Preparing for Your Death: More than Planning Your Funeral Arrangements
Planning your funeral arrangements in advance can relieve a lot of pressure on your family. But planning for your death does not end with your funeral arrangements at a local funeral home.
Preparations for your death include legal, financial, and personal affairs to wrap up. Once you begin, your greatest challenge will be to avoid being overwhelmed by the sheer number of tasks you need to complete.
Here are some of the most important things to prepare before you die.
Making Funeral Plans
There are many reasons to pre-plan your funeral:
- Make sure your final wishes are respected: You can select the exact arrangements you want, from who should speak at your funeral to the catering for the lunch afterward. You can also make sure nothing goes against your wishes, such as stopping a despised ex-boss from trying to be a pallbearer.
- Follow your spiritual, religious, or traditional beliefs: If you believe your body should be cremated, you can ensure your body will be handled by a funeral home familiar with cremations. If you believe you must be buried under an oak tree, you can buy a funeral plot at a cemetery with oak trees. If you need special music or a particular religious leader at your funeral, you can meet with a funeral home about funeral pre-planning so they can make that happen.
- Ensure your arrangements stay within budget: You probably have budget in mind for how much your funeral should cost so that your funeral expenses not eat up all of your estate. By making your own funeral arrangements you can make selections that will remain within your budget.
Arranging to Pay for the Funeral
Funerals can cost a lot of money. Many people plan for the cost of their funerals so their heirs do not need to spend their inheritance or, worse yet, dig into their pockets to pay for a funeral.
Some options for planning to pay for a funeral include:
- Setting money aside in an account to be used by your next of kin for funeral expenses.
- Leave instructions in a will to use health insurance death benefits to pay for the funeral.
- Direct your executor to use your death benefit from the Social Security Administration for the funeral.
- If you are a veteran, prepare the paperwork for the Veterans Administration to pay for the funeral.
At the same time, be skeptical of “prepaid funerals.” These deals are often just a fancy description for a deposit. In other words, a funeral home may calculate the cost of your funeral selections and charges you that amount. If the cost remains the same when you die, your deposit will cover all the expenses. But if the cost has increased by the time you die, your family will be billed for the difference. Worse yet, the money you deposit for your “prepaid funeral” does not grow. Instead, it sits in the funeral home’s account until you die.
You and your attorney should read the terms of the prepaid funeral contract carefully to determine if it locks in your price. If it does not, you may be better off putting the money into a savings or brokerage account so it can grow until your executor uses it to pay your funeral expenses.
Review Your Beneficiary Designations
Under ERISA and securities law, you must name a primary beneficiary and a contingent beneficiary for your 401(k) account. Your beneficiary designation is critically important because it can override the designation in your will. For example, suppose you named your first spouse as the primary beneficiary of your 401(k) before your divorce. When you remarried, you and your second spouse wrote wills naming each other as your sole heirs. Upon your death, all of your property except your 401(k) will go to your second spouse. However, your 401(k) will go to your ex-spouse.
To avoid this situation, you need to review your beneficiary designations for your 401(k) account and update it if your wishes or family situation has changed.
While you are reviewing your 401(k), it will be worthwhile to review all your other beneficiary designations. Your brokerage account, bank account, and life insurance offer you the chance to name a beneficiary. The benefit of naming a beneficiary, and keeping the beneficiary designation up to date, is that when you die, accounts that name a beneficiary do not need to be sent to probate.
Probate is the court process where a judge enforces the terms of a valid will or, in the absence of a will, divides up your property according to your state’s inheritance laws. Although probate is not a terrible process, sending your accounts and insurance payouts to probate will delay when your heirs will receive the money in those accounts.
Prepare a Will
A will is your legally binding instructions for disposal of your property. Unless your will is invalid, your executor will carry out the terms of your will, aided by a judge who will issue any necessary orders to make that happen.
Generally, you should meet with a lawyer who practices estate planning law when you are ready to draft a will. Wills must meet several technical requirements to be valid, and judges cannot enforce an invalid will. If a judge deems your will to be invalid, the judge distributes your property as if you died without a will.
This can produce outcomes that are contrary to your wishes. For example, if you are estranged from your spouse, but did not obtain a legal separation or divorce, your spouse will probably be entitled to at least half, and in some situations all, of your estate. This could thwart your wishes if you wanted everything to go to your children or sibling.
Different states have different requirements for a valid will. But most states will examine a will for the following:
- Wills must be written. Oral wills are not permitted.
- Wills must be signed and dated. Undated wills cannot be enforced because there is no way to tell if another competing will came before or after the undated will.
