If you’re way, way ahead of most Americans, and already have a will, trust, and other end-of-life financial instruments set up, you may want to start thinking about funeral costs.
Funerals can be expensive: according to the Huffington Post, an average funeral can cost around $11,000. This is a substantial cost, especially when considering the usual health and legal costs associated with end-of-life. So: how can you ensure your family doesn’t have to bear the brunt of a costly funeral, particularly during a chaotic, emotional time?
Below, we’ll discuss several of the most common plans, including pre-paid funerals, burial insurance, and more.
If you’ve begun doing research at local funeral homes, you may have seen plans to pre-pay for a funeral by deciding on a package. The funeral home may then use those funds in one of two ways. They may buy an insurance policy with themselves as the beneficiary, or put your funds into a trust payable on your death.
This approach can seem like a straightforward way to save your family planning time and money. However, it comes with several risks. This is why it is important to ask questions as you look over the contract and speak to the directors at the home.
- What if you change your mind, move states, or some other unforeseen circumstance comes up? Will you be able to get all or some of your money back?
- What happens to any interest accrued while the funeral home has your money? Will it go towards expenses, will you keep it, or will they?
- What happens if they go out of business? Will you be able to get your funds back? Will another funeral home pick up the contract?
- What happens to leftover funds?
- Most importantly: will your family be responsible for any “surprise” hidden fees at the time of burial? Many of these plans, particularly if they’ve been active for some time, can accrue changes in costs, or have associated hidden fees. Be sure your contract is valid for all services and doesn’t include these fees.
As with any contract, it is important to read pre-paid funeral contracts extremely carefully.
Trusts and Insurance
Using trusts or an insurance policy is another way of ensuring the funds for your funeral are available. However, they each come with their own drawbacks.
Trusts are useful because they don’t go through probate, and so your loved ones can access funds quickly. However, irrevocable trusts cannot be changed once they are incorporated, and revocable trusts may leave your funds open to seizure by Medicare.
Insurance policies also do not need to go through probate, and present the advantage of quick funds. However, by putting funds into an insurance policy, you’re unlikely to be capitalizing on possible interest. Some insurance policies also have a certain number of years that the policy must be active before the full benefit is paid out.
Pre-Arranged, but not Pre-Paid
You can also take some of the burden off your family’s shoulders by prearranging things. By making your own choices,you can help relieve some of the pressure. Pre-arranging can also go farther than simply choosing a song, or whether you want cremation or burial (or some other choice!). You can also comparison shop local funeral homes, visit them, and more.
Again, be sure to share all of your plans and ideas with your family. This can be a difficult conversation, but important to have. No one likes thinking about funerals, but the more information your family has on your plans and wishes, the more you can help to alleviate stress.
The drawback to this method is that it doesn’t involve actively saving money. However, by pre-planning, and thinking about what your wishes are, you can more accurately save towards a funeral.
You can even set up a Payable On Death account with a trusted loved one as beneficiary to avoid the probate process, and deposit at once, or in installments, the full amount for the funeral, allowing interest to accumulate to add up to cover rising costs. POD accounts also allow you to switch recipients, and add funds as you go.
Doing a bit of research can help save your family time, worry, and stress at an already stressful time. Making a few more choices in your end-of-life plan can help you ensure a good outcome.