'Ponzi-Like' Scheme Highlights Risks of Prepaid Funerals

open coffin
Charles Ponzi gave his name to the brand of scam in which "investors," promised lavish returns, are paid with the funds of those snookered after them. Bernie Madoff raised it to a high art, stealing billions of dollars and making a mockery of regulation and compliance. And a group of enterprising Midwestern swindlers allegedly applied the Ponzi model to the grim and expensive business of burial, bilking up to 150,000 people out of as much as $600 million and casting lurid light on the shady business of prearranged funerals.

A former officer of a company called National Prearranged Services pled guilty last week in connection with what the government says was a scheme to siphon off customer funds. Sharon Nekol Province, 69, entered her pleas as part of a deal with the U.S. Attorney's Office in the Eastern District of Missouri. She was charged with six counts of mail fraud, wire fraud and misappropriation of insurance premiums, and could spend up to three years in prison when she is sentenced on November 7. (The terms of her agreement allow her to ask for probation, however, in light of poor health.) According to the suit, for a decade and a half, starting around 1992, National Prearranged Services peddled contracts for prearranged funerals in states including Missouri, Illinois and Ohio. ABC News describes its offer as follows:

Customers typically paid a single sum of money up-front for the contract. Insurance companies affiliated with the company issued life insurance policies related to the contracts. National Prearranged Services informed customers the money would be kept in a secure trust or insurance policy as required under state law.

But according to the U.S. Attorney's Office, "customer funds were neither kept safe in bank trusts or insurance policies but instead were utilized for unauthorized purposes and the personal enrichment of NPS' officers and others." In classic Ponzi fashion, the government says, "new businesses became the source of funding for funerals that prior customers had previously paid for in advance." The company stopped selling funeral policies in 2008 after multiple states began investigations and was forced to liquidate that same year by the Texas Department of Insurance.

This case is far from the first such scam. In 2010, also in Missouri, funeral home director Thomas Brandtonies, Jr. pled guilty to stealing $123,273 in pre-need funeral scams. These crimes are of interest because of the wide popularity of prearranged funeral packages. According to the Federal Trade Commission's ominously-headlined webpage Planning Your Own Funeral, "millions of Americans have entered into contracts to arrange their funerals and prepay some or all of the expenses involved."

It's obvious why paying for one's funeral in advance appeals to people. The cost of a sendoff from this earthly plane is high -- "$10,000 or more for a traditional funeral and burial," according to Money Magazine -- and many are loath to leave this burden on their loved ones. With prices rising, some are drawn to so-called guaranteed plans, which promise to lock in costs. But non-guaranteed plans don't provide this benefit, so survivors can end up having to pay extra when the time comes for burial.

That's one way prepaid funerals can be problematic even when the company selling them isn't a criminal enterprise. There are also reports of "redemption clauses" that require a claim within a certain period -- in some cases as short as 30 days! Joshua Slocum, executive director of Funeral Consumers Alliance, told Kiplinger that those who purchase prearranged funeral contracts often think "that they've magically waved away any potential problems for their survivors, when in fact usually the opposite is true." He estimated that prepaid funerals account for one-third of the complaints his group receives.

Lax oversight is probably to blame for many difficulties. The FTC notes that regulation is left to individual states, and that laws on the matter "vary widely," with "some state laws offer[ing] little or no effective protection." Consumers are advised to pay close attention to exactly what a contract promises to pay for -- just the trappings of burial (casket, vault), or the funeral service as well? -- and to make sure they know whether their plan can be canceled (if they change their mind) or transferred (if they move). And what happens if there's money left over once everything's been paid for? Anyone thinking of purchasing a prepaid plan has to ask these questions.

People should also consider a simpler alternative: a Totten trust, set up at a bank or credit union, is an account that pays a beneficiary, designated by you, upon your death. So you've got total control: You can deposit money, collect interest, close the account or transfer the balance if you change your mind. And when you buy the farm, your beneficiary collects the funds and pays for your funeral. No third parties to trust.

In any case, morbid as the discussion may be, people should be sure to explain any plans they've made to their families. Otherwise, survivors could wind up paying for something that the deceased already bought, thus stiffing their loved ones from beyond the grave.

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My mother had a prepaid burial policy. She paid more for it than it covered. She had moved and was buried where the family was living ( dying) > Even if she had died back home, they had changed the terms of the policy ( all legal of course ) so they were only obligated to pay a certain amount- no longer a complete funeral, again now less that she had paid in. My cousin owns a funeral home, it is a hard job but he spends a few weeks each year skiing in Colorado and has one of the biggest houses in town. Death and taxes, between the two they get what you have left.

June 30 2013 at 9:21 PM Report abuse +1 rate up rate down Reply

Who remembers “Wagon Train” when they had a death of a character and the closing scene would be this mound of dirt with a cross as the “Wagon Train” moved on west. No coffin for the body, just a hole in the ground. Of course the is the Clint Eastwood Spaghetti Western as he’s walking towards a fight and he holds up his hand with three fingers as he passes and undertaker and after the fight as he walks past the undertaker leaving he holds up four fingers and says “My mistake, four.”

June 30 2013 at 6:38 PM Report abuse rate up rate down Reply

Just avoid all the Lay Away plans and you will be ok.

