Use Estate Planning to Ensure Your Family Isn’t Stuck
Paying For Your Funeral
With the cost of a funeral averaging $7,000-$13,000 and steadily increasing each year, every estate plan should include enough money to cover this final expense. Yet it isn’t enough to simply set aside money in your will.
Your family won’t be able to access money left in a will until your estate goes through probate, which can last months or even years. Since most funeral providers require full payment up front, this means your family will likely have to cover your funeral costs out of pocket, unless you take proper action now.
If you want to avoid burdening your family with this hefty bill, you should use planning strategies that do not require probate. Here are a few options:
You can purchase a new life insurance policy or add extra coverage to your existing policy to cover funeral expenses. The policy will pay out to the named beneficiary as soon as your death certificate is available. But you’ll likely have to undergo a medical exam and may be disqualified or face costly premiums if you’re older and/or have health issues.
There is also burial insurance specifically designed to cover funeral expenses. Also known “final expense,” “memorial,” and “preneed” insurance, such policies do not require a medical exam. However, you’ll often pay far more in premiums than what the policy actually pays out.
Because of the sky-high premiums and the fact such policies are sold mostly to the poor and uneducated, consumer advocate groups like the Consumer Federation of America consider burial insurance a bad idea and even predatory in some cases.
If you have any type of insurance to cover your funeral, make sure your family knows about it! These policies are often never cashed in because the family didn’t know they existed.
Prepaid funeral plans
Many funeral homes let you pay for your funeral services in advance, either in a single lump sum or through installments. Also known as pre-need plans, the funeral provider typically puts your money in a trust that pays out upon your death, or buys a burial insurance policy, with itself as the beneficiary.
Many banks offer payable-on-death (POD) accounts, sometimes called Totten Trusts, that you can set up to fund your funeral expenses. The account’s named beneficiary can only access the money upon your death, but you can deposit or withdraw money at any time.
A POD does not go through probate, so the beneficiary can access the money as soon as your death certificate is issued. POD accounts are FDIC-insured, but such accounts are treated as countable assets by Medicaid, and the interest is subject to income tax.
Another option is to simply open a joint savings account with the person handling your funeral expenses and give them rights of survivorship. However, this gives the person access to your money while you’re alive too, and it puts the account at risk from their future creditors.
Indeed, we know one client who lost the money in a joint account she shared with her granddaughter over a single bad business decision. The granddaughter was sued over a lease default, and when she lost the case, her creditors were able to go after the joint account.
With us as your Personal Family Lawyer®, you don’t need to buy a pre-built trust from a funeral provider. We can create a customized living trust that allows you to control the funds until your death and name a successor trustee, who is legally bound to use the trust funds to pay for your funeral expenses exactly as the trust terms stipulate.
With a living trust, you can change the terms at any time and even dissolve the trust if you need the money for other purposes. Alternatively, if you need an irrevocable trust to help qualify for Medicaid, we can create that too and help you ensure the trust stays totally compliant with all of Medicaid’s requirements.
Don’t needlessly burden your family
To help decide which option is best suited for your particular situation, consult with us as your Personal Family Lawyer®. We can put an estate plan in place that includes adequate funding to ensure your funeral services are handled just as you wish—and your family isn’t forced to foot the bill.
This article is a service of Lori R. Somekh, Esq., Personal Family Lawyer®. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That’s why we offer a Family Wealth Planning Session, ™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by calling our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.
Somekh & Associates, PLLC,
247-67 Jericho Tpke., Bellerose, NY 11426;