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.
