prepay, both federal and New York State laws require funeral directors to provide:

• A pre-need agreement outlining the terms of the arrangement. It will also state how the principal and interest will be applied to the cost of the funeral, if the amounts are prepaid.
• A general price list with the current prices for the services and merchandise the funeral home is offering.
• A pre-need itemization statement that highlights what has been chosen and the prices for each.

Other Considerations 

If a revocable agreement is established, the principal and accrued interest can be withdrawn at any time without a penalty for early withdrawal by the funeral home. On the other hand, if an irrevocable agreement was created, the principal and interest can never be withdrawn. Irrevocable agreements are usually created when someone is applying for Medicaid or supplemental benefits under Social Security. These advanced monies can never be refunded, but the funeral home can be switched. In that situation, the funeral home is required to transfer the funds to another home within 10 days of written notification. Any excess balance after the funeral is paid must be paid to the county. If the funeral home sells to another, the law requires both funeral homes to provide written notice within 30 days of the sale. During this process, you have the right to your money with interest, can modify your arrangements or switch to another home. If the funeral home goes out of business, the money must be returned with interest or be transferred to another funeral home. The funeral homes are required to report this event to the State Department of Health.

Common Ploys to Deceive

In addition to the items mentioned above, the AARP lists some common ploys that are used to deceive the grieving. They include:

• Charging for additional services. Insist on the price list that details each service. Federal and state laws require that three lists be provided; goods and services, caskets and outer burial containers. Funeral homes are prohibited from charging separately for required services like embalming and insisting that caskets be purchased from them.
• Fake invitations. Cyber thieves have been emailing false funeral notifications to people bearing the stolen name and logo of a legitimate funeral home on behalf of an unnamed friend or acquaintance. By clicking on a link or opening an attachment, malware is unleashed on your system. The subject line usually reads “funeral notification” or “passing of your friend.”

As we have reviewed, it is important to know your rights and responsibilities, especially when you’re not around to enforce them. The state laws vary which could get tricky if you retire to another state. If you reside in New York and suspect you’ve been the victim of unfair funeral practices, reach out to the State Department of Health/Bureau of Funeral Directing or the State Attorney General. James Marasco, CPA, CIA, CFE, is a partner at EFPR Group LLP, Certified Public Accountants and Business Consultants.