5 Smart Ways to Pay for Your Funeral that Won't Leave Your Family to Foot the Bill
Entrusted Legacy Law
Feb 24, 2023
Pennsylvania - Greater Pittsburgh Area
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With the cost of a funeral averaging between $7,000 and $12,000 and steadily increasing each year, at the very least your estate plan should include enough money to cover this final expense. And if you are thinking of simply setting aside money in your will to cover your funeral expenses, you should seriously reconsider, as paying for your funeral through your will can create unnecessary burdens for your loved ones.
Although you can leave money in your will to pay for your funeral expenses, your family won’t be able to access those funds until your estate goes through the court process of probate, which can last months or even years. And since most funeral providers require full payment upfront, your family will likely have to cover your funeral costs out of pocket. Moreover, your loved ones will have to deal with all of this while grieving your death.
If you want to avoid burdening your family with such a hefty bill and the stress that comes with it, you need to use estate planning strategies that do not require probate. While you should meet with us to find the solution best suited for your unique situation, the following 5 options are among the most commonly used methods for covering funeral expenses without the necessity for probate.
01 | TRADITIONAL INSURANCE
You can purchase a new life insurance policy or add extra coverage to your existing policy to cover funeral expenses. Unlike money left in your will, an insurance policy does not go through probate, and it will pay the death benefit to the named beneficiary as soon as your death certificate is filed with the insurance company.
02 | BURIAL INSURANCE
In addition to traditional insurance, you can also purchase burial insurance, which is specifically designed to cover funeral expenses. Also known as “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.
In fact, due to the hefty 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 due to the fact that these policies are often sold to lower income populations.
One final point about using insurance to pay for your funeral: If you have any type of insurance to cover your funeral, it’s crucial that your family knows about it. Far too often, insurance policies are never cashed in because the family didn’t know they existed. Don’t let this happen to you—make sure your family knows about any insurance policies you have as well as how to locate the necessary paperwork.
03 | 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 preneed 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.
While prepaid plans may seem like a convenient way to cover your funeral expenses, these plans can have serious drawbacks. As mentioned earlier, if the funeral provider buys burial insurance, you’re likely to see massive premiums compared to what the plan actually pays out. And if they use a trust, the plan might not actually cover the full cost of the funeral, leaving your family on the hook for the difference. Plus, most states have inadequate laws protecting funds in such plans, putting your money at risk if the funeral provider closes or is bought out by another company.
In fact, these plans are considered so risky, the Funeral Consumers Alliance (FCA), a nonprofit industry watchdog group, advises against purchasing such plans. The only instancewhere prepaid plans are a good idea, according to the FCA, is if you are facing a Medicaid spend down before going into a nursing home. This is because prepaid funeral plans funded through irrevocable trusts are not considered a countable asset for Medicaid eligibility purposes.
That said, if you’re looking to buy a prepaid funeral plan in order to qualify for Medicaid, be sure to consult with us first, as not all pre-paid funeral plans are actually Medicaid compliant, even if the funeral home says they are. Moreover, if the irrevocable trust is not set up correctly, it may violate Medicaid’s look-back period, which can delay your eligibility for benefits.
04 | PAYABLE-ON-DEATH ACCOUNTS
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 account does not go through probate, so the beneficiary can access the money once 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, which puts your money at risk if the person goes into debt or gets sued and their creditors come after your account to pay the other person’s debt.
Given this risk, we recommend you consider other options that will allow you to pay your funeral expenses, without leaving your finances vulnerable to another person’s mistakes or poor money management.
05 | LIVING TRUSTS
When you work with us, you don’t need to buy a pre-built trust from a funeral provider. Instead, 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.
Furthermore, you can change the terms of your living trust at any time, and you can 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 type of trust as well, while ensuring the trust stays totally compliant with all of Medicaid’s requirements, so you don’t run afoul of the program’s many complex requirements.
If you are interested in creating a trust to cover your funeral expenses, meet with us to discuss the options that are best suited for your intended purpose, budget, and family situation.
