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California Case Study: Refunds of prepaid cremation money
Have you ever wondered if you can cancel someone’s prepaid cremation?
Here is an interesting story from the Funeral Consumers Alliance relating to advice given to a consumer in CA who was considering whether to cancel their prepaid contracts before death. The answer is specific to California, because each state has different laws on preneed refundability. The considerations about insurance versus trust, and about Medicaid spend-downs, apply everywhere.
The consumer pre-paid for a cremation. They're considering asking for a refund as they're not happy with their chosen company’s prices and practices after further research.
The most interesting part of their query---the family wants mom's body to rest quietly for three days prior to cremation and they discovered that their prepaid contract with the company wouldn't accomplish that the way they wanted. When told by the Funeral Consumers Alliance that they could have mom's body at home for a vigil and that they weren't legally required to hire a business to do “anything” for them except the actual cremation, the consumer started crying. She said, "This just turned a light bulb on for me. . . I'm blown away that we can do this. We had no idea at all, and it sounds so wonderful. I've already cared for my mom in all the ways you do when they age. Now I know I don't have to stop doing that at death."
Remember that everyone can find out exactly what their state's laws say about refundability and cancellation of preneed contracts by consulting the chapter for their state in Final Rights.
Here’s the answer that the Funeral Consumers Alliance prepared for this specific query, but it is also a very effective step-by-step guide for anyone in a similar situation.
1. Start by stating that you are requesting a full refund of the price paid as required by California law. That law can be found by Googling for California Business and Professions Code Section 7735-7746.
In plain English, it entitles you to a full refund less a maximum 10 percent revocation penalty. Note that the 10 percent can only be taken by the cremation company from any interest that your money has earned since you paid. So, if it hasn’t earned enough to equal 10 percent of what you paid, the company has to settle for less. Bottom-line: the most you could possibly be out would be 10 percent of the sale price.
Note: Whether the money you paid was put into a trust (bank) account, or into a small life insurance policy, makes a difference. You will need to figure that out by examining the sales documents which should make it clear. Then you will need to decide how to proceed taking these into account:
2. If the money was placed in trust (a bank), you’re entitled to the full refund less a ten percent maximum cancellation fee.
3. If the money was instead used to buy an insurance policy to fund mom’s cremation, insurance companies are not required to refund a great deal of your money. It’s common for you to get half what you paid in as a refund, or less.
4. If #3 is the case, you are better off financially if you do not cancel the insurance policy for a refund. Instead, reassign it to be paid to a different, more affordable funeral home of your choice. Or, you and mom might decide to make you or another family member the beneficiary of the policy---instead of a funeral home---so that the full face value is paid to you at the time of death. In this case you would have to wait longer for the money, but you’d get more back in total.
5. One more piece to consider---did you use your mom’s money to pay for this, and is mom’s care being paid for by Medicaid or Medical? If that is so, you will want to reassign the trust money or the insurance money to a funeral home. You will not want to cancel and cash out. Why? Because then Medicaid/Cal would be entitled to the money, they won’t touch it if it’s for a funeral/cremation. But, they will if it’s just a regular “asset” not designated for a funeral.
Again, this only applies if it was your mom’s money that paid for the cremation. Medicaid has nothing to say if it was your money. It also only applies if you specifically have designated this as irrevocable (meaning: cannot be cashed out ahead of time without Medicaid being entitled to claim it) in order to qualify mom for Medicaid. If those aren’t the case, you can cash out or reassign without worry.
Reprinted courtesy of Josh Slocum, Executive Director, Funeral Consumers Alliance.