“It’s Your Funeral”: Your Funeral as Part of Your Estate Plan
At the end of 2020, the fathers of two friends and an uncle of mine died. For none of them was death unexpected. Two were over 100 and the other was 90. Even when death is expected, though, the loss of a loved one brings grief. One of the good things that you can do to allow your family to grieve better together is to have an estate plan in place. The estate plan often stops at having a will, an executor, and, if you have minor children, a guardian, in place. Often forgotten are funeral arrangements.
Preplanning Your Funeral
A will is usually not read immediately following a person’s death, so it does no good to lay out your wishes for your funeral in your will. Instead, the better choice is to make arrangements with a funeral home and a cemetery. Pre-planning is a broad term, which can include prepayment, but is usually something you can work out with a funeral home at no charge. Among the decisions you can make:
- Burial or cremation
- Type and location of service: religious or non-traditional
- Music, readings, etc.
Green or Natural Burial
With increasing concern for the environment, a trend has been developing toward green or natural burial. Typically, this means the body does not undergo an embalming process and is buried in a simple biodegradable casket. One person who makes such caskets in Winnipeg is a friend of mine, Rick Zerbe Cornelsen, who operates under the business name of The Village Casketmaker.
Green or Natural Burial cemeteries are not available in every community, so this may not be a practical consideration for everyone, but two sources for information are The Green Burial Society of Canada and the Natural Burial Association.
Prepaid Funeral and Cemetery Arrangements
Beyond general planning, paying for your funeral and cemetery arrangements in advance can go a long way toward easing the stress on your spouse, children and other survivors at a difficult time. Many funeral and cemetery service providers offer plans through which you can deposit funds as pre-payment for their services. You can select your services and pay for the whole thing at once or make instalment payments. Either way, as long as it is a properly arranged “eligible funeral arrangement,” the growth in the plan grows tax-free, similar to the registered plans we are familiar with, like RRSPs. Because these funds are held in trust by a financial institution, you don’t have to worry about the funeral home or cemetery. Furthermore, once you have prepaid for your funeral, you have locked in the fees for the services you have agreed to with that funeral home.
What if I Move or Change My Mind?
People are more mobile than ever. You may make arrangements with a funeral home in one city but a few years later find yourself moving elsewhere, perhaps out of the province. Many funeral homes are nationwide chains so it is possible that the arrangements may transfer, although the terms of the contract will specify those details. If, however, you move to a place where the funeral home company does not have another home, you can still transfer the accumulated prepayments to another home. You will most likely lose any inflation protection, however.
The same situation applies to cemeteries. While the “plot” you may have chosen cannot be carried with you, eligible funeral arrangements should be able to be transferred.
How Much Can I Deposit?
For an arrangement to qualify as an Eligible Funeral Arrangement (EFA), the total contributions for each person cannot exceed:
- $15,000 for funeral services only;
- $20,000 for cemetery services only;
- $35,000 if the services cover both the funeral and the cemetery.
There is no limit on who can contribute to an EFA. You can do it for yourself or you can contribute on behalf of someone else. The important thing is that the accumulated money be used for funeral and/or cemetery services.
If your executor finds that the amount accumulated in the arrangement exceed the relevant costs, there may be tax on the amount that is distributed to your estate. On the other hand, money in the EFA that is used for the contracted funeral/cemetery services is not taxable, except for GST or HST.
Sources of Funding
If you were alarmed when you saw the allowable amounts for EFAs, so was I. On average, though, funeral and burial costs are closer to $10,000 or less, significantly under the maximum $35,000. However, it does depend on where you live and your personal preferences. Funerals in Ontario typically cost more than elsewhere in Canada. LSM Insurance provides a recently updated breakdown of funeral costs.
Funeral homes typically require payment by the conclusion of the services provided, which is a point in favour of prepaid arrangements. Even so, there are other sources for money that can be drawn on, if not immediately, then relatively shortly after the funeral.
CPP Death Benefit
The CPP death benefit is a one-time, lump-sum payment to the estate on your behalf, if you were a CPP contributor. Typically, this is applied for by the executor of the estate and the application should be made within 60 days of the date of death. The amount is a flat rate of $2,500.
Another source of money to help with what is euphemistically referred to as “final expenses,” is life insurance. If you have a form of permanent insurance already, that is a kind of insurance that is in place until the end of your life, then you may already have what you need. If instead, you purchased term insurance only while coverage for an untimely death was necessary, then you may have to pay from your own assets. An alternative is guaranteed acceptance life insurance. These are usually for smaller amounts, typically not more than $25,000. While eligibility to purchase such policies can begin at varying ages, typically you cannot apply after age 75.
You may want to consider money set aside in your emergency or contingency fund as the source of funds for your funeral. Once you have died emergencies are no longer applicable. This could be in a savings account.
Should You Prepay Your Funeral?
From a purely financial point of view, prepaying for your funeral may not be the wisest decision. Despite the tax-free growth, money set aside in an EFA earns very little income. On the other hand, although costs are important, prepaying your funeral arrangements allows your family to grieve without attending to all the details at the time of death. Furthermore, as prepaying involves a degree of preplanning, you can also make sure your funeral happens in a way that you think will properly represent who you are (or were). Finally, even though you won’t be there to grieve your own death, having these details resolved in advance can give a certain peace of mind, knowing that you won’t be a burden to your family.
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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.