Funeral bonds and prepaid funerals
Although it is not something that everybody wishes to consider, there can be benefits in planning and paying for some aspects of your funeral now.
Paying for funeral costs now
There are a number of reasons why you may wish to pay some, or all, of your funeral costs now. These may include:
- saving surviving family members the financial burden of arranging and paying for your funeral at such an emotional time
- knowing in advance exactly where you will be buried and what funeral services you will receive
- reducing the effect of increasing costs
- receiving a favourable assessment from us
Funeral preparations can include pre-purchasing a burial plot, pre-paying funeral expenses or investing in funeral bonds.
A burial plot is a specific place or a right to be interred at a general location. For example a cemetery plot, an internment niche, a mausoleum or any available plot in a specific cemetery.
How we assess burial plots
A burial plot is not included in your assessable assets, regardless of its value. You do not need to tell us about a burial plot that you own.
Prepaid funeral expenses
Prepaid funeral expenses exist where you have arranged and purchased your funeral in advance. The type and style of funeral you want is set out in a contract and paid for at an agreed price. You can pay this directly to the funeral director, who will invest the funds in a funeral trust, or you can purchase a funeral bond and assign the benefit to the funeral director.
The risk of the investment not keeping pace with rising funeral costs lies with the funeral director. You will not need to pay any more if prices rise. The payment cannot be refunded unless you move outside the designated funeral service area.
How we assess pre-paid funeral expenses
We will not include the amount that you prepay to a funeral director or invest in a funeral bond that is assigned to a funeral director. You must have a contract that sets out the services to be undertaken where no more expenses need to be paid.
You do not need to tell us about any prepaid funeral expenses, unless you also own a funeral bond.
Funeral bonds are sometimes called funeral investments. These are managed investments that earn interest, but have the following specific features:
- the interest must be added to the capital
- the capital and interest is only realised on death when it is paid to the estate or to the funeral director to cover funeral expenses, and
- your money is invested in an independently managed funeral fund
How we assess funeral bonds
Funeral bonds that are assigned to funeral directors as prepayment for contracted services are assessed as prepaid funeral services. For other funeral bonds, we will not include the value of up to 2 bonds provided the following 2 criteria are met:
- you do not also have prepaid funeral expenses, and
- the amount invested in the bonds to be exempted does not exceed the Funeral Bond Allowable Limit
The Funeral Bond Allowable Limit as at 1 July 2016 is $12,500 and is indexed in line with CPI pension increases every 1 July.
You may have a joint funeral bond. If you do, we consider it a single bond when assessing your allowable limit. You and your partner may both contribute towards the single bond, in which case we assess both contributions against the Funeral Bond Allowable Limit.
Funeral bonds that are not exempt are treated as financial investments. Your share of the current value including interest is included in your assessable assets and is deemed to be earning income under the deeming rules. You should receive an annual statement from the provider advising you:
- the current value including any interest received to date and whether it is individually or jointly owned; and
- when the value of a non-exempt bond increases
If you have an interest in a number of funeral bonds where 1 or 2 but not all can be exempt, you can choose to make exempt whichever combination of bonds would be most financially advantageous for you. You will need to calculate the greatest assessable value that you can be exempted. We can assist you with this if you provide the amount paid and the current value of each of your bonds and whether they are individually or jointly owned.
You must tell us about any funeral bonds that you own, even if you know they are exempt from assessment.
For exempt funeral bonds, we will need to know how much has been invested by you and any joint investor and whether it is individually or jointly owned.
If you do not know which, if any, of your bonds can be exempt, you must provide documentation that shows:
- the amount invested in each bond
- the current value of each bond
- whether they are individually or jointly owned, and
- whether you have a contract with a funeral director
If you have an exempt bond, you do not need to tell us if the only change is that you earn interest from the investment.
However, you do need to tell us if you:
- make an additional payment or instalment to the bond
- invest in another bond, or
- jointly own a bond and the other owner dies