Final Expense Funding
None of us are exempt from death, but there are things you can do now to make this difficult time a little bit easier for your loved ones. One step you can take is to ensure that there will be adequate and immediately accessible funds available to cover your final expenses.
So how much do you really need?
Funeral and burial costs can vary quite a bit but a good estimate to work from is around $10,000. Depending on the complexity of your estate, you may need to add on additional funds for lawyer and accountant fees. Additional funds may also be required to cover unpaid debts, bills or taxes due upon your executor filing your final tax return. Everybody’s situation is different and it’s important to sit down and put together a projection that’s tailored to you.
When creating your estate plan, you may also want to provide funds specifically for charitable bequests and/or gifts to your children or grandchildren. Sometimes it will make sense to include this with your final expense planning strategy.
Although you may have plans to divide your estate amongst your children, and there will be plenty of money there to cover these costs, the beneficiaries won’t often receive any of these funds until the probate process is completed. This often takes 6 months (or more) and your children will be left to cover the costs during that time. So what’s the best way to fund these requirements?
One method is to place the necessary amount of money (preferably non-registered) into a segregated fund account. You can name the person responsible for these final expenses as the beneficiary of this account and they will receive the funds immediately. If the remainder of the estate is to be split equally, it’s a good idea to make note of this plan in your will so that this isn’t counted as a part of someone’s share.
A second and generally much cheaper option is to set up a life insurance policy to provide the required amounts. This can be done as part of a larger insurance plan you already have in force or it could be set up as a separate policy. Although we often recommend term insurance for the lower costs, this is one time where term doesn’t work. If the insurance policy is meant to provide for final expenses, you need to make sure that it will still be in force.
If you decide to go the insurance route, make sure that you don’t fall for one of the television ads that offer “guaranteed acceptance life insurance”. These policies are sold at anywhere from 2-4X the going rates for insurance and they often won’t pay out at all if you pass away in the first few years. These commercials offer misleading information and are designed to confuse the average consumer. If due to health or other reason you don’t qualify for any other type of insurance, this type of coverage may be a reasonable option. It’s important to discuss your options with a qualified advisor.
Whatever option you choose, make sure that you take the time to clearly spell out your wishes so that your loved ones aren’t left guessing. Create a document labelled “my preferred funeral plans” and leave it with each copy of your will. So when that difficult time does finally come, do what you can to help things go smoothly and make sure your affairs are handled in the fashion that you prefer.