USE ESTATE PLANNING TO AVOID BURDENING YOUR FAMILY
Although thinking about your eventual death is never easy, with the proper planning, you can make dealing with the aftermath of your death significantly easier for the loved ones youleave behind. To avoid needlessly burdening your family with the expense and stress of planningand paying for your funeral, make sure your estate plan includes the necessary funds to cover this expense, and be sure to use an estate planning strategy that will allow your family to access these funds as quickly and easily as possible—ideally by using an option that avoids probate.
With so many different options to choose from, consult with us to find an estate planning vehicle that is best suited for your particular situation. With our guidance and support, we will develop a planning strategy that includes adequate funding to ensure your funeral services are handled in the exact manner you desire—and your family won’t be forced to foot the bill. Contact us today to learn more.
This article is a service of Sharek Law Office, LLC. 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 Life and Legacy 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 Life and Legacy Planning Session and mention this article to find out how to get this $750 session at no charge.
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Elder Law 100 Pinewood Lane Suite #303, Warrendale, Pennsylvania, 15086Our Firm Prepares You for Life What makes our firm different is that we were built with the needs of growing families in mind. We understand you are BUSY, you are growing, you are planning for a life of prosperity and you value ease, convenience and efficiency. You are raising children, and caring for elderly parents, while also working hard to build your own nest egg for a lifetime of support. You want to know youve made the best decisions for your family and that your plan will work when your loved ones need it most. You want to make sure your minor children would be raised by the people you choose, and never by anyone you wouldnt want, and that your teens and adult children are properly prepared to care for you and what you leave behind. You want to feel confident that youve made the right choices, and handled everything so that you arent leaving behind a mess, when something happens. That is our focus as well. Weve developed unique systems to give you the same access to a Personal Family Lawyer as was previously only available to the super-wealthy, so you can have the guidance you need to build and maintain a life of prosperity and wealth. And, to keep your family out of court and out of conflict, which is the greatest risk to the people you love and all you have created, even if youve already worked with a traditional lawyer or created documents online. Our Team Is Here for You We encourage communication with our clients. In fact, weve thrown out the time clocks so you never have to be afraid to call with a quick question. Everything we do is billed on a flat-fee basis, agreed to in advance, so there are never any surprises. We have a whole team to serve you. When you call our office to ask your quick question, you wont have to wait hours or days for a phone call back. Youll get your question answered, right away. And, if you need to schedule a more in-depth legal or strategic call with your Personal Family Lawyer, a call will be scheduled when you're both available and ready for the call so we can make the very best use of your time and not waste your time by leaving voicemail after voicemail back and forth. And, we ensure the most important details of your planning are followed through on and your plan continues to work throughout your lifetime. We have a funding coordinator to ensure your assets are owned the right way throughout your lifetime and none of your assets will end up going through a long, expensive court process or being lost to the state because they were missed after your death. Weve created unique membership programs to keep your plan up to date year in and year out as well as give you access to our Trusted Team of Legal Experts for guidance on ANY legal or financial matter. One day you will need a lawyer. I dont know why and I dont know when, but when you do, you will be grateful you can call on us and well be here to advise you or get you out of a jam. We Help You Transfer Your Life and Legacy Lastly, we believe your financial wealth is only a small part of your overall Life and Legacy Planning which is made up of your far more valuable and most often lost upon incapacity or death intellectual, spiritual and human assets. These assets are what make you who you are, and sum up whats most important to you. And, a survey of inheritors has revealed that what they care about even more than inheriting your money, is inheriting these intangible assets. Most estate plans only focus on the transfer of your financial wealth to the next generation. Most people have such great intentions of passing on the intangible, but very few ever get around to it. Its just not a priority, until its too late. How much do you know about your grandparents values? Their most prized personal possessions? How they felt about you? What they had learned during their lifetime? If you are like most people, you know very little. Thats why we build the capture and passage of these most valuable assets into every estate plan we create. Not only will we help you pass on your money, but also your values, your insights, your stories and your experience the truly valuable assets your loved ones care about the most. Weve developed a tool that allows us to capture and pass on your whole family wealth, including your Intellectual, Spiritual and Human assets. I cant go into all of the details here, but well definitely talk about it when you come in for your Life and Legacy Planning Session.