The loss of a loved one is difficult and emotional for everyone involved. In addition to the emotional burden, there are also financial considerations that need to be addressed, such as the cost of the funeral and other final expenses.
A 2017 study from the National Funeral Directors Association (NFDA) found that while 62.5% of U.S. consumers believe it’s important to communicate funeral plans and wishes to family, only 21.4% have actually done so. Many who were interviewed stated that funeral planning fell low on their priority list, or that funeral planning was too expensive.
Funeral trusts alleviate many emotional, practical, and financial burdens, and provide peace of mind to families during the difficult time. While there are many terms for “funeral trusts,” it’s important to understand the difference between two broad categories: Prepaid Funeral Plans and Irrevocable Funeral Expense Trusts.
How Does a Prepaid Funeral Plan Work?
A Traditional Prepaid Funeral Plan is a contract with a funeral home to set aside funds in advance for final expenses. Plans are customizable, with funds typically covering expenses such as: funeral, burial or cremation, casket, cemetery charges, and more. Payments are made directly to the funeral home or through a pre-paid contract provider in monthly installments.
While a Prepaid Funeral Plan can be a tool to honor a loved one’s wishes and lock in prices in advance, there are several notable risks and disadvantages:
- The funeral home could go out of business, exposing funds to creditors.
- Funds could also be mishandled by the funeral home.
- In some cases, funeral expenses are less than what was paid ahead of time.
- Conversely, hidden fees or unexpected expenses can mean the family has to pay more.
- Most Prepaid Funeral Plans are non-transferrable and non-refundable.
How is an Irrevocable Funeral Expense Trust Different?
The Irrevocable Funeral Expense Trust is a single-premium whole life insurance policy assigned to a free, irrevocable trust. A safer and more stable option than the Prepaid Funeral Plan, it fully secures a portion of an individual’s assets until they’re needed to pay end-of-life expenses.
Instead of risk being placed on the policyholder, it is transferred to the insurance company, which pays directly to the funeral home of choice. The Funeral Expense Trust is also convenient—rather than a long, uncomfortable session at a funeral home, policy-writing can be conducted from home.
Protected under Federal Medicaid law, the trust is 100% free with no up-front fees or taxes. The policy value grows to account for increased market value costs, and whatever is not spent on funeral expenses is refunded to the estate of the deceased.
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Ultimately, the Funeral Expense Trust provides families time to grieve properly without having to worry about paying for a funeral. While it might be uncomfortable for you to think of your final expenses, by talking to an Elder Life Group Advisor, you can benefit your retirement plan now and your family later.
For our Financial Advisor Partners
Supplementing larger retirement or long-term care planning strategies, Funeral Expense Trusts have been transformational for funeral planning in the U.S.
By ensuring safe end-of-life arrangements through funeral expense trusts, insurance and investment advisors are meeting critical family needs.
Elder Life Group is the nation’s largest funeral expense trust distributor. Discover how you can leverage the Funeral Expense Trust to grow your practice.