Dear Kirk: As morbid as it sounds, I’m considering pre-planning my own funeral—to save my family the cash down the line, sure, but also to guarantee they don’t spend money on any unnecessary “extras.” What kind of expenses am I looking at for the entire funeral? Is any of it tax deductible?
Kirk Says: If you are going to pre-plan and prepay your funeral expenses, take time to understand the risks you’re taking when you do this. When you prepay, where is the money being held, and who is holding the money? Most of the time, it’s put into a trust account or used to purchase life insurance on you by the funeral home. But what happens if the funeral home goes out of business or changes ownership?
There are plenty of horror stories of funeral homes misappropriating the money designated for prepaid funerals, in which case the very thing you were trying to accomplish—simplifying things for your family upon your death—becomes anything but simple for them. Funeral homes are required to disclose to you what is going to happen to the money, and different states have different rules governing the amount of cash that must be maintained in the prepaid funeral trust.
Full disclosure here—I represent a major life insurance company. But I still personally prefer to purchase my own life insurance and name my beneficiary as a way of “prepaying” my funeral expenses. When you look at the ability of the major life insurance companies to pay out the amount per the contract when you pass, there is very little risk that the money will not be there when it’s needed. Most states even have a guaranty fund that will guarantee that at least $100,000 of the death benefit will be available at time of need.
I would suggest spelling out in your Last Will and Testament your wishes for your funeral plans and expenses, and be very specific in your wishes if you worry that your family may make funeral choices that you don’t want or wouldn’t approve of.
As always, take the time to do your homework. Visit three different funeral homes and gather information about how they handle prepaid funeral expenses. Consult with your attorney about getting your will in place and ask what their experience has been with prepaid funeral expenses. And lastly, consult with your insurance agent and/or financial advisor about financial alternatives to pre-paying. When you’ve completed this work, you’ll be prepared to make the right decision based on your own circumstances.
Kirk Gwaltney is a Chartered Financial Consultant and a Chartered Life Underwriter in Brentwood, Tenn. Learn more about him at kirkgwaltney.com.