Funeral funds and benefits

The section on funerals covers the planning of funerals after someone has died, but there are a few points worth considering if you are wanting to make your own plans and financial arrangements in advance.

The Funeral Funds Act

People can put money aside during their lifetime to pay for their funeral. Under the Funeral Funds Act 1979, all funeral funds must be registered. To find out whether a fund is registered, contact the Registry of Co-operatives and Associations on 1800 502 042 or NSW Fair Trading. All money held by the fund operator must be held in a trust account. The trustees can be a company or at least three individuals.

Making payments

Funds can either be contributory (an amount paid monthly or as arranged), or involve prepayment in a lump sum. A person wanting to join a fund will need to decide on the funeral arrangements they want and agree on a price with one of the registered funds. Sometimes a contract certificate outlining the agreed arrangements will be issued by the fund, or it may issue a payment book that records its rules and conditions. Payment is made either in full or in instalments, depending on the agreement.

The trustee company invests the money in approved securities to keep up with inflation so that the service agreed on in your contract will be provided without additional payments at the time of the funeral. The legislation requires the trustee company to submit annual financial statements and auditors’ reports.

Paying out

Funds have different arrangements for paying out. Some funds contribute directly to the cost of the funeral, with the amount depending on the agreement. Others pay the money into the estate of the deceased, and allow the executor to make funeral arrangements.

If a particular company has been nominated under the contract to conduct the funeral, it is important to let your next of kin know – preferably by including the information both in your will and in another document, since your will may not be read until after the funeral. At the time of your funeral, the company chosen to conduct the funeral will go ahead with arrangements as recorded in the contract certificate. They will receive payment from the trustees after the funeral.

Choosing a fund

Because different funds offer slightly different deals, it is wise to shop around before deciding on which fund you will use. Some agreements have a 14-day cooling-off period written into the contract that allows you to change your mind without losing your money. It is also sensible to check the arrangements relating to withdrawal from the fund. Some issues you should consider are:

  • Do you get all of the money back, including principal and interest?
  • How long will it be before the money is returned?
  • Is an administration fee charged? If so, how much?

Money invested in funeral funds is exempt from the pension assets and income test.

Cancellations and refunds

A pre-paid contract can be cancelled and the money refunded under certain circumstances, including:

  • where the funeral director has gone out of business
  • where the estate has arranged for another funeral director to conduct the service because they did not know that there was a pre-paid arrangement.

Under the Funeral Funds Act, the contract may stipulate any other grounds for refunds of money. Most contracts contain clauses that cover situations where a person moves to another state or town. They usually stipulate that the funeral will be conducted by another provider, rather than allowing for a refund.

An alternative to signing up for a funeral fund is to set up a separate savings account and deposit the necessary funds, and to specify in your will that this account is to be used to fund your funeral. For some people this may be the safest and easiest way to make sure they get the kind of funeral they want.

Funeral funds before 1979

Some funds that existed before the Funeral Funds Act continue, but they cannot accept new subscribers or new payments from existing subscribers. Problems can arise with some of these funds, particularly where the agreed payment is no longer enough to pay for a basic funeral. The family or next of kin will need to pay the difference, or the deceased may be referred to the government contractor for a destitute burial. Before 1979, funeral funds operated both cash benefit schemes and non-cash benefit schemes. These schemes and the problems sometimes associated with them are explained below.

Cash benefit schemes

Under a cash benefit scheme, when a member dies, a set sum of money is provided for the funeral. Such a scheme may be a benefit of membership of a particular organisation (for example, a trade union) or a contribution may have to be made to the fund before death.

Some cash benefit schemes are organised on a contributory basis – that is, the member has to make regular payments to the scheme. There are several possible problems with this sort of scheme:

  • some schemes will not pay benefits if the member failed to keep payments up to date; years of contributions may be lost and no benefit received from that fund
  • there may not be provision for the member to cash in the contributions to the fund; in this case, the only benefit the fund offers is the contribution towards the funeral
  • the benefit that is offered by such a scheme is limited to a set sum.

Non-cash benefit schemes

This sort of scheme is one where no money is paid at the time of the funeral: the actual funeral or cremation is performed without charge for the member. Usually such schemes are run by the funeral industry itself. As with the cash benefit schemes, difficulties could arise when you cash in your contributions or fail to make regular payments to the scheme.

For example, you may have paid a lump sum, or be making weekly or monthly contributions for a certain type of funeral or cremation. However, when the time comes, this particular funeral or cremation may actually cost far more and the scheme will not cover you for it. The administrators of the scheme may have covered themselves against this eventuality in the contract, which may commit you to:

  • a rise and fall clause, which means you will have to pay a sum additional to the contributions already made in order to receive a funeral of the standard and type originally wanted
  • a funeral at a set cost, which could mean that the funeral will be one worth, say, $400 at today’s rates: a far poorer quality funeral than the one originally specified. This means that you get a poorer quality funeral, or pay an additional sum for the quality of service originally bought
  • certain services on production of a certificate. Sometimes these certificates are not transferable and if a person with a certificate does not use it, it cannot be used for someone else. Where the certificates can be cashed in, their value is usually much less than their purchase price
  • a particular funeral director. If you die outside the funeral director’s operating area, the contract may not allow another provider to conduct the funeral, or may stipulate that it is be conducted by a particular provider.

If a particular company has been nominated under the contract to conduct the funeral, it is important to let your next of kin know – preferably by including the information both in your will and in another document, since your will may not be read until after the funeral. At the time of your funeral, the company chosen to conduct the funeral will go ahead with arrangements as recorded in the contract certificate. They will receive payment from the trustees after the funeral.