By Olen M. "Mac" Bailey, Jr.

The Bailey Law Firm is a member of the Funeral Consumers Alliance of the Mid-South (FCA), a non-profit organization whose purpose is to educate consumers about funeral and burial options.

In furtherance of the mission of FCA, and in light of the recent failure by Forest Hill Funeral Home to honor its prepaid funeral contracts, the Bailey Law Firm is providing the following educational information to its friends and clients about the prepayment of funeral expenses:

WHAT IS THE DIFFERENCE BETWEEN PRE-PAYMENT AND PRE-PLANNING?
When you Pre-Plan (or plan in advance) your funeral, you first choose a funeral home and cemetery. You then meet with the funeral director to select the types of services you prefer. The funeral director keeps your preferences on file until you die. Upon your death, your estate pays for the pre-planned services at the rates being charged when your funeral is held.

When you Pre-Pay your funeral, you pay in advance for the costs of your funeral in the future.

WHAT ARE THE ADVANTAGES OF PRE-PLANNING?
The advantages of pre-planning your funeral are:

You can choose the funeral home, cemetery and type of funeral service you desire.
You can avoid emotional over-spending by your survivors.
You can do comparison shopping.
You can make knowledgeable, deliberate decisions.
You can provide peace of mind to yourself and your family.

WHAT ARE MY PRE-PAYMENT OPTIONS?
You have three (3) basic Pre-Payment Options. The options are: (1) POD Burial Accounts; (2) Funeral Contracts for Future Services; and (3) Life Insurance or Annuity Funded Plans.

Payable On Death (POD) Burial Accounts. The first option, the POD Burial Account, is an individual savings plan earmarked to pay the costs of the person's funeral. The consumer creates an account at the bank named "Cathy Consumer Burial Account." The account is made Payable On Death (POD) to the consumer's family members. The consumer owns and controls the account during the consumer's lifetime and can withdraw money from the account at any time. The account is usually either a savings account, a money market account, or a certificate of deposit (CD). The funds in the account will be available immediately at the time of the consumer's death, without the delay or cost of probate. Accumulated interest is designed to cover the increased costs due to inflation. The consumer must pay income tax on the annual interest earned on the account.

Funeral Contracts for Future Services. The second option, a funeral contract for future services, is a legal agreement or contract by which the consumer pays the funeral home in advance for services to be rendered in the future. Most funeral homes offer these contracts, which are commonly referred to as pre-need contracts. These contracts can be revocable or irrevocable. If revocable, then the consumer can withdraw the funds with interest at any time. If irrevocable, then the funds are not available until the death of the consumer. These contracts can also be either transferable or non-transferable. If transferable, then the consumer can use the contract at other funeral homes. If non-transferable, then the consumer can only use the contract at the funeral home where the contract was purchased. Most consumers believe that all pre-payment contracts pay for future services in today's dollars. This belief is not always true. Pre-payment contracts can be structured to pay in any of the following three methods: (a) Deposit: the pre-paid amount is applied to the cost of funeral merchandise and services to be provided in the future at future prices; (b) Guaranteed: full payment for funeral merchandise and services to be provided in the future at current prices; or (c) Non-Guaranteed: full payment for funeral merchandise and services to be provided in the future ONLY IF the funds paid-in, plus any interest earned, is more than the future prices.

Both Tennessee and Mississippi regulate the sale of these contracts. Under Tennessee law, 100% of the funds received by the funeral home from the consumer must be deposited into an interest bearing, separate trust account at a federally insured financial institution. Tenn. Code Ann. Section 62-5-402. Under Mississippi law, only 50% of the funds received must be deposited into a trust account at a financial institution authorized to do business in the state. Miss. Code Ann. Section 75-63-59.

Life Insurance or Annuity Funded Plans. The third option, a life insurance policy or an annuity contract, is a commercial product underwritten by an insurer. Most funeral homes have employees licensed to sell these plans, commonly referred to as burial policies. Generally, the consumer is the insured and the funeral home is named the beneficiary. Other insurance plans advertised to the general public as "pre-need plans" are not tied to a specific funeral home or to specific funeral merchandise and services. Such plans are simply life insurance, and the consumer chooses the beneficiary, such as a family member, to control the use of the funds upon death.

WHAT ARE THE ADVANTAGES OF PRE-PAYMENT?
The advantages of pre-paying your funeral are:

You can ensure that money will be available for your funeral service.
You can preserve funds for your funeral when or if you have to apply for Medicaid.

WHAT QUESTIONS SHOULD I ASK WHEN PRE-PAYING MY FUNERAL?
When pre-paying your funeral, you should ask the following questions:

What pre-payment options are offered by your funeral home?
What are the risks and investment rate of return of each option offered by your funeral home?
Can my attorney review your contract before I sign it?
Can I have a copy of the current list of services and prices?
Is the plan funded by life insurance or an annuity?
If insurance or annuity, then what is the name and rating of the insurance company?
If insurance or annuity, then who is the beneficiary?
Is the plan funded by deposit of the funds into a trust or escrow account?
If a trust or escrow account is used, then who is the trustee or escrow agent?
Can I contact the trustee or escrow agent to ask them about their management policies?
What percentage of the pre-payment amount is placed in trust or escrow?
If I pay in installments, and then do not complete the payments, what sales charge will be deducted from my refund?
Is the contract transferable or non-transferable?
If I relocate to another city or state, can I get a full refund?
If I decide to use another funeral home, can I transfer the contract there?
Is the contract revocable or irrevocable?
Is the contract guaranteed or non-guaranteed?
What happens to any pre-paid funds which are not used? Is it paid to my estate?
What is the past performance or investment rate of return of the funeral trust?
How much does the funeral home or trustee charge the trust each year for administrative fees?
How long has the funeral home offered this contract?
Has the funeral home ever failed to honor a contract?

WHO NEEDS TO KNOW ABOUT MY PRE-PAID PLAN?
We recommend that you give a copy of your funeral contract or policy to the executor of your Will or the successor trustee of your Living Trust. You should also give a copy to your estate planning attorney.

WHO DO I CONTACT FOR MORE INFORMATION?
In Tennessee, the Tennessee Department of Commerce and Insurance, through its Board of Funeral Directors and Embalmers, regulates funeral services and funeral homes. The Board's website is www.state.tn.us/commerce/boards/funeral/ and the Board's address and telephone number are 500 James Robertson Parkway, Second Floor, Nashville, TN 37243, 615-741-5062.

In Mississippi, the Mississippi State Board of Funeral Service regulates funeral services and funeral homes. The Board's website is www.funeralboard.com and the Board's address and telephone number are 3010 Lakeland Cove, Suite W, Flowood, MS 39232, 601-932-1973.

Lastly, you can contact the local non-profit Funeral Consumers Alliance of the Mid-South, Inc., at P. O. Box 770388, Memphis, TN 38177 to request membership information and news about funeral and burial issues in West Tennessee and Northern Mississippi.