When you die, funeral decisions and payments come first and fast. Will these issues be handled by you now or by your loved ones after you pass? And, where will the money come from? Many seniors are making their funeral decisions and payments now to minimize the stress and anxiety it may cause their loved ones. The last think you want to do is be a burden on your family for funeral arrangements and it's easy to make simple plans.
Let's look at some prepayment options and benefits.
Your options for prepaying the cost of your funeral are three:
- Buy funeral insurance.
- Make a prepaid agreement with your funeral home's director.
- Set up a funeral trust.
You might consider buying a small-term life insurance policy to cover burial expenses if you think it might be difficult to pay the $5,000 to $10,000 cost of a funeral. Funeral insurance is insurance intended to cover the cost of funeral expenses. It usually has a low face value, normally less than $10,000. The value of the policy is determined by the anticipated total funeral expenses at the time of death; although some final expenses, such as cemetery property, can be prepaid and need not necessarily be included in the policy.
Prepaid funeral agreement
You arrange with the director of your funeral home of choice to prepay your funeral costs. You will get to pick out just what items you wish to pay for and for how much. Be sure when the agreement is signed by both you and the director that you have a clear statement of the funeral goods and services you are prepaying. Your prepayment should specify where your money is deposited–either in an interest-bearing trust account or a funeral insurance policy with either designated in your name.
Set up a funeral trust
This can be simple legal document, similar to what many funeral homes use when having an individual pre-pay for services. A key selling point behind the trusts is the fear that your funeral home may go out of business. Another is that the trust provides flexibility in picking a service provider, so that the family is not locked into using a certain funeral home.
Impact on Medicaid benefits
A key issue behind funeral planning is the need for long-term medical care and the desire to shield some assets from nursing homes or Medicaid. Not only is there a way for an individual to set aside money for a funeral, but money used for that purpose "beats the clock". i.e., where most assets must be moved out of an individual's name and/or accounts well in advance of needing long-term care; funeral money can come out on the eve of moving into the nursing home and just before needing Medicaid.