By Katrina Shanks*
They say that only two things are certain in this life – taxes and death. For most of us, taxes are something we don’t have to think about because they are taken at source.
But death is quite another matter.
Sometimes simple, other times complicated. Sometimes tragic, other times a relief.
But whatever the manner of the passing, it’s often issues around planning and paying for that funeral that can get in the way and cause problems at the very time that that’s the last thing we need.
Kiwis are notoriously bad at planning for their futures, especially with regard to financial planning. Until recently, financial literacy and saving was not a strong part of our culture.
So, when we mix this with talking about advanced planning for your funeral it means we are particularly bad at that as well.
Kiwis gather to celebrate and remember. We usually do this at weddings and funerals.
We often plan weddings months or even years in advance. But not funerals.
Most of the time, we do that in five days, or even less.
The reality is that most of us don’t have to think about funeral planning every day, so when the time comes to arrange a funeral for a loved one, the options and choices can be daunting.
One responsible way of reducing this stress for loved ones is pre-planning your funeral. But what are the options and how should the topic be approached?
One of the first distinctions to make is the difference between pre-planning and pre-paying your funeral.
Pre-planning (pre-arranging) your funeral allows you to be involved in making choices about your final farewell – from the cremation or burial, through to the type of service or the music, you are able to record your preferences in advance as a guide for your family and friends.
Pre-paying, as the name suggests, describes the manner in which you may arrange to fund your funeral.
In this area there are also choices – the option that suits you best will depend on your personal circumstances.
Two of the key types of structure to consider are pre-paid funeral trusts or funeral insurance.
A trust (such as the Funeral Directors Association’s “FDANZ Funeral Trust”) allows you to pre-arrange your funeral and have money held in trust on your behalf to meet the costs.
Some of the benefits of a pre-paying your funeral are:
• You are able to pre-pay your funeral either in a single lump sum or by instalments.
• Reputable funeral trusts will provide security through the use of professional managers to responsibly invest the money being held on your behalf.
• You choose how much you pay and when. You are able to determine how much you want to pay by considering the amount you expect your funeral to cost as well as your own budget.
• You have the peace of mind of knowing your funeral will be paid for and that any excess funds will usually be returned to your estate.
• In many cases, the amount you contribute to a pre-paid funeral plan will be exempt from asset-testing for long-term residential care subsidies (subject to conditions and maximums).
Insurance plans usually require you to pay a regular premium from the time the insurance is put in place until you die. And when you die the sum insured will be available to contribute to the cost of your funeral.
Factors to consider when looking at funeral insurance plans are:
• Usually, they will cover you only for accidental death for the first two to three years.
• There is a risk that you will end up paying far more in premiums than you will receive back when you die. Basically, if you live too long, the premiums you pay could add up to a lot more than what you get back.
• In most cases, once a policy is in place you are not able to stop making payments without the policy being cancelled. This is the case irrespective of whether or not you have paid more in premiums than you will receive back when you die.
• Sometimes, premiums are fixed, but in some cases they will increase each year, depending on your gender and age. Be sure to check that you will be able to continue to afford the premiums as you age.
So, where do you start?
The most important thing is to ensure that any arrangements that you make, either pre-planning or pre-paying, meet your requirements and circumstances.
The person most able to assist you to work through the options is your FDANZ funeral director. They will be able to help you consider all aspects of your pre-arrangement and will talk to you about the choices available.
There is no time like the present to start the important job of pre-planning and pre-paying for your funeral.
Katrina Shanks is the chief executive of the Funeral Directors Association. This is their Money Week column.