How to Prepay Your Funeral in New Jersey

The first funding option available in New Jersey is to open a prepaid funeral trust account. A funeral trust is a contract you enter into with a funeral home for funeral services. The funeral home will receive the proceeds in the trust at the time of death to fund the funeral. You can open a revocable or irrevocable trust account.

Trust moneys in revocable trust accounts are 100 percent revocable upon demand, including all principal and interest. With a revocable agreement, you may change the funeral home and the selected funeral services or merchandise at any time without penalty.

Irrevocable trust accounts are only permitted when creating prepaid funeral arrangements for SSI/Medicaid applicants and recipients. Once established, the moneys must be used for funeral and burial purposes. Irrevocable trust accounts cannot, by law, be cancelled or refunded; however, you still have the option to change funeral homes if you choose.

When choosing a funeral trust fund, keep the following in mind:

• 100 percent of the principal and interest must accrue to the benefit of the trust fund (less a trustee's fee of a maximum of 1 percent).

• All moneys provided to the trust must be deposited in an FDIC-insured bank account.

Most New Jersey funeral homes use the New Jersey Prepaid Funeral Trust Fund (CHOICES), which is a comingled trust that meets all state and federal requirements.

 2. Assign existing life insurance policy or policies to the funeral home.

A funeral can be prepaid using the proceeds from an existing insurance policy. If prudent to do so, you can cash out the value of a policy and place these funds in a funeral trust to cover the costs of a prearranged funeral. If cashing out the policy is not the best option, the funeral home can complete a revocable or irrevocable insurance assignment of the policy’s proceeds. Your funeral director can help you decide which option is best for you.

To complete a revocable or irrevocable insurance assignment, the funeral home is named as the policy's owner. Then the policy's proceeds are revocably or irrevocably assigned to the funeral home to be used as payment for all funeral costs at the time of death. With revocable insurance assignments, any remaining moneys after the funeral bill is paid will be returned to the insurance policy’s primary beneficiary.

In the case of creating a prepaid funeral for an SSI/Medicaid applicant, the Treasurer-State of New Jersey is named primary beneficiary on the policy, thus allowing any and all funds remaining after the funeral bills are paid to go to the state, as required by New Jersey's mandatory asset recovery law.

 3. Purchase preneed funeral insurance or an annuity.

Preened insurance is a type of insurance policy that pays the costs associated with a preplanned funeral.

Sold only by a funeral director who is also licensed to sell preneed insurance, this type of policy allows for direct payment of funeral expenses to the funeral home upon your death.

New Jersey funeral homes and funeral directors are prohibited from being named as the beneficiary of any insurance policy. Therefore, in addition to naming a beneficiary, you will be asked to make an assignment of insurance proceeds to the funeral home. This means that the proceeds will go to the funeral home to cover the cost of the funeral that you have arranged following death.

Ask your funeral director about the prefunding options available to you and your family. Our Funeral Matters builder is an excellent way to start and can be accessed online 24/7 here: www.funeralmatters.com/builder