The Security of Preneed Funeral Funds in New York State
New Yorkers, like all consumers, understandably want to be sure the funds they set aside in a preneed funeral trust account are safe and secure. The following is a series of fundamentally important questions about the protection of preneed funds.
How does New York State protect preneed funds?
Consumers in New York who prefund their funerals have their money protected by what are truly the strongest preneed laws in the nation.
These laws require that 100% of preneed funds be deposited in an interest-bearing, government backed trust account where the principal and interest earned remain the property of the consumer.
The purchaser remains in control of the preneed account. If the account is revocable, a purchaser may request a full refund of the principal and interest earned at any time, for any reason, without penalty.
The purchaser may also select a new funeral home at any time.
New York State law also mandates full disclosure to the consumer by requiring that written statements be sent containing information on the funds deposited to date, where they are deposited and the amount of interest earned.
Under New York State law, applicants or recipients of Medicaid or Supplemental Security Income (SSI) may set aside funds in an irrevocable trust account for the sole purpose of paying their funeral and burial expenses, and those of their family members.
The funds in an irrevocable funeral trust are exempt from being counted as a resource when determining eligibility. By law, funds in an irrevocable trust account cannot be refunded, but the purchaser may select a different funeral home at any time.
What is the difference between a revocable preneed account and an irrevocable preneed account?
In New York State, an individual applying for Medicaid or SSI may set aside funds in an “irrevocable” account for their – and their family members’ – future funeral/burial expenses.
These funds are considered an excludable asset in determining program eligibility.
Funds set aside in an irrevocable account may not be refunded and any funds remaining (“overage”) in the account after payment is made for all funeral services and merchandise provided must be forwarded to the county where the beneficiary was residing at the time of death.
In contrast, a revocable account in New York State is fully refundable upon demand. Any overage remaining in a revocable account after the funeral services and merchandise have been provided must be forwarded to the beneficiary’s estate.
Both irrevocable and revocable preneed accounts allow a change to a different funeral home, even if in another state, without penalty at any time.
May a funeral director charge a fee for planning a prepaid funeral?
No, in New York State, funeral directors cannot charge any fee for prearranging a funeral.
Are there any fees associated with planning a prepaid funeral?
Yes, all preneed funeral trusts, are permitted by law to assess a fee of (.0075%) of the principal sum in the fund to provide management and administrative services to operate and staff the fund. A minimal fee is also paid for the expert investment advice given to PrePlan for the benefit of its customers.
Of course, these terms are fully disclosed in the preneed agreements and provided in detail to consumers in their annual Tax Statement.
What happens if the funeral home closes?
In the event of a funeral home closing, NYS law requires that all account holders be notified in writing within 30 days.
Fortunately, preneed funds are forwarded to an interest-bearing account with a separate financial institution in the purchaser’s name. The purchaser remains in control of those funds at all times.
They may then choose to transfer the funds in their preneed account to another funeral home or, if it is a revocable agreement, they may request a refund of their deposits plus all interest earned.
The New York State Health Department Bureau of Funeral Directing regulates funeral service and may be of assistance.