Greed turns `pre-needs' into problem

January 29, 2007|By Nancy J. Herin

A few years back, AARP reported an amazing fact: 32 percent of older Americans had prepaid their funeral expenses - in other words, paid for their final arrangements before they died. This fact translates, even in a conservative estimate, into more than $40 billion in "pre-need" funeral accounts. For unscrupulous funeral directors strapped for cash - like the one who authorities say absconded with more than half a million dollars from his pre-need customers' accounts in Baltimore - all that money is a tempting pot of gold.

In 2003, my organization, a consumer advocacy group, invited a member of the Maryland State Board of Morticians, charged with overseeing the local funeral industry, to speak at our annual meeting. One question focused on the risks of pre-needs. "Pre-needs?" our guest replied. "No, I'm not aware of any problems."

We were puzzled, for our national office had long received complaints from consumers who had fallen victim to these arrangements, whose pitfalls often are not apparent until it is too late.

The response from our guest baffled us for another reason: Just three years earlier, in April 2000, Sen. Charles E. Grassley, an Iowa Republican, had examined this issue at congressional hearings focused on "funerals and burials: protecting consumers from bad practice." "Pre-need," said Mr. Grassley, "is a troubling area [which] needs to be addressed head-on."

While we were never able to learn why, according to our speaker, consumers in Maryland did not encounter pre-need problems otherwise widespread throughout the United States, there was one point about which we were sure: The array of potential risks from pre-needs was enormous.

What could go wrong? For one thing, survivors might be told they must spend more to complete the funeral transaction, though they thought everything had been paid for. This happened to a woman who had called our office to complain that the owner of a local mortuary, with whom her father had entered into a pre-need agreement, had stated upon the father's death, "Prices have gone up. You owe us another $1,400."

Or you might be subject to high-pressure tactics, a notorious component of pre-need sales. At Senator Grassley's hearing, one Florida mortician testified that mortuary personnel had exerted so much pressure on a woman that she ended up prepaying $132,000.

Or you might not receive a full refund if you change your mind about body disposition or move elsewhere and need to switch mortuaries. Maryland law guarantees a full refund on pre-need trust funds plus the interest, but a number of funeral homes use insurance policies, rather than trust funds, to finance their pre-need arrangements. These policies, when canceled, use a formula favorable to the insurer when calculating refunds.

And here's a danger that most states - including Maryland - don't address: embezzlement. At Senator Grassley's hearing, a former pre-need salesman from California testified - from prison - that he had taken thousands of dollars earmarked for pre-need accounts. Here in Maryland, in 2003 and 2004, two prescient lawmakers tried to establish a trust fund to reimburse families "when someone takes off with the [pre-need] cash," as they put it. But the bill was withdrawn each year - an unfortunate turn, for the lure to embezzle is ubiquitous. After all, who would notice? Do state regulators, who oversee local funeral businesses, check to ensure that all pre-needs are accounted for and accurately reported? Too bad for the Baltimore victims that Maryland has no fund to compensate them.

All of which brings us to 2006 and the Web site of the Maryland State Board of Morticians, where its minutes of July 12 and its spring newsletter explain that nearly one-third of all complaints it received in fiscal year 2006 involved pre-need contracts. Moreover, the Maryland legislature has asked board members to address the "rising number of complaints concerning pre-need contracts."

Regulators should have acted long ago. But now we have a wake-up call.

Pre-need agreements are rife with risks; people would be better off without them. But for the sake of those who choose them, it's time that the Board of Morticians and our state legislators enact and enforce effective policy to protect those consumers.

Nancy J. Herin is president of the Funeral Consumers Alliance of Maryland and Environs. Her e-mail is

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