Meeting funeral expenses
The process of organising and paying for funerals can be difficult for people following the death of a loved one. Funds may be tied up in superannuation or held in the deceased person’s estate which can mean delays in accessing the funds to pay for funeral costs. To ease the financial burden on survivors in this difficult time there are several of ways of meeting these costs. The obvious method of doing this is by saving the money into a savings or investment account identified specifically for this purpose. Other options include the use of Funeral Bonds, Prepaid Funerals and Funeral Insurance - commonly known as Funeral Plans. Government Income Support may also be available to assist surviving family. In this article we look at these options and possible financial resources available.
Saving for the funeral and holding adequate funds in a high interest bank account or term deposit is a convenient method of ensuring funds are available when needed. For those who qualify for Government Income Support (pensions or allowances) these funds are counted as assets and are subject to deeming under the income test and so may affect the amount of pension payment received. The cost of the proposed funeral should be established to ensure sufficient funds are provided and it must be remembered that these costs usually rise in time so additional funds may need to be accumulated.
Funeral Bonds are a savings/investment product which may be beneficial in that they are exempt from Government Income Support assessment up to a maximum of $12,500 per person. This amount is indexed in line with CPI pension increases at the beginning of each financial year. Investors can generally select a number of investment options from defensive and conservative through to growth and aggressive according to their risk tolerance and investment objectives.
Under the Prepaid Funeral arrangement the cost of the desired funeral is established with a Funeral Director and paid for to avoid increasing costs. The Funeral Director invests the funds and the earnings of the investment to provide for increases in costs. The funds are invested and held separately from the funeral director as a safeguard and are only released to the funeral director when required to cover the services. The main benefit with this option is that the amount paid is exempt from assessment for pensions etc. under both means tests. There is no limit on the amount paid and they may also be paid on an instalment basis. They may also be transferred to another funeral director if you move location however the prices for the services to be provided may not then be guaranteed. It is important to note that they cannot be withdrawn prior to your death unless within the 14 day cooling off period.
Funeral insurance is an insurance product and premiums must be paid to qualify for a benefit payment. A risk with this type of product is that over time the premiums paid may well exceed the actual costs of the funeral. Some insurance plans may be available that guarantees the premium won’t increase and/or will increase the benefit to ensure that the total sum of premium payments will not exceed the benefit paid. It is important to consider the cost of premiums over time and determine if this or other options are more suitable. As there is no savings component to these policies and there is no surrender value if your cover is cancelled, they are not considered in the assessment for Government Income Support.
A Bereavement Allowance paid by the federal Department of Human Services (DHS) is a short term income support payment and may be available to a surviving partner to assist them adjust financially. It is currently $797.90 per fortnight (adjusted in March and September) and is paid for a maximum of 14 weeks from the date of death. To qualify the surviving partner must have been living with the deceased immediately before death and Australian residency requirements must be met. There is also an income and assets test as well as other requirements that the survivor is subject to in order to receive the allowance. It is not paid in addition to other types of income support payments but eligible recipients may opt to switch to the bereavement allowance for the duration of the Bereavement Allowance period.
A lump sum Bereavement Payment may be available for existing Government Income Support recipients and is intended to provide assistance to settle the financial affairs of the person who has died. The payment amount depends on individual circumstances and is also subject to eligibility criteria.
More information about eligibility, payment rates and other benefits which may be available can be sought by contacting DHS on 132300. Assistance with the funeral costs may also be sought through various State and Territory Government initiatives ranging from local area health services, public trustee offices to Government departments. More information can be obtained by contacting your relevant state/territory Government.
Early planning for such events will help in dealing with this emotional time so as to minimise the stress to survivors in the event of your death it would be prudent to consider the various options and resources available. See our related articles ‘Estate Planning – More than just a Will’ and ‘Superannuation Death Benefits’.
The information in this article does not constitute or imply financial advice. We recommend that you seek professional financial advice and/or seek clarification from any relevant government department, legal representative or licensed financial services provider before making financial decisions.
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