Funeral trusts: Help clients plan and pay for their funerals while they're alive

By Christopher P. Hill, RFC

Wealth and Income Group LLC and FuneralResources.com


After suffering through the grief and loss of my mother’s passing on Thanksgiving Day of 2008, it became increasingly apparent to me that end of life planning is a missing piece of the financial puzzle.

It has also become a source of passion and inspiration for me to help educate every financial professional regarding the win-win opportunity to help our clients and their families prepare their end of life plans and preferences in advance.

When meeting with clients or hosting workshops, I always reference a great quote from the legendary football Coach Vince Lombardi, who said, "The main difference between failure and success is the amount of planning and preparation put into preparing for the future.”

The financial services industry frowns upon using the word "guarantee" when speaking with clients or prospective clients (excluding volumes of disclaimers). Yet if you think about it, every client and prospect we meet is guaranteed to die at some point. Of course, we all hope and pray we die later versus sooner. Unfortunately, life is not a linear journey. Rather, it is filled with constant changes, moving parts and unexpected events.

In addition to the grief and loss we know our clients and their families will experience, why do we overlook and ignore planning for their funeral? Seriously, why?

The two most common funeral-related questions

The two most common questions almost every family will ask after losing a loved one are:
  • How do we pay for the funeral?
  • What did the deceased loved one want for their funeral?
Weddings and funerals

If you think about it, a wedding and a funeral have many things in common. Both a wedding and a funeral usually include:
  • A church, synagogue or other public facility
  • Flowers and decorations
  • Pastor, priest, minister or other official
  • Food, music and speeches
  • Emotions and special memories
  • Notifying all family, friends, relatives and co-workers
  • Planning and travel accommodations
However, here is one major difference between a wedding and a funeral:

Weddings are usually planned over a period of six to 12 months. Funerals are usually planned in a period of six to 12 hours!

Funeral facts
  • 90 percent of Americans believe pre-funding a funeral is a good idea
  • 10 percent of Americans have actually pre-planned and pre-funded their funeral
  • According to a recent National Funeral Directors Association (NFDA) study, the most appropriate time to pre-fund a funeral according to respondents is:
    • When afflicted with a serious illness (80 percent)
    • When meeting with a trusted financial or insurance advisor (71 percent)
    • When planning for retirement (61 percent)
    • When solicited by a funeral home (9 percent)
Each year, approximately $2.5 billion of revenue is pre-funded through funeral homes.

What is a funeral trust?

Below are some of the most common features and benefits of a funeral trust:
  • Provides an end of life plan that pre-arranges all the details of your final plans and preferences
  • Also contains an insurance policy that pre-funds the entire plan
  • Guaranteed to be fully paid for, regardless of time or inflation
  • Usually guaranteed issue from ages 0–99
  • Benefit amounts typically range from $500 to $50,000
  • Payments options vary from single pay to one, three, five, seven or 10 years
  • Beneficiary is paid income and estate tax free
  • All excess funds are paid to a beneficiary or their estate
  • All proceeds are:
    • Protected from creditors and lawsuits
    • Exempt from Medicaid spend down
    • Portable to any funeral home
    • Payable immediately (no death certificate required)
Key advantages of a funeral trust

Which of the following pays benefits directly to the funeral home, is protected from probate, lawsuits, creditors, Medicaid spend down and income and estate taxes?
  • Savings accounts? No.
  • Investment accounts? No.
  • IRAs, 401(k)s and annuities? No.
  • Traditional life insurance? No.
  • Funeral trust? Yes.
Options to fund a funeral trust:
  • Cash or CDs
  • Bank, savings or checking accounts
  • Investment accounts
  • Dividend or interest income
  • Annuities (either via income or 10 percent annual “free” withdrawal)
  • Annuities (new interest bonuses)
  • Life Insurance (1035 exchange)
A new opportunity

There are a wide variety of benefits in discussing an end of life plan with your clients. Below is a list of five ways this discussion will benefit you, your clients and your future practice:
    1. Value-added benefit for all existing and prospective clients
    2. New door opener for prospective clients
    3. Excellent networking opportunity
    4. Enhance existing relationships and identify new opportunities
    5. Add an often overlooked or ignored piece to the financial lives of the families we serve
How do you begin such a difficult discussion?

Through extensive research, study and expert help from the death care industry, I have compiled below some helpful questions to consider when beginning this difficult discussion:
  • If there was a death in your family, can you tell me what you would you be doing right now?
  • Does your spouse and/or heirs know your final plans and preferences? If not, do you want them to face the burden of burying you after you are gone?
  • Have you left instructions for your spouse and/or heirs specifying which assets they should use to fund your funeral?
  • How much do you think it would cost for one of your loved ones to be laid to rest today?
  • Would your family know your preferences if you were to die? For example: What type of memorial service? Which church or other location? Which funeral home or cemetery? Burial or cremation? Type of casket? Funeral flowers? Program guides? Who delivers your eulogy? Obituary details?
If you were to die today, do you feel like your current plan gives your spouse and/or heirs the type of financial future you would want for them?