June 30 2013 at 6:10 PM Report abuse rate up rate down Reply

Go with cremation and save yourself and family members over $7-8000. A direct cremation will only cost $900-$3000. The lower end if the funeral home happens to own the crematory, the higher end if the funeral home has to hire the use of a crematory owned by a competing funeral home.

June 30 2013 at 5:53 PM Report abuse rate up rate down Reply
C S Buck

Wants probation because of poor health? Don't you think the health of these people took a downturn when they found out they were scammed?

June 30 2013 at 3:30 PM Report abuse +3 rate up rate down Reply

I m now batling stage 4 lung cancer. Without treatment, I wil have 6 to 9 moths to live, 3 of those months are already gone, but I am in radiation. My dear father-in-law- passed in 1986. That was also the year my beloved husband was diagnosed with advanced bone cancer. When seeing the funeral director to make arrangements for my father-in-law, we found that he had just enough money to bury him, bury my husband and make prepaid funeral arrangements for me. That was in 1986. A month ago I contaced the funeral director who looked up my contract. Except for flying my remains to Los Angeles from Florida ($45) and buying death certificates (another $60), I'm set to go.

June 30 2013 at 3:05 PM Report abuse rate up rate down Reply
1 reply to lvnblum's comment
What's Shakin T

Bless you---you certainly seem to have everything taken care of and what seems to be a good outlook towards things. You can now look forward to being reunited with all of your loved ones for an eternity and surrounded by the ultimate love of all. Peace be with you...

July 01 2013 at 12:09 AM Report abuse rate up rate down Reply
Ian Clue

This is why I plan on going out Thelma and Louise style when I turn 75.

June 28 2013 at 9:17 PM Report abuse +1 rate up rate down Reply

It's so sad. If people understood that the funeral industry is just that...an industry. It's consumerism at it's finest. After my infant son died, I was appalled at the "car salesmen" type behavior of up selling everything...preying on my emotions. First, look into the history of how our modern day burial practices began. Second, look up the statistics of all the formaldehyde and cement that are put into the ground each year...in some cases leaking into ground water. (I did a research paper on that subject). Third ,know that you don't have to be embalmed. It's only for the short term viewing...the body is already decomposing. Fourth, pick the cheapest casket you can or have a coffin made. You don't need a silk lining for your body to lay down in when it's dead. The worms are eventually going to get to you anyway. Fifth, look into alternative, cheaper forms of burial. It does not have to be costly. Green burials are becoming more popular and getting most of us back on track to how burials used to take place. The Amish bury their dead, in simple coffins, as soon as possible, then have a wake of celebration. They've got it right. People fear death, but it is a natural part of living and we have been far removed from death and burial due to these conglomerate companies that own most of the funeral homes...even in your small community. The name out front on the marquee may be a hundred years old, conveying that it is family owned and operated. It is not. It is likely owned by one of the big guys allowing the locally owned funeral homes to keep their names and stay in business. Our modern burial practices began during the civil war so that soldiers could be embalmed and sent home to grieving families so that they could be buried. The death of Abraham Lincoln helped the industry to pick up momentum...and the rest is history. When I die, there will be no service, I want to be buried in a coffin, nothing fancy, or in a green cemetery where they put me straight into the ground. My family can remember me the way they want to when I am dead and gone...but the whole funeral/burial thing....not going to do it. If you think you need to have a funeral to say good-bye for closure to take place, remember, it's a societal norm here. If that is what you want, then be prepared to shovel out the big bucks. The casket usually caves in, unless it's in a vault, and the body is already in the process of breaking down. If that's what you want to spend your hard earned money on...you are basically burying a ton of money. Use it for something better and begin thinking differently about how you want to be buried. You have choices.

June 28 2013 at 6:56 PM Report abuse +2 rate up rate down Reply
1 reply to bella_bella3's comment
What's Shakin T

"know that you don't have to be embalmed."

In my state if you're not embalmed, your casket has to go into a concrete liner. You would think, vice-versus. Everything else---you are absolutely correct.

July 01 2013 at 12:12 AM Report abuse rate up rate down Reply
Michael Myers

badbadevan - your comment is simply wrong, as in inaccurate. This is not a political discussion. Your comment is on par with those who will disrespect an entire race for the actions of one or two individuals. Funeral Directors have an honorable profession and the vast majority act honestly and ethically. They are also highly regulated. The same is true of those selling insurance policies designed to cover last expenses. Highly regulated and the majority act with integrity and ethics. There are some things missing from the story. It is not possible to have control of the money paid to an insurance company unless the insurance company is itself a sham. Insurance companies are audited both by their state regulators as well as independent rating organizations. Although I do not know the organizations mentioned, I feel very certain that they had no rating. A person should only buy from a company that is rated properly. What is described in this article is criminal. It could be in any industry. it is simply wrong to infer that there is something wrong with the idea of pre-paying for a funeral or purchasing insurance to cover the costs. Thousands of funerals are paid for each day in this manner. This article talks about someone who was a scammer, not a legitimate business. It doesn't take a genius to understand that fact or know the difference when dealing with them.

June 28 2013 at 5:59 PM Report abuse rate up rate down Reply