- Wills must be witnessed. The witnesses must meet certain requirements. Most states require the witnesses to be adults who do not stand to inherit under the will. Some states waive the witness requirements if the will is entirely handwritten in the deceased person’s handwriting.
Consider Creating a Living Trust
Anotion option for avoiding probate and ensuring that your property is distributed according to your wishes is to create a living trust. A living trust is a legal structure, like a corporation, that holds your property. During your lifetime, it holds and disburses that property for your benefit. When you die, the trust can continue to hold your property and disburse it for someone else’s benefit. Or the trust can dissolve and distribute the property.
The benefit of the trust is that the property in the trust avoids probate. Since the property does not pass according to a will, a probate court does not have jurisdiction to distribute it. Instead, the property passes according to the trust instrument. This means that you have complete control over what happens to your property upon your death. If you want to hold your son’s share of your estate until he graduates college, a trust allows you to do that.
A trust also allows you to avoid gift taxes. Gift tax is charged to the giver of gifts that exceed the IRS limits. A distribution from a trust is not considered a gift. So even though the trust distribution is not an inheritance (since there was no will involved), it is also not considered a gift.
Keep in mind, however, that trusts are still subject to estate tax. Estate tax is charged to the estate upon the death of the owner if the estate exceeds $11 million for individuals or $22 million for couples.
Often trusts are combined with wills that distribute individual items of property. For example, you might hold your largest assets in trust such as:
- Bank accounts
- Retirement accounts
- Brokerage accounts
- Real estate
But you might not transfer your personal property, such as vehicles and furniture, into the trust. To control the distribution of these articles, you can write a will designating where these personal effects will go. So, your trust will liquidate and distribute the bulk of your estate while your will will distribute your piano and antique rug.
Make Arrangements for Legal Claims
Your estate can pursue legal claims on your behalf after you die. For example, if you are in an auto accident, you have a deadline, called a statute of limitations, to bring any lawsuit relating to that auto accident. This amount of time is fairly long in most states. A typical statute of limitation for injuries is two or three years.
But what happens if you die before you can bring a lawsuit and before the statute of limitations runs? Just as importantly, what happens if your injuries cause your health to decline and you eventually die of your injuries? You can execute a power of attorney in your estate planning documents. This allows you to appoint someone to take legal action on your behalf, such as filing an auto injury lawsuit.
In many cases, you grant a power of attorney to your executor. The executor of your estate administers the estate to wind up all of your business after you die. Your executor will pay your taxes, close your accounts, pay any outstanding bills, liquidate property, and distribute property from your estate. To do this, your executor will need authorization to act on your behalf.
Fortunately, this also means filing lawsuits or pursuing claims on your behalf as well. Thus, whether your estate needs to collect money from a debtor or sue a driver for negligence, your power of attorney should authorize your executor to do that.
Draft Advance Healthcare Directives
You may be familiar with the term “DNR” or “do not resuscitate.” But do you know where those come from and how they work?
Advance healthcare directives allow you to put your wishes for your medical care into a legally binding document. This means that when any healthcare provider, whether it be a doctor, nurse, or dentist, encounters a situation that is covered by your advance directive, your appointed representative and doctors must act in accordance with your instructions.
For example, suppose your advance directive includes a DNR order and requests that no artificial measures be taken to keep you alive. If you slip into a coma and require a ventilator to live, your doctors and family will discuss whether the situation falls within the scope of your instructions. If it does, your representative will act according to your directive and withdraw care. The doctors acting under this directive are immune from suit for carrying out your orders.
Make Arrangements for Your Pets
For many people, their pets are part of the family. But when it comes time to plan their estates, many people forget to make arrangements for their pets.
You can make arrangements for your pets through the same documents you already prepared. Your trust or will can not only direct where your pet will live after your death, but can also set aside some funds to pay for the pet’s veterinarian, food, and other necessities.
For example, pets are considered personal property in most states. As such, you can use your will to direct who “inherits” your pet. You will talk to this person in advance and make sure they are willing to take care of your pet in the event of your death.
You can also use your will or trust to create an account to pay for the pet’s expenses. The best option will probably be a trust, since you can restrict the use of funds in a trust instrument. The lawyer would draft the trust instrument to make the pet’s caretaker the beneficiary of the trust, but restrict use of the funds for the pet’s needs.
Arranging your affairs before you die helps you ensure your affairs are handled exactly how you want them handled. This means that your property will go to the people you want to own your property. Your funeral arrangements will match up with your expectations. Your pets will be cared for in a way you want. Your final days will be managed the way you have directed.
These arrangements will bring you peace of mind and allow you to avoid worrying about whether your wishes will be put into effect. They will be if you are proactive.