Benefits of Final Expense Trusts

11/29/2010 @ 4:45:PM By Maureen Lyons

Most Americans have never discussed what should happen when they die. There are many decisions to make, yet they have very little help in making those decisions.

Studies show that more than 90% of Americans believe that pre-funding their funeral is a good idea, yet only 12% have done it. Studies also show that elder law and estate planning clients would prefer that this discussion take place in the context of their other planning. This creates an opportunity for the planning team to work together to fill this unique planning need.

According to a survey conducted by the National Funeral Directors Association, clients identified the following as the most appropriate times to pre-fund a funeral:

80% find it appropriate to pre-fund when afflicted with a serious illness.
71% find it appropriate to pre-fund with their trusted advisor.
61% find it appropriate to pre-fund at retirement.
58% find it appropriate to pre-fund when planning retirement.
9% find it appropriate to pre-fund when solicited by a funeral home.

Only 12% of Americans have worked with a funeral home to pre-plan, and only 9% find it  appropriate to pre-fund when solicited by a funeral home. However, 71% of Americans would like to set aside funds with their trusted advisor for this purpose.

A conversation about Final Expense benefits the following individuals: clients over the age of 55; adult children worried about their parents; those who don’twant to burden their family at death; those afflicted with a serious illness; and those with a funeral home aversion.

What is a Final Expense Trust?

A final expense trust (aka a funeral trust or burial trust) is specific-purpose, guaranteed-issue  insurance product that is irrevocable, un-assignable and provides dollar-for-dollar coverage that is readily available to pay the actual costs of a person’s final funeral, cremation, burial, or related expenses. Simply stated, it is a product designed to ensure the availability of funds to pay for the client’s desired final expenses when needed.

The benefits of a Final Expense Trust include:

- Death benefits are payable to the funeral home of the client’s choice; any excess funds will be returned to the client’s estate or designated beneficiaries.

- Funds are protected from all creditors, probate, nursing homes, and even Medicaid (Medi-Cal in California). Funds are immediately excluded as a resource in determining qualification for Medicaid. There is no Medicaid penalty for purchases of final expense trusts for the client and other members of the client’s family. Policy limits vary by product.

Final Expense Trust Considerations

Here are several questions you might think about relating to this planning tool:

What is important to you about how funeral arrangements should be conducted, or how do you picture the most appropriate final arrangements?

1. Is it important to you to have a traditional funeral?
2. What are your feelings regarding burial or cremation?
3. What needs to be purchased to fulfill your final wishes?
4. What do you believe these final arrangements will cost, and how do you plan to pay for them?
5. Do you know that Medicaid requires the spend-down of all liquid assets (including cash value life insurance and CDs), but actually encourages paying for a funeral with a pre-paid funeral and burial insurance trust?

Final Expense Trusts allow seniors and their families to address one of their significant planning
concerns – what will happen when they die. By working together, the senior’s “planning team” or advisor can address this issue without affecting  eligibility for Medi-Cal/Medicaid or other  government benefits.

Posted Under: Comprehensive Estate Planning, Estate Planning, Trust Administration
Tags: , final expense trust, funeral trust, long term care, Planning

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