A funeral can be prepaid or pre-funded. Either will reduce the need for your survivors to make decisions at a difficult time.
Why plan ahead? When planning a funeral last minute, it may be difficult to think clearly. Therefore, pre-planning makes sense. Expenses can range from $5,000 to $20,000 or higher, depending on the funeral home and the services purchased such as:
• cremation or burial
• transfer of the body from a hospital, nursing home or another country
• embalming
• casket
• service in a funeral home or church
Two methods of paying for funeral expenses
1) Pre-paying Funeral Expenses A funeral can be pre-paid and the funds held in trust (free of income tax up to a certain limit). Advise your executor of your plans and/or pre-payment to a funeral home in order to save both unnecessary funeral arrangements and expenses. By taking care of your funeral planning in advance, you will achieve the following:
- allow time for comparison and cost evaluation while not under emotional duress
- Include other decision-makers such as children, siblings, spouse, who may have competing ideas during a last minute arrangement
- avoid survivors stressing out by having to make quick decisions while grieving
- make sure you advise your funeral home if you prefer cremation or burial
2) Pre-funding funeral expenses One of the best methods to pay for a funeral is to pre-fund it as opposed to pre-pay. You can pre-fund the entire cost with a life insurance policy that pays out a tax-free benefit (usually within 30 days), without probate, at death. Most funeral homes will invoice you for the majority of the associated services they offer.
Establish the price with the funeral home in a contract, as you will be deferring payment until soon after the time of death. You may need to agree on potential costs inflating over time.
Life insurance solution An alternative to an agreement is to buy enough life insurance, calculating inflation and any debts you may want to clear in your estate. Life insurance planning can add the advantage of planning to gift some money from the tax-free death benefit to heirs. Note: Life insurance premiums are paid with after-tax dollars and can be paid monthly which can be a reasonable expense to handle.