Estate Planning

Funerals should be funded outside SMSF

SMSF funeral

SMSF trustees should allocate funds to funeral expenses but hold them externally so they can be accessed quickly in the event of their death.

SMSF trustees should consider allocating funds to funeral expenses and hold them externally to ensure they can be accessed quickly in the event of their death, according to a funeral bond provider.

Australian Friendly Society (AFS) business development manager Jeremy Paul said while most SMSFs would probably have sufficient funds to pay for a funeral, those funds may be subject to probate and then still have to be set aside by the estate during the execution of the will, which can take some weeks to complete.

“A funeral bond is based on contributions, generates returns throughout its lifetime, can be accessed within 48 to 72 hours after notification and used to pay for funeral expenses,” Paul said.

“Bondholders, in conjunction with a funeral director, can also prearrange their funeral and lock in the costs and take that first step in planning for this event.”

He said according to the Australian Funeral Directors Association the average funeral costs $7000 and bondholders can allocate more to their funeral expenses if they wish, removing the burden of surviving family having to find those funds at a difficult time.

“Since the bond is based on contributions, which can be made monthly or as a one-off lump sum, it allows the bondholder and their family to make decisions regarding the type of funeral they would like and its costs, which can be covered by the bond,” he said.

“Bondholders can add more funds at any time and any excess funds remaining in the bond after the funeral will be returned to the bondholder’s estate.”

He said the bond is attractive to retirees on a means-tested pension and can help them qualify for income and asset test exemptions up to a $13,500 threshold. Additionally, any tax generated by the bond, which invests in cash, term deposits, bank bills and equities to maintain and build its underlying value, is paid within the bond.

AFS business development national manager Trevor Birks said this approach creates a set-and-forget model for bondholders, particularly when compared to funeral insurance, which only remains in place as long as a premium is paid.

“There is no need to find income to pay a monthly premium, tax is paid within the fund and any unused funds are returned to the holder’s estate, which are advantages that are not present in funeral insurance,” Birks said.

He added interest in funeral bonds was growing, including from SMSF trustees, with many people choosing to make a lump sum contribution at the outset as they transition into retirement.

“Our demographic is older people, usually in the low 60s through to mid-70s, who want to address this need as part of their retirement planning,” he said.

“We have seen an increase in interest with direct applications up 55 per cent compared to a year ago. While bonds have been sold by funeral directors, we are now seeing more financial advisers and accountants becoming involved as we have worked to educate the over 55s about funeral bonds.”


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