Funeral Homes Charged with Long-Term Fraud

Feb. 27, 2001 -- It sounds like a simple way to make the inevitable more manageable: Prepay for funeral services, so your loved ones have one less thing to worry about when the day comes.

"I've just had so many families mention to me, 'Mike, I am so glad that we did this years and years ago, because everything was taken care of exactly as we wanted it to be done,'" says Mike Ruck of the National Funeral Directors Association.

But there have been numerous consumer complaints about pre-paid funeral contracts, specifically complaints about fraud, abuse and high-pressure sales tactics aimed at the elderly.

"They're after money and they just see this population as out there and vulnerable and easy to get at," says Tess Canja, the national president of the American Association of Retired Persons (AARP).

Irwin Karp agrees — and he should know. The former salesman recently testified before Congress from a California prison where he's serving time for mishandling funds from pre-paid contracts.

He told ABCNEWS: "The salespeople obviously have mortgages, have car payments, etc. So if they get somebody who is not completely aware of everything or is not that intelligent, they go for as much as they can get."

Salespeople often fail to tell their elderly customers the contracts — which supposedly cover every detail — often don't cover flowers, burial costs, vaults and police escorts.

Once Bought, Contract is Binding

"My mother and daddy purchased this policy in 1971 to relieve me of any financial responsibility since I was their only child," explains Bush.

But when her mother died 28 years later, Bush had to use a different funeral home because they had moved to a different city. The original funeral home returned her original investment but kept 28 years' worth of interest.

And it's perfectly legal. In most states, it is the funeral home — not the customer — that owns the interest on pre-paid funeral contracts. What's more, the family has to pay the taxes on that interest.

"What this seems like to me is more of an institutionalized scam," says Rob Schneider of the Consumers Union, "where state laws give earnings that rightfully belong to consumers to the funeral services industry."

When Ruck was asked how he makes the case that this isn't a bad business decision on the part of families, he finally answered after a long pause: Peace of mind.

The funeral industry says it's pushing new guidelines to protect consumers of pre-paid contracts. But consumer groups say if you really want to plan ahead for your funeral, just open a savings account.