ESTATE PLANNING


Should You Prepay Your Funeral?

Plan your own funeral? Hah. Most of us not only avoid talking about it, we manage to avoid thinking about it. Even writers of personal-finance get a little queasy at the thought.

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But for those of you who've made it to the thinking stage, here are ways you can make things easier for the loved ones you'll leave behind.

Consider including personal information that can be used for writing your obituary. Memorial societies and funeral homes offer planning forms for this purpose. They can be useful, but you might want to add some personal notes to this one-size-fits-all approach.

When you've done all this, record any specific instructions you have regarding burial, cremation, or organ donation. Make copies of the entire file and hand them out to your spouse, to other appropriate family members, and perhaps to the attorney who drew up your will. (If you want to spare them the stress of contemplating the details of your disposal before your demise, put everything in an envelope marked "To be opened in the event of my death.")

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Why hand out this information when you could just tuck it away in your safe-deposit box or attach it to your will? Others have done that and their loved ones always discover the documents -- but often after the funeral.

Prepaid funerals

It is possible, if you are so inclined, to choose the funeral home long before you need it, and even to pay for all or part of the home's services years in advance. So-called preneed plans, sold by funeral homes, allow you to arrange for the type of services and casket you want and pay now with a lump sum or through installments. The home either puts your money in a trust fund with the payout triggered by your death, or buys an insurance policy naming itself as the beneficiary.

If you're inclined to choose this route, make sure you're being guaranteed the services you specify at the contracted price. Some contracts call for additional payments for "final expense funding." That means that if the funeral home's charges increase between the time you sign up and the time you sign off, somebody will have to pay the difference. Also consider these questions:

  • What if you change your mind? Can you get all or part of your money back?

  • Will your money earn interest? If so, how much? Who gets it?

  • If there is an insurance policy involved, is there a waiting period before it takes effect? How long?

  • What happens when prices increase? Are increases covered by the plan or will your family have to pay extra?

  • Does your health affect the terms of the plan?

  • What happens if the funeral home goes out of business? Is your plan taken over by another funeral home? If so, which one?

  • What happens if you move? Can the plan be transferred to another funeral home in a different state?

  • If there's money left over after your funeral, will your heirs get it, or does the home keep it?

A better way to pay ahead

A prepaid plan like the ones described above can be a convenient and reassuring way to spare your family some measure of emotional stress when the time comes: The big decisions about your funeral will have been made, the money paid, and that will be that. Still, from a strictly financial point of view, you can do better.

For example, you could simply buy a life insurance policy with the proceeds earmarked for funeral expenses, although the relatively low level of coverage it would take to pay for a funeral doesn't translate to the most economical level of insurance premiums.

You could even set up your own burial "trust fund," which isn't as complicated as it sounds. You do it at a bank or credit union through what's often called a Totten trust. Now, a Totten isn't actually a trust. It's a regular bank account with a designated "pay on death" inheritor. When you open the account, you name a relative or friend (or even the funeral home) as beneficiary. You put in the money and collect the interest. You can close the account any time you want, transfer the balance to a different bank, or change the beneficiary. When you die, the beneficiary collects the account balance and pays for the funeral.

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