Like most people, you’ve probably set aside money in your lifetime to pay for the important events in your life: a new house, a vacation, college tuition for the kids, and maybe even a wedding. Planning ahead is a good idea because you can make sure the money will be there when needed. What about Funeral Planning?
“We have money in savings.”; “We have Life Insurance.”; “We have a ’special’ account to cover funeral costs.”
Sound familiar? Like other major life events, pre-funding your funeral will give you peace-of-mind, comfort, and assurance knowing that money will be there to pay your funeral expenses.
According to a 2005 study by the National Funeral Directors Association, 90 percent of respondents said they are interested in pre-funding their funeral. Yet, according to a 2007 survey by AARP1, 60 percent of respondents have never been contacted about prefunding their funeral.
If you haven’t planned for a funeral, there’s a lot to consider…
How much does a Funeral cost anyway?
According to a 2004 AARP report, the total can easily reach $10,000 when the costs of cemetery property and a grave marker are included. If you already own cemetery property, then plan on spending at least $6,000. Of course, the actual cost will vary depending on what type of service you ultimately would like to have.
Average Funeral Costs
The following chart represents the most commonly selected services and merchandise according to the U.S. Senate Committee on Aging (2001)2.
| Professional Services |
$1,283 |
| Embalming |
402 |
| Cosmetology |
135 |
| Memorial Service |
670 |
| Flowers |
250 |
| Transfer of Remains to Funeral Home |
186 |
| Hearse |
170 |
| Limo (2) |
260 |
| Service Van |
100 |
| Graveside |
400 |
| Cemetary Charges |
1,400 |
| Casket |
2,477 |
| Vault |
757 |
| Total |
$8,495 |
How will my survivors pay for my funeral?
Few people have the resources to pay for a funeral outright. Without advance planning and funding, your survivors may need to reach into savings, increase credit card balances, take out a loan, or even sell personal assets. Money set aside in savings accounts may be tied up with probate delays.
Where do I get the money?
You may already have it. It may be in a rainy day fund, a Certificate of Deposit, or a money market account. By using money from those sources to fund an insurance policy, you’re giving your family the gift of peace-of-mind. Your agent has a policy that will enable you to fund your final expenses and make life that much easier for those left behind.
| Funeral
Expense Trust |
Annuity | Savings
Account |
CD | Money
Market |
Mutual
Funds |
|
| Benefit paid directly to the funeral home first? | Yes | No | No | No** | No | No |
| Funds protected from creditors? | Yes | No | No | No** | No | No |
| Excluded asset in order to qualify for Medicaid & SSI? | Yes* | No | No | No** | No | No |
*State regulations apply, please consult your legal advisor
**Unless put into a trust for funeral expenses
Can I set aside funds dedicated to funeral expenses in advance?
Absolutely! Your agent can help you set funds aside with a life insurance plan specifically designed for this purpose. Selecting how much you would like to spend on your services is all it takes.
How does the plan work?
It’s simple. A life insurance policy is purchased to cover the anticipated costs of your funeral. This policy can be an installment payment policy, a single-premium policy, a 1035 exchange (transfer of policy cash value) from one insurance company to another, or a single-premium annuity.
This policy is then assigned to an irrevocable funeral trust. The trust must be irrevocable to satisfy state and federal regulations. This assignment offers two advantages: 1) At the time of death, the policy proceeds do not have to go through probate and are available to pay for your final expenses, and 2) the policy is not considered an asset if you are determining Medicaid eligibility.3
This combination of life insurance and a funeral trust creates a solid, safe, and secure plan to cover your final expenses.
How do I know these funds are secure and will be readily available?
The funds in the policy will first be used to pay your final expenses with any excess returned to your estate. By irrevocably assigning your policy and permanently transferring ownership rights to a Funeral Planning Trust, you’ll receive the following benefits:
- May give you the ability to exclude your policy as an asset in order to qualify for Medicaid and Supplemental Security Income (SSI).
- Policy proceeds are paid to the trust which then pays the funeral costs.
- Funds set aside in the trust to be used for funeral expenses are protected from creditors such as nursing homes, hospitals, lawyers, etc.
- Proceeds used for funeral expenses will avoid probate costs and delays.
- Your policy benefit will increase with simple growth, income tax free4
Trust Options
The trusts we have available have no trust fees, and they can be used in addition to any other trust you may already have. The process is simple and, in Alabama, the assignment to the trust is part of the application process, involving a single-page trust document that is easy to read and understand.
| Funeral Expense Trust Benefits | Estate Planning Trust Benefits |
| $12,500 maximum | $50,000 maximum |
| Protects funds from Medicaid spend-down upon effective date of transfer | Funds excluded from Medicaid spend-down after five years |
| Policy beneficiary is the Trust | Allows you to name a secondary beneficiary |
| The Trust pays funeral costs with any excess going to the estate of the insured | The trust pays funeral costs with any excess funds going to the named beneficiary or the estate of the insured |
Final expense planning is the wise and considerate choice for your loved ones and for your own peace-of-mind. Don’t leave a financial burden as your legacy.
Funding life’s final expenses is the last great gift you can give.
No major life event ever plans itself. Take a moment now and prepare for the future.
After all, if not you . . . who?
{ 2 comments… read them below or add one }
The only thing with this plan is I don’t see it locking in the price of your funeral
at the funeral home. Price continue to rise every year and setting an amount aside, if you live long enough the dollar amount you planned may not cover the cost of your funeral.
Pam, you raise a great point. Locking in a price with a funeral home can have some advantages, but there are also disadvantages, as well. At this time of economic uncertainty, there are always business risks with prepaid contracts. It is a generally safe bet that a funeral home will be in business for a long time to come, as this is one of those services that is always going to be needed. However, many are small businesses which are subject to the risks of occasional mismanagement, family does not take over business if parents decide to move on or retire, etc.
Locking in with a funeral home also bears a geographic risk. No one can see into the future all the time with enough clarity to know they may not move to another area to be closer to children, etc.
The advantages of a funeral trust can take care of some of these concerns.
First, funeral trusts are a life insurance product. They also provide growth of the amount in the trust in the form of interest or dividend. As a life insurance product, this growth is generally tax free within the trust. Also, as pointed out, this does not have to go through probate.
Also, should your plans change or costs reduce, i.e., elect cremation versus burial, downscale in plans, deflation of prices or any other reason, any funds left over are left to your designated beneficiaries.
I thank you for taking the time to read the article and to post a thoughtful comment about the ramifications of such a funeral trust. I look forward to possibly answering more questions should you have them.