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Pre-pay or not pre-pay – that is the question.

Posted on 20 December 2017

While the topic is not one most of us really want to have to ponder, inevitably at some point we do, especially for those getting older or those suffering from a debilitating illness.

In making the decision of how to account for funeral expenses, there are 4 main things to consider, in addition to doing nothing:

1.Funeral Bond – these are managed investments that earn interest. However, there are specific features that must be adhered to in order to be considered a funeral bond.

  • the money must be in an independently managed funeral fund
  • the interest must be added to the capital
  • the fund can only release the money after your death
  • it can only do this to your estate or to the funeral director
  • it can only do this to pay for funeral costs

A funeral bond is exempt from the Centrelink asset test and can provide an additional $780 per annum in Age Pension per $10,000 invested – maximum exemption is $12,750 per person. The money is payable to the funeral home, so it is not refundable but knowing that the funeral expenses are covered does provide peace of mind.

2.Pre-paid Funerals – this is where you arrange and pay for your funeral in advance. You can pre-pay the funeral director or buy a funeral bond and assign the benefit to the funeral director. If paid in full the amount is not included for Centrelink means testing and can therefore reduce your assessable assets. However it is important that you have a contract that sets out the services you’ve paid for and states that there are no more costs to pay.

3.Cash Reserve – any good financial strategy has a cash reserve. Ensuring there are sufficient funds for a rainy day can include setting aside a certain amount to cover your funeral expenses. Just make sure the account is in joint names, if not it may be frozen until probate is granted.

4.Joint bank account with a child – this is perhaps the simplest solution and is especially popular for single clients. An account opened jointly with one of their children (usually the executor of the will) will be available to that child at any time (including after the death) as they are an owner of the account.

5.No Planning –  the bank will usually pay the funeral home directly upon provision of a receipt. But what about the other expenses, like repairs to the home, insurances or phone bills? Typically, the executor will have to dip into their own pocket and wait (potentially months) to be refunded from the estate.

Which option is best really depends on the individual. The first two options will assist if you are trying to maximise your age pension entitlements, but they aren’t for everyone. You don’t have to make a decision now but it is something you should consider.

Vue Financial

The author is an employee of Vue Financial Pty Ltd, Authorised Representative of Count Financial Limited, AFSL 227232.

Important information:

The information in this article is provided for illustrative purposes only and does not take into consideration your personal circumstances. You are encouraged to seek financial advice suitable to your circumstances to avoid a decision that is not appropriate. Any reference to your actual circumstances is coincidental. Count Financial Limited and its representatives receive fees and brokerage from the provision of financial advice or placement of financial products.

 

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