Over the past few months I have unfortunately experienced a higher than typical level of people in my life passing away. A number of the passing individuals were clients, and so I was also involved with counseling the family regarding funding for the funeral and burial.
Depending on the level and structure of the decedent loved ones' assets and estate, this process can be straightforward, but in certain situations it becomes a bit more complicated, and so I’ve assembled some observations and tips that I hope prove helpful.
In my experience, a typical funeral and burial in Northwest Indiana currently costs from $8,000 to $15,000, and the more common number is toward the higher end of this range. I think everyone can appreciate the services provided by funeral facilities in Northwest Indiana. These professionals operate continuously in an atmosphere of grief and loss and do so with the utmost sensitivity and compassion.
Early on in the funeral process, however, the provider will properly want to ascertain a budget and funding source for the services. In the best planned situations, the answer to these questions is clear and has been pre-established by the decedent, so let's go over some of the best case scenarios.
A written funeral plan listing the budget, service provider and funding source is a great gift to surviving loved ones. Most funeral providers offer pre-planning services and will offer locked-in pricing to mitigate inflation or future uncertainty. Once the plan is established and priced, funding can be addressed.
Most funeral providers will also offer pre-paid burial trusts. These special types of life insurance products offer protection from Medicaid spend down rules in the state of Indiana, so if you or your loved one is likely to qualify for and need Medicaid assistance for long-term care expenses at some point, then a pre-paid trust should be considered. As financial products, however, pre-paid trusts are not overly attractive, so absent the Medicaid concerns, I think there may be better options.
The simplest and most cost effective funding tool is a basic and separate Transfer on Death savings account at a local bank. By adding a Transfer on Death registration to a segregated, designated account the money held in the account bypasses probate and passes quickly and directly to the named beneficiary. Of course, the intentions and associated planning for the account needs to be communicated to the beneficiary, but if this can all be accomplished the account can provide quick access to funding.
In my experience, a common way to handle the funding issue is to procure a smaller, properly structured, paid-up whole life insurance policy to be handled similarly to a Transfer on Death account. While the policy will not specifically list the funeral service provider as the beneficiary, the named beneficiary can assign the death benefit to the service provider during the funeral process. Funeral service providers are experienced in processing death benefit claims and excess benefits can then be returned to the estate after the funeral.
Depending on age and health status, these types of policies may offer a bit more death benefit for the money. A typical policy, depending on age and health, would accommodate a deposit of $10,000 to procure a paid up death benefit of $15,000 to $25,000.
Perhaps the biggest challenge I’ve seen with funeral expenses is when the majority of the decedent's liquid assets are in an IRA account with multiple beneficiaries. In order to get funding for final expenses, the beneficiary can feel driven to accelerate their own planning process and remove funds from their inherited IRA balance. This could lead to mistakes with potential tax consequences. Best to plan for a better option.