Prepaid Funerals & Centrelink

It can be daunting to think about putting aside significant sums of money for anything that hasn’t happened yet – especially if it’s for death. The good news is that there are a range of pre-planning options available, with differing amounts of financial outlay. For example, creating a pre-arranged funeral plan requires no payment at all: your wishes are simply documented by a funeral director to be accessed by family when the time comes. Funeral insurance can also be taken out, however this involves a recurring payment that generally increases as the policyholder ages.

For now, we’re going to take a closer look at prepaid funerals and what these have to do with benefits payments.

Prepaid Funeral Plans

A prepaid funeral plan involves arranging and paying for your funeral in advance, either upfront in a lump sum or in installments, to a funeral director. Prepaying for a funeral fixes its cost forever, at today’s prices - the services you pay for will not attract extra costs when the time comes. If you opt to prepay in installments over time, the payments stop once the agreed prepaid funeral amount has been paid in full.

When you pay for your funeral in advance you’ll need to get a contract that:

• Sets out the services you’ve paid for
• States that there are no more costs to pay

By prepaying for the service you can ensure that it will reflect your unique identity while also removing a possible burden from loved ones later down the track. Any funeral-related decisions can be made and recorded well ahead of time, without the emotions and confusion that can often accompany the passing of a loved one.

Funeral Bonds

Another way to ensure future peace of mind is by buying a funeral bond and assigning the benefit to the funeral director. It is also common for funeral providers to invest a customer’s prepaid funeral funds into a bond in their name, for safekeeping until the funeral is held. For this reason, funeral bonds are sometimes called funeral investments, and they have all the following features:

• The money must be in an independently managed funeral fund
• The interest must be added to the capital
• The fund can only release the money after your death
• It can only release funds to your estate or to the funeral director
• It can only release funds to pay for funeral costs

Essentially, the bond allows the funeral expenses to be saved by paying a deposit and making regular contributions. The money grows in value over time with interest, making a funeral bond a safe and secure investment to cover future funeral expenses. The money can however only be used for your funeral and cannot be redeemed until the service is required.

If a bond is invested into with a prepaid contract from a funeral director, this will lock the price in until the funeral is required, any time in the future. The contract will specify exactly which products and services are included. Without a contract, the straight bond comes with the risk of the investment not growing with inflation, but then the money can be used to pay for any costs associated with the funeral.

So, what does it all mean for Centrelink benefits?

The pension rate reduces by $3 per fortnight for every $1,000 of assets you own over the allowed limit. That means that $10,000 in extra assets (like, cash sitting in a bank account) reduces your pension by $30 per fortnight. So, prepaying toward funeral costs is one way to reduce your current assets and help protect your Centrelink pension entitlements. 

Funeral costs paid for in advance normally also do not count in the Age Pension Assets Test for payments from Services Australia, which impacts the asset taper rate used to determine your pension. So, as long as you have a contract that says you have paid in full for your funeral, your assessable assets for the Test will not include either:

• The amount you prepay to a funeral director
• The amount you invest in a funeral bond that has been assigned to a funeral director

However, Centrelink will need to be advised about prepaid funeral expenses if you own a funeral bond. As at 1 July 2023, up to $15,000 invested in a funeral bond is exempt from the Centrelink Asset Test. Likewise, if invested into a funeral bond with a prepaid contract, there is no limit.

Other Bereavement Allowances

Where other Centrelink bereavement payments are concerned, you may need to meet certain criteria to be eligible. For example, if you are the surviving partner of a Pension Bonus Scheme who didn’t successfully claim the Age Pension and Pension Bonus before they died, you may be eligible for the Pension Bonus Bereavement Payment.

Additional Partner Allowance payments may also be available to you if you currently receive the Partner Allowance but have lost your spouse. A Centrelink lump sum bereavement payment may also be available to you in this instance. 

Wrap up 

We’re all about end-of-life planning here at Willed. Especially if it means you can protect your hard-earned cash by putting some away now to guarantee the funeral service you desire. Not to mention the minimal hassle left for your loved ones, and maximum pension benefits for later in life. Now that’s what we call forward thinking!

Disclaimer: The content of this blog is intended to provide a general guide to the subject matter. This blog should not be relied upon as legal, financial, medical, accounting or tax advice.