Benjamin Franklin famously said, “There’s nothing certain but death and taxes.”
This is a finance blog, so usually we talk about taxes.
Today, we’re talking about the other half of life’s certainties: death. And, like taxes, death comes with its own set of expenses and things that need to be arranged.
Making a will
Thinking about your own death can feel a bit squeamish, but it’s important to remember that none of us will live forever. No matter how young and healthy you may be, our world is uncertain and it’s never too soon to plan for what you’d like after you die. A will helps you communicate this.
A will allows you to do two main things: distribute your property and appoint guardians for anyone you care for.
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If you’re young and childless, you may laugh at the idea of having property – if you rent your apartment, owe payments on your car, and have rock-bottom insurance, you may not feel that you have anything of value. However, there are still valid reasons to make a will.
Do you own anything of sentimental value, like a piece of jewelry, that you want a specific person to have? Do you own a pet, and want to ensure that Fluffy won’t end up at the shelter if you die? A very simple will can leave instructions for these basic things. You can always go back and change it later.
If you want legal help in drafting a will, a lawyer can help. Most lawyers charge a flat fee, and will start at around $300 for a very basic will. However, if you have more assets or properties, it may cost you thