Like so many families, when we suffered the loss of my mother last year, we faced the difficult decision of what to do next. Because we were never willing to accept this as a possible outcome, nor did we think about planning in advance for this incomprehensible loss, we had no idea where to begin or who we could turn to. Just like us, most people tend to overlook one of the greatest gifts you will give your family, which is properly preparing them for the inevitable.
At best, your clients might have started their estate planning process by creating a will or trust. However, the harsh reality is that over 70% of Americans have no form of estate plan. So by having a will or trust, your clients have clearly taken a step in the right direction toward pre-planning their future financial wishes. The problem is this form of planning fails to accomplish the most important task, which is addressing the family’s immediate concerns. The person, or in most cases people, responsible for taking care of the final arrangements are usually forced to make extremely important decisions, as well as major financial purchases, within a small time frame…usually within approximately 48 hours after the death. Of course, you cannot expect to fully alleviate the emotional and financial stresses of loved ones during such a difficult time, but you can guide your clients with tremendous help by having a plan that outlines funeral wishes.
Most financial professionals are realizing that an integral part of a sound financial and estate plan is taking care of the funeral services ahead of time. Pre-planning the funeral arrangements provides the ability to choose method of disposition and the exact type of services desired, and allows the family to focus more on things such as grieving and recovery. In addition, pre-planning is also a good thing because it allows families to make extremely important decisions through a calm and clear thought process. Emotionally, it will more likely create a more rational and logical end-of-life plan. When pre-planning a funeral, here are several general guidelines for your client to begin the pre-planning process:
• Visit various funeral homes and interview multiple funeral directors.
• Choose a funeral home and director where the family would be most comfortable.
• Consider bringing family members along during this selection process.
• Be aware and informed of bereavement entitlements such as veterans, unions, fraternities, etc.
• Consider religious and moral convictions and discuss them with all the family.
• Determine the preferred method of disposition (burial, cemetery, entombment, cremation, etc.).
• When planning the ceremony, consider things like casket viewing, religious aspects, who should be included, etc.
• Itemize the costs and source of funds.
• The Federal Trade Commission offers a free funeral planning guide titled “Caskets and Burial Vaults” (202-326-2222), which has made it easier for consumers to comparison shop.
• The FTC Funeral Rule requires funeral directors to give pricing information over the phone as well as provide a readily-available General Price List if visited in person. This FTC Funeral Rule also allows the purchase of caskets, which are the single largest funeral expense, from outside vendors without the threat of a carrying charge. For more information about The FTC Funeral Rule, visit www.ftc.gov.
What about Paying for Funeral Expenses in Advance?
Although planning funeral arrangements in advance may help alleviate many of the details, prepaying (also known as prearranging) for funeral services is a way of taking care of the actual expenses. Prepaying funeral or cremation is one of the fastest growing, and most appreciated and accepted, aspects of funeral planning. Similar to preplanning the funeral, paying your funeral expenses in advance is also becoming widely accepted by many financial professionals as a solid piece of a sound financial and estate plan. When prepaying a funeral plan, the most common and widely used strategies are savings and life insurance, mainly because they tend to be deemed the most reliable and readily available. However, there are several strategies to consider when prepaying your funeral costs or expenses:
Although many people choose to set aside savings to pay for funeral expenses, there are several reasons this does not always end up working out as originally planned. First, the savings can be depleted based on unexpected financial circumstances, such as health or financial issues. Second, these funds are not always readily available and liquid upon death due to the challenges and restrictions often found in estate planning. Third, the funds set aside can often be insufficient due to inflation and the rising cost of funeral expenses. Finally, it should be noted that savings are included in a part of one’s estate, and, thus, the taxable consequences can often come into play.
Term Life Insurance is widely considered to be a flexible, simple, and affordable way to pay for your final funeral expenses. Although Term Life Insurance has a set term, or set number of years, it also has multiple uses in prepaying for your funeral. Upon death it becomes a liquid asset, it can be used for many things such as funeral, burial, cremation, liquidity, and many other things, including debts or obligations. In addition, there are some types of life insurance that allow the funds contributed to these policies (either in lump sum, monthly, quarterly, semi-annually, or annually) to grow and accumulate as a cash value that can be accessed if necessary. Therefore, these policies can be used for funeral expenses, and also for other financial planning options that may arise such as financial emergencies, college, etc.
A whole life policy that is paid up can be specifically directed to cover final expenses. In a participating contract, the dividends may gradually increase the death benefit or be withdrawn in cash — usually on a tax-free basis. Funeral insurance is a life insurance policy that is specifically designed to cover any costs or expenses directly related to your funeral. If your client purchases one of these policies, one of the options is to determine exactly which funeral costs or expenses are to be covered, such as flowers, burial plot, grave marker, and much more. Another option is for the policy to be paid out in a single lump sum, which can be used to cover pre-determined costs or expenses, or simply help loved ones financially as they execute the final arrangements. There are many insurance companies that offer funeral insurance packages, and certain funeral homes or funeral companies also offer policies.
Pre-Need Trust Agreements
Another alternative to prepaying funeral expenses is to consider a Pre-Need Trust Agreement to pay for your client’s costs or expenses. Generally speaking, these Trust accounts are typically funded with monthly payments that are invested in a fund which is designed to grow over time. Although a Trust account is designed to provide the potential for protection against inflation, it is not guaranteed to do so.
Many families also develop written plans for non-financial issues:
• Who will deliver the service
• Where the service will be conducted
• Favorite hymns and readings
• Nomination of Pall Bearers
• Obituary announcements
• Request for charitable contributions in lieu of flowers
When Guiding Clients
In summary, although nobody likes to think or talk about dying, it is one of the facts of life we all must eventually face. If you are trying to build a successful financial plan for your client, the only way you can be sure the plan works smoothly and efficiently is to get your client proactive in the planning process. This is particularly true and necessary when creating a proper plan of succession, which I firmly believe should include an end-of-life plan.