Planning for your funeral expenses is a crucial part of estate planning, especially considering the average cost of a funeral ranges from $7,000 to $12,000 and continues to rise annually. While it’s common to consider leaving money in your will for this purpose, relying solely on a will can create complications for your loved ones. Funds designated in a will are typically subject to probate, a court-supervised process that can last months or even years. This delay means your family may need to cover funeral costs upfront, adding financial strain during an already difficult time.
To avoid burdening your family with these expenses, explore estate planning strategies that bypass probate. Here are five effective options:
Traditional insurance: Purchase a new life insurance policy or increase coverage on an existing policy specifically to cover funeral costs. Unlike wills, life insurance payouts are accessible immediately to beneficiaries upon submission of a death certificate, bypassing probate entirely.
Burial insurance: Also known as final expense or preneed insurance, this type of policy is designed solely for covering funeral expenses. Although it doesn’t require a medical exam, premiums tend to be higher relative to benefits. Consumer advocate groups caution against burial insurance due to its costs and targeting of lower-income demographics.
Prepaid funeral plans: Offered by funeral homes, these plans allow you to pay for services in advance. However, they come with risks such as high premiums for insurance-based plans or potential insolvency of the funeral provider, jeopardizing the full coverage of expenses. Prepaid plans can be beneficial for Medicaid planning if structured through irrevocable trusts.
Payable-on-death accounts (POD): Establish a POD account at a bank, naming the beneficiary who can access funds upon your death without probate. While FDIC-insured, POD accounts count as assets for Medicaid eligibility and their interest is taxable income.
Living trusts: A customized living trust, created with the guidance of an estate planning attorney, allows you to retain control over funds designated for your funeral expenses until your death. This option avoids probate and can be altered or dissolved as needed. For Medicaid planning, irrevocable trusts can be tailored to meet program requirements while safeguarding funds.
By utilizing these strategies, you can ensure that your funeral expenses are covered promptly and efficiently, sparing your family from financial strain and administrative burdens during a challenging time. It’s advisable to consult with an attorney to tailor these options to your specific financial situation and family needs, ensuring your estate plan is comprehensive and effective in meeting your end-of-life wishes.
Taking proactive steps now can provide peace of mind and alleviate future uncertainties for both you and your loved ones.
Send your questions to ccolan@colanlegal.com and use “Alpine Mountaineer estate planning question” as the subject. We’ll answer your questions in our upcoming issues.
This article is provided by your local estate planning attorney, Corina Colan.
The Law Office of Corina I. Colan / (909) 265-3315 / www.colanlegal.com
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