Discuss final expenses before it’s too late

If clients plan for final expenses, it’ll make things easier on their children.

When she reflects on a messy estate battle involving one of her clients, one Alberta lawyer says the family fight became so petty, that there was almost a sense of gallows humour about the situation.

The conflict began over the will, and ultimately resulted in decisions about the late client’s funeral being made hastily.

After the service, one relative went so far as to gripe about the way the deceased’s face had been made up. A gruesome thought, perhaps, but she says these types of showdowns offer a takeaway for people currently working on their estate plans: don’t foist funeral arrangements, and the expenses that accompany them, on your children and executors. “In this case,” she says, “some funeral instructions would really have been helpful.”

Many clients, especially younger ones, can be resistant to discussing some of the most basic tools of estate planning—life insurance policies, wills, personal directives and powers of attorney.

But it’s even harder to get people to talk about final expenses, even in situations where family members have agreed to come together to discuss the details of inheritances. “The burial question, cremation, and whether you want a headstone, what kind of funeral service you want—the first time it’s raised, it’s like throwing ice water into the conversation. It freezes; it stops,” the lawyer says.

But at some point it has to be discussed. And the majority of people actually do have a good sense for what they want. If you probe, she says, people will eventually offer the detailed instructions their heirs will need.

Warning

Many clients can be resistent to discussing final expenses.

Broaching the subject

“It’s always difficult to broach the topic of death with clients,” says Maureen Glenn, manager of tax and estate planning for Richardson GMP in Toronto.

To counter that unease, she asks clients to think about recent funerals they attended for family members or friends.

The majority of people are initially uncomfortable with any kind of discussion about their own funerals. Younger people, in particular, still think they’re going to live forever and avoid the subject. You can remind them an accidental death can occur at any time, but don’t expect too much uptake.

Not surprisingly, the conversation is easier with older and more financially secure clients. People in their late 40s and early 50s are more accepting of the fact that no one gets out of here alive. For this group, the subject can be broached during routine will reviews.

And while they’re unlikely to want to get into too much detail, an advisor can re-orient the client’s thinking by confronting them about the consequences to their heirs if they fail to plan.

By encouraging her clients to mentally itemize the components of those services, Glenn creates a new frame of reference and uses it to ease into a more personal discussion. This includes questions about the choice of service, the mode of interment (cremation or burial) and cultural considerations.

Those conversations also allow Glenn to go into detail about the emotional burden family members encounter if they have to make decisions after someone dies. Leaving them to guess is a burden, she notes, and it really is better for them if they have input from the person whose affairs they’re responsible for settling.

Payment options

Next, get clients to focus on the range of final expense options now available in the marketplace.

Pre-paid funerals are among the most common choices, and advisors say clients should expect to spend between $10,000 and $20,000—although the ultimate price will vary, depending on details like the size of the reception and cost of the cemetery plot.

“There’s a very strong sense of satisfaction [among clients when they pre-pay],” says Dan Burjoski, a Kitchener, Ont.-based insurance consultant with HollisWealth Insurance Agency. “[They say], ‘That’s done. I can check it off the list.’ ”

But clients still need to focus on the details of those pre-paid funerals. With providers asking for 25% to 50% of the cost up front, and most cemeteries demanding full payment prior to the service, the pre-pay option can cause cash-flow issues.

For example, some funeral homes, like Jennett Chapel in Barrie, Ont., offer plans that absorb inflation-driven price increases by investing the payments (which are often rendered years before the client dies) and using the asset growth as an offset.

Meanwhile, Elaine Wilson, a lawyer and TEP with Fiduciary Trust Company of Canada in Toronto, encourages clients to get price lists from funeral homes to help generate a more precise estimate of the costs of various elements, such as the casket, service and reception.

Lower-priced options may be available, even if they’re not on display. (Again, inflation will change these prices over time, but it’s easier to estimate the financial requirements by starting with a budget based on specific outlays.)

It is important, however, to remind clients the pre-paid solution is not entirely risk-free.

These types of deals can tie a client to a particular funeral home, so Wilson advises they find out if the funeral home is an independent business or part of a chain. Firms with franchises around the country often provide transfer clauses, which can be useful.

That’s because, as Burjorski notes, people’s circumstances may change. Hopefully, many years elapse between the purchase of a funeral plan and a client’s death. During that period the client may re-marry, move out of province, or even leave the country.

And, if a person’s certain he wants to be buried in a specific place, many pre-paid plans offer the option to buy additional protection covering unexpected travel costs if the person dies overseas, or within the country but far from home.

Insurance can provide more options

To make things more flexible, some advisors recommend clients use insurance policies to cover funeral costs.

While final-expenses policies exist—typically available to healthy people under 85, and covering up to $20,000 in expenses—some advisors say their clients prefer general whole life policies, since it can be cheaper to bump up a $500,000 whole life policy by $15,000 than to establish a whole new insurance plan.

Doing this sets the coverage at a level sufficient to cover the funeral costs, as well as other obligations, such as taxes and outstanding debts. Since whole-life policies typically offer hundreds of thousands of dollars in coverage, final expenses represents a small fraction of the outlay.

The important thing, though, is to make sure this funeral-funding scheme is outlined in an addendum to the will or some other document that’s passed to family members and executors. When people are grieving, it’s important to ensure they’re not worried about the source of funds for something as expensive as a funeral.

Another potential option is term insurance. It’s not an advisable solution for most clients because it gets expensive once a person is older than 60 or winds up with a rated premium after a health issue is discovered.

“We want to make sure the insurance coverage doesn’t expire before you do,” says Glenn.

Term can, however, be a good option for younger, healthy people who want to ensure their spouses or partners aren’t battered by funeral costs should they die unexpectedly.

Regardless of type, a key advantage for insurance products is that policies typically pay out within a week of death. So the cash to cover those costs will be readily accessible, and not subject to the probate process.

And there are other options beyond insurance. Burjoski notes some clients establish joint bank accounts with their adult children, and make it understood the funds in the accounts have been earmarked for funeral expenses.

While these funds do count as an inheritance, they are immediately liquid since the child is a named account holder. Again, an addendum to the will or other document encouraging the heir to spend the cash only for the funeral will be useful.

Without that reminder, the heir may use some of the funds to for other purposes—such as paying estate bills during the period prior to probate, when there’s no access to the deceased’s primary bank accounts.

Segmented funds, which are creditor protected and controlled by parents, are another way of rapidly accessing cash outside the probate process.

And, finally, you can always borrow if you have to. Banks are accommodating when it comes to quickly advancing funds to funeral homes to cover expenses.

The issue of organ donation

While funeral costs and arrangements can be difficult topics for grieving relatives to deal with, there’s an even more challenging issue that comes up when a client dies: organ donation.

Even if the person indicated during his lifetime that he’d like to donate organs after death, his family may not be able to come to a decision when he’s critically ill.

When discussing funeral plans, one estate lawyer in Alberta says she also gets clients to focus on personal directives that contain explicit instructions on end-of-life care and organ donation. She adds the most detailed instructions—which generally emerge only after difficult and awkward conversations—will deliver the least contentious aftermath.

John Lorinc is a Toronto-based financial writer.