Advance Funding of Funerals encouraged at Centrelink

By Christine Hopper

Advance Funding of Funerals is encouraged at Centrelink and DVA.  Advance funding of funerals could mean a prepaid funeral or funeral bonds.

Centrelink and DVAtreat prepaid funerals as ‘exempt assets’ for pension means testing purposes. Thus prepaid funerals are not counted for the Age Pension ‘assets test’ or ‘income test’.

A modest investment in a complying ‘funeral bond’ could attract some concessions for Centrelink means testing. But if the total value of your funeral bonds exceeds the current limit at Centrelink then at least one of your funeral bonds gets no special treatment.

What is a prepaid funeral?

A pre-paid funeral is a contract to provide an agreed style of funeral when your time comes in exchange for a payment at the time of signing the contract for a pre arranged funeral.

Note that pre-paid funerals usually exclude prepayment for refreshments, the wake, and any additional costs of repatriating the body if death occurs more than about 50km from the funeral home.

Centrelink treatment of prepaid pre arranged funerals.

Once a prearranged funeral has been paid for in full, Centrelink treat the prepaid funeral contract as an ‘exempt asset’. In theory Age Pensioners do not need to tell Centrelink that they have a prepaid funeral; in practice, Age Pensioners prefer to explain large one off cash withdrawals to Centrelink to demonstrate the integrity of their records.

Centrelink does not limit the price of prepaid funerals that could be treated as exempt assets. But how much a person chooses to spend on their funeral depends on their tastes and budget. At the ‘minimal’ level maybe $3,000 would get a decent despatch, for around $7,000 maybe a service in church or chapel followed by a cremation or burial in the family grave. The cost of a new burial plot would be additional.

The cost of a pre arranged funeral for a couple could include a new burial plot with an elaborate headstone and marble cover, expansive floral tributes and advertisements in multiple newspapers. The total cost for a ‘good’ funeral for the couple could easily exceed $30,000.

What are the advantages of pre arranged funerals?

Pre arranged funerals may better reflect your wishes and budget.

Thus families are protected from emotional pressure to spend excessively. They would not be subject to the ploy, “Would that coffin be respectful to your mother? Maybe this one made of real timber and with the brass handles would be more appropriate?” And thus the family are pressured into spending lavishly on a box that would hardly be seen for the flowers at the chapel and then burnt up later that day. Additional amounts of $5,000, yes, five thousand dollars, for a more ‘respectful’ coffin are not rare.

Pre arranged funerals save the family from a paperwork stress.

Before the funeral actually takes place the funeral director must organise registration of the death with the relevant State or Territory Registrar. The registration of a death requires some personal information about the deceased.

This personal information is collected as part of the pre-paid funeral arrangements. Collating personal data could be a family history exercise as the next generations could be interested to know about their ancestors. On the other hand, some elders might prefer to just give the funeral director the correct personal data and refrain from revealing old family secrets.

Pre arranged funerals are paid for in full at today’s prices.

Therefore the executor would not get a large bill to be paid for before the estate could be accessed unless the death occurred far from home and the body needs to be repatriated.

The two major disadvantages of a pre-arranged and pre-paid funeral are firstly that the whole matter of dying must be addressed and secondly that real money must set aside now to cover the eventual costs.

What is a Funeral Bond?

At Centrelink a ‘funeral bond’ is managed investment with some special features.

• Funeral bonds must be capital guaranteed investments. Interest must be added to the capital amount of a funeral bond such that the accumulated value of the funeral bond must not reduce over time;

• The capital and accumulated interest of a funeral bond can only be released on the death of the owner when it is paid to the estate or directly to the funeral director to cover the bond owner’s funeral expenses; and

• Funeral bond money must be invested in an independently managed funeral fund.

Centrelink treatment of funeral bonds

Funeral bonds are not ‘exempt assets’ at Centrelink. Age Pensioners must include full details and the current value of any funeral bonds in their assets at Centrelink or DVA. Where an Age Pensioner has not also paid for a pre arranged funeral and did not invest more than $11,250 (April 2012) in a funeral bond which satisfies the Centrelink rules then Centrelink or DVA, would not count the funeral bond as an asset for means testing purposes.

But if the Age Pensioner had invested in more than one funeral bond even if jointly with a partner, or the total sum invested exceeds the Centrelink limit then one or more of the funeral bonds might be counted as financial assets for Centrelink means testing. Centrelink or DVA reassess each Age Pensioner’s situation at least annually. The Centrelink limit on the value of an exempt funeral bond for a pensioner is reviewed each year.

What is the advantage of investing in a funeral bond?

Investment in a funeral bond is a way to set aside money to pay for an eventual funeral. Funeral bonds may be purchased with a single lump sum payment or by regular instalments. The funeral bond can only be cashed to pay for a funeral or paid to the estate, so it cannot be used as ‘rainy day’ money.

The independent investment management and the capital guarantee on the funeral bond ensure that the accumulated value of the bond should be available when it is needed to pay for the owner’s funeral.

Centrelink, and DVA, exclude the first funeral bond from an Age Pensioner’s financial assets provided that its value does not exceed the limit currently $11,250. The rules about exempting additional funeral bonds are complex and there is significant risk that additional funeral bonds would count as ‘financial assets’ at Centrelink.

What could be the disadvantage of funeral bonds?

• The family and/or executors should open the Will and check for any special conditions regarding funeral arrangements and then arrange an appropriate funeral. Cost issues could be interesting if the value of funeral bonds is unknown and/or family members are unwilling to contribute initially.

• The family and/or executors still need to collate the personal information to register the death

• The documentation for the funeral bonds needs to be located and their value determined

• The funeral bonds then need to be assigned to the funeral director and the balance of the cost paid promptly.

In summary, funeral bonds are a means of quarantining funds as Centrelink ‘exempt assets’ but it does not get the funeral arrangements documented.

Financial Care Services your independent  adviser

Financial Care Services is an independent  adviser focused on the needs of seniors in transition. Our clients are considering the potential for accessing Age Pensions on retirement. Our advice is valuable when seniors are moving into retirement lifestyle village communities or residential aged care.

Financial Care Services offers Short Consultations to help you check your financial position against the Centrelink financial means tests for a DVA Service Pension or an Age Pension, DSP or a Carer Payment.

To prepare for your Age Pension Short Consultation email info@financialcareservices.com.au now for the Financial Care Services Age Pension Data form. You will also receive the Financial Care Services Client Services Guide including the Financial Care Services Privacy Policy.

Christine could also assist you with collating your personal data, estimating how much Pension you could expect to receive and completing the Centrelink forms for you to sign. Normal hourly rate consultation fees apply for assistance with personal data collation, completing Centrelink forms and attendance at a Centrelink office with you.

Financial Care Services core value is to assist with your money plan in the responsible management of your assets to generate the cash flow needed for your lifetime planning. Christine at Financial Care Services understands both the DVA and Centrelink Pensions systems and the Commonwealth aged care fee arrangements.

Clients are charged flat fees for advice. Home visits and out of hours appointments are available.

If you would like further confidential, independent and professional advice about Centrelink, lifestyle or aged care issues please contact Christine Hopper (03) 9808 0338.

Financial Care Services – call (03) 9808 0338