Tom Orecchio, CFA, CFP, ChFC, CLU, AIF
Tom Orecchio, CFA, CFP, ChFC, CLU, AIF
Tom Orecchio examines the principles of wealth management and financial planning-from portfolio and tax management to alternative investments and estate planning-to help physicians achieve financial success.

Death is Inevitable: End-of-Life Planning

After recently attending a funeral of a close family friend, I started thinking about end-of-life planning. Clearly there are steps we should take to lessen, even a little, the hardship facing loved ones at the time of one’s death. Confronting such issues is certainly not the easiest thing to do; however, just like other major milestones, there may be significant benefits to planning ahead, including allowing surviving members to grieve properly and relieving them of some of the stressful decisions they have to make during such a difficult time.

Much has been written about estate planning, which entails, at the very least, the preparation of a will, a durable power of attorney (that gives someone the ability to make financial decisions on your behalf in the event that you become incapacitated) and, depending upon the laws of your state, a living will, health care proxy and/or advanced medical directive. But less attention seems to be given to end-of-life planning, which usually involves specifying instructions about your funeral, as well as considering how to pay for such costs.

According to the National Funeral Directors Association, the average cost of a funeral with burial in 2009 was $6,560, not including the expenses of a cemetery plot, flower arrangements, obituary and other miscellaneous items. These additional expenses could easily push final expenses to $10,000 or $15,000.

To help pay for end-of-life expenses, one could consider insurance-type plans such as pre-need plans, final expense plans or funeral trusts. In a pre-need plan, you actually go through the exercise of selecting the preferences of your funeral and itemizing immediate costs, from the type of a casket, selection of burial vault, details of the funeral service, location, etc. You then prepay the costs of the funeral, thereby allowing you to lock in current prices and inflation-protect the plan against rising expenses.

The caveat is that these plans often require that one remains alive for a minimum number of years after purchase in order to receive full coverage. In the event you pass away prematurely, your beneficiaries may only receive a partial payment that may be less than what you paid in premiums.

Another option to cover the costs of a funeral is a final expense plan. This is a type of end-of-life insurance that guarantees a fixed price at your death to be used for whatever expenses your beneficiary deems necessary. You could select a funeral home, loved ones or a combination of both to be the beneficiary of the insurance. An advantage of final expense plans is that they are flexible, allowing beneficiaries to use the money as needed to pay for things such as hospital bills and other costs, in addition to direct funeral expenses. However, such flexibility can also be a significant disadvantage beneficiaries may use the proceeds at their discretion and your directives may not be carried out as you wished.

A third possibility is to set up a funeral trust for your final expenses. Typically this is a single premium life insurance policy that offers tax-free benefits and may have other advantages such as inflation protection and flexibility regarding how proceeds are allocated. However, funeral trusts have less flexibility in terms of whom you may name as a beneficiary; usually, one is required to name a funeral home or cemetery.

If the trust’s investments grow significantly over time, the funeral home or cemetery — not your family members or other loved ones — would likely receive those funds. Alternatively, if the investments perform poorly, there may not be enough funds to cover all of your final expenses.

Prepaying end-of-life expenses through insurance is not an appropriate strategy for everyone and involves risks and other disadvantages. Yet, at a minimum, take the time to consider your personal preferences at death and come up with a plan to cover potential costs involved.

Death is inevitable, but the degree of hardship and decisions confronting your loved ones are not.


Tom Orecchio is a principal and wealth manager with Modera Wealth Management, LLC (“Modera”). Nothing contained in this blog should be construed as personalized investment, financial planning or other advice, and there is no guarantee that the views and opinions expressed herein will come to pass. Investing involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be construed as a solicitation to buy or sell any security or engage in any particular investment strategy.

Modera is an SEC registered investment adviser. For more information about Modera, including our registration status, fees and services, please refer to the Investment Adviser Public Disclosure web site at or visit our web site at or contact us at (201) 768-4600 to obtain a copy of our Disclosure Brochure.