Estate Planning: Paying Funeral Expenses
With the average cost of a funeral in Colorado now topping $6,500, one estate planning task that has become crucial is providing a means to pay funeral expenses within your estate plan. There are several ways to address funeral expenses:
1. Life insurance policies
A life insurance policy can provide cash to an estate to pay immediate expenses such as funeral costs. There are several options in using a life insurance policy, such as making your estate the beneficiary of the policy, so make sure to work with an estate planning attorney to find out which method fits best with your estate plan and family’s needs.
2. Pay on death accounts
Pay on death accounts, also called Totten trusts, are available at most banks and credit unions. All you have to do is fill out a form in which you name an account beneficiary. Upon your passing, the money can be claimed by the named beneficiary. Many choose to name their spouse as the beneficiary with the understanding that the funds in the account should be used to pay funeral expenses.
3. Living trusts
The typical living trust would involve the person signing a trust agreement appointing himself, as trustee. He (or she) would then transfer ownership of property to the living trust. The trust agreement would provide that he could use this property in any way he saw fit, and he could amend the terms of the trust or revoke the trust during his lifetime. Upon his death, the trust agreement would designate a successor trustee, such as a surviving spouse or child, to manage the trust. The trust agreement would allow the successor trustee to pay the funeral expenses, debt, and estate taxes, and would require the trustee to distribute the balance of the property as provided by the trust agreement.
Also, be aware that life insurance does not pay out until a death certificate has been issued, which may take several weeks after your death. In the meantime someone will have had to pay for your cremation or burial and funeral expenses. A prepaid funeral plan addresses this problem, but is tied to one particular company so if that company is no longer around (or you have moved) you may lose your investment. A Funeral Trust is a free vehicle that you can use to make money available within 24 hours of your death, good with any company in any state. If this is a concern for you, check it out!