Yahoo Finance 3 Ways to Plan for Your Funeral Expenses
Now that the nation has made it past Tax Day, it's time to talk about life's other inevitable event: death.
While not a subject many are eager to contemplate, funeral planning is something that must be done at some point. Even for those who don't want a traditional service and burial, some final arrangements must be made. Here are three commonly used approaches.
1. Plan and pay for your funeral in advance.
A 2014 survey by the National Funeral Directors Association of adults older than 40 found only 19 percent of respondents had prearranged their funeral, and of those, about 26 percent had prepaid. Those numbers may not be large, but some people who have gone this route say it's the perfect way to avoid burdening loved ones during a time of grief.
"I just know how emotional my daughter is," says Carole Walsh of Lowell, Michigan. "I want [my passing] to be as easy as possible."
Walsh and her husband, both 62, are among those who have planned and prepaid the bulk of their funeral arrangements. To do so, they purchased an insurance policy through a funeral home that will cover expenses, which is one of two ways funeral homes typically set up prepayment plans.
"Most funeral homes allow people to pay with a trust or insurance," says Jeremy Hoff, a consultant for Trust 100, a funeral home planning organization. "You may have three-, five- or 10- year payment plans, and age is a determining factor in how long you can expand payments."
Those plans don't necessarily come cheap. Hoff says payments for a $10,000 plan spread over 10 years could cost $300 to $350 per month. However, consumers may be able to pay them off early. That's what Walsh and her husband did when they realized the cost was more than expected. "We did it on a payment plan," she says, "but then paid it off."
Another option may be to use a 1035 exchange to transfer a whole life policy to a new plan offered through the funeral home. This can have an added benefit, since the policy is often excluded from assets used to calculate Medicaid eligibility.
However, not all states allow the sale of insurance through funeral homes. Scott Anthony, co-owner and manager of Anthony Funeral Chapels in Webster, New York, and a member of the NFDA executive board, notes New York state law only allows funeral homes to use trusts which he says can benefit consumers. "Insurance doesn't grow at the same level as trusts grow," he says.
Others may choose to prepay out-of-pocket. Of the 1,055 Americans surveyed by NFDA, those who prepaid reported using the following methods:
-- Personal cash or check: 27.1 percent
-- Trust fund through a funeral home: 16.5 percent
-- Life insurance through another organization: 15.3 percent
-- Life insurance through a funeral home: 10.6 percent
-- Trust fund through a cremation society: 10.6 percent
2. Plan but don't prepay your funeral.
Not everyone is a fan of prepaying final expenses.
"Of course, the funeral industry loves to have people prepay," says Josh Slocum, executive director of the nonprofit Funeral Consumers Alliance. "We advise you to set up a simple bank account with a payable-on-death beneficiary."
Setting up a personal savings account is one way to plan for a funeral without prepaying for it. Other ways to set aside money without prepaying include purchasing a separate burial insurance policy, using an existing life insurance plan or setting aside investments.
Even if someone isn't prepaying, a local funeral home can be a resource for planning.
"Most funeral homes have discussion guides, and I encourage everyone to fill one out," Hoff says.
Anthony echoes the idea funeral homes are happy to help with planning even if a customer doesn't want to pay upfront. "Prearranging is something the funeral industry has been marketing for 30 years," he says. "We'll set up a folder, and we'll document what they've told us."
The NFDA survey found nearly 87 percent of individuals visit only one funeral home before making a choice, and Slocum says that's a mistake. He recommends consumers visit at least four to five funeral homes before settling on the one best suited for your needs. In addition, he urges people to be wary of sales representatives who might encourage unnecessary purchases.
"Your funeral doesn't have to cost $10,000," Slocum says. "It doesn't have to cost $5,000."
He notes the Federal Trade Commission's Funeral Rule requires funeral homes to sell services a la carte. Consumers have the right to buy only the services and products they want and can't be limited to package deals. Slocum adds that shoppers should be aware state laws typically have few requirements when it comes to burials, with even embalming being an optional service in many cases.
3. Leave the planning and the paying to someone else.
The final way to approach your funeral plans and expenses seems to be the most popular, but it's one virtually no one recommends.
"Our biggest problem in America is that we don't think about preplanning our funerals," Hoff says. As a result, the decisions end up being made by relatives who may be in the midst of deep grief. "I think that's when people spend way more than they have to on a funeral," Walsh says.
Another issue is that a family may not have money to cover the expenses. While some states have money available for indigent burials, Anthony says that money is limited to those who are truly destitute.
"If someone has no funds, their body will be dealt with in a respectful way," Anthony says, "but it might not be what you would want for yourself." For example, state funds may cover a cremation and little else.
Family members could also find themselves forced to pay for some expenses. "We've seen it where great-grandchildren had to come in to pay because it's court ordered," Hoff says.
For emotional and financial reasons, experts say people owe it to their family to at least talk about their end-of-life plans and wishes.
"It's easier than you would realize," Walsh says. "It took a weight off my shoulders."
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