First, lets be clear on what a Guaranteed Price Agreement Excluding Cash Advances is and how it's computed.
A funeral bill is split into two different sections. Section A is the Funeral Home Charges for services and merchandise the funeral home provides. These are things such as embalming, use of the funeral home chapel for a service, the hearse to transport the deceased, and limousines to transport the family. Section B is the Cash Advance portion for things that are necessary for your funeral but the funeral home does not provide or set pricing for. These services and merchandise are provided by a third party at a exact dollar for dollar cost of their services. The price for these things might be estimated but cannot be increased over their actual costs by the funeral home. After the funeral you are provided with a copy of the receipt from the third party vendor showing what was paid. Examples of Cash Advances are cemetery or crematory fees, death certificates, disposition permits, bridge tolls, church fees, and airfare for transportation of the deceased.
At the time of opening a PrePlan Guaranteed arrangement the guaranteed price section is computed as follows:
If the Funeral Home Charges are $7,500 and the Cash Advances are $2,500 the total funeral arrangement is $10,000 A check is made for the total to PrePlan and a Guaranteed Price Agreement Excluding Cash Advances is opened for the customer.
Under a guaranteed plan the funeral home portion of the account would be 75% and the non-guaranteed cash advance portion would be 25%.
Fast forward seven years and the person the PrePlan account was opened for has passed away. In those seven years lets say with compound interest the PrePlan account has grown to $11,000 (these figures are just for example and not based on any real world calculations). Under the guaranteed agreement the funeral home must perform their portion of the contract for 75% of the total in the account which would be $8,250 (which is 75% of $11,000) leaving $2,750 (which is 25% of $11,000) to cover the cash advances. Even if at the time of service the funeral home General Price List computes the funeral home portion of the arrangements at $9,000 the funeral home must perform their part of the services for $8,250 absorbing the loss of $750. This is how paying in advance can save money. As long as the cash advances at the time of service do not exceed $2,750 then no money is due from the family. However, if the cemetery raised their price drastically during that seven year period and the Cash Advance portion at the time of the funeral is now $3,500 then the family or whoever is in charge of the funeral is responsible for paying the difference ($3,500 Cash Advances - $2,750 for cash advances in the PrePlan) = $750 needed to cover the cash advance shortfall. If the PrePlan agreement is for a Revocable account any surplus is paid to the purchaser of the PrePlan or the deceased's estate. If the PrePlan agreement is for an Irrevocable (Medicaid) account any surplus must be returned to the county Department of Social Services where the deceased lived.
That shortfall is not part of the guarantee because the funeral home had no control over what the cemetery did with their prices over the seven years since the PrePlan account was opened.
When you open a PrePlan Guaranteed Price Agreement funeral trust and deposit the money, the funeral home receives no money at that time. New York State requires 100% trusting of funeral funds in an FDIC insured account. This means the funeral home has no access to the funds in your account. Only once the death has been confirmed by sending the PrePlan a death certificate will the funeral home have access to the needed funds. The funeral home does not receive any immediate financial benefit at the time you fund your PrePlan account.
**Please note that while the relative in charge of your funeral at the time of your death has the right to make changes and adjustments to the funeral you contracted for, to keep the price guarantee intact changes cannot be made to the services and merchandise agreed upon when it comes time to perform the funeral. Part of the price guarantee is the funeral home agreeing to accept a percentage of the principle plus a percentage of the interest for our funeral home charges. If significant changes are made to the services or merchandise performed at the time of the funeral the price guaranteed cannot be honored and the funeral will be billed at the full amount of the current prices.
Please call us with any questions regarding Pre-Paid funeral agreements at (718) 659-6260.