When most people think of making an
estate plan, they primarily consider protecting their home, real estate, and financial
assets; some may even go as far as to make an advanced directive (formerly
known as a
living will). There are a lot of aspects to cover when making an estate plan, from
deciding who will inherit property to avoiding tax penalties. However,
one major life event that is often overlooked is one's funeral.
Most people assume that if they have life insurance or a burial policy,
it will be enough to cover final expenses. It is true that funeral homes
can make assignments to life insurance policies (under the right conditions),
however there are some important things to consider. First of all, the
insurance policy has to be
in force, meaning payments have not lapsed; secondly the policy has to be
non-contestable, meaning it has been in force for at least two years; and finally it has to be
assignable, meaning that a third-party, such as a funeral home, can collect on the
policy directly. If those three conditions are met, then the issue is
how much the policy is worth versus the cost of the funeral.
Depending on a person's preferences and location, funeral and burial
costs could be upwards of $10,000 to $20,000. Cemetery property, caskets,
the services of a funeral director, headstones, and memorial services
can all add up very quickly and amount to more than is in the life insurance
or burial policy. Funeral prices are always rising too, so while there
may be enough to cover a funeral in the current policy, that may not hold
true 10 or 15 years from now.
Another thing to consider is the intended purpose of life insurance, which is to
pay on the life of the living
spouse. Life insurance payouts are designed to replace the income of the deceased
spouse and be used for things such as paying off a mortgage or debts,
so that the living spouse can still retain their quality of life. If the
insurance payout is eaten up with funeral expenses, then the living spouse
must handle all of the debts and expenses with only their own income.
If a person should require long-term nursing home care and cannot afford
to pay for it out-of-pocket, then they may have to apply for nursing home
Medicaid. In order to qualify, that person may not have more than $2,000
in liquefiable assets, so in some cases a
spend down might be necessary. A pre-need funeral does not count as a liquefiable
asset because it is insured for the exact amount of the funeral on the
day it is purchased. So for example, if a person has $22,000 in savings,
they can spend $20,000 on funeral and cemetery expenses and still meet
the criteria for Medicaid. Since that $20,000 would be needed to pay for
the funeral in the future anyway, it becomes a win-win situation.
Here are a few more points to consider in regards to advanced funeral planning.
When a person decides to purchase a pre-need funeral, that day's cost
is locked in so that when the funeral is eventually needed, the family
does not have to pay the difference between the cost that it was purchased
for and the current inflated cost. That can result in thousands of dollars
of savings for that family. A pre-need funeral can be paid for over time
and customized to fit an individual's budget. If one waits until the
day a funeral is needed, the expenses are due in full before services
can be rendered, which can leave families in a tight bind financially.
From an emotional aspect, planning a funeral requires making more than
200 decisions at one time, often when families are exhausted, overwhelmed
and in shock and grief over the passing of a loved one. When one pre-plans
a funeral, they take the majority of the decision-making burden off of
their family's shoulders and make the entire process simpler and easier.
One can also ensure that their final wishes are carried out in the manner
they choose, instead of leaving it up to family members who may not agree.
Taking the time to research advanced funeral planning options and discussing
it with your estate planning attorney can pay off big dividends in the
future. To schedule an appointment, please
contact us to see how your assets can be protected for years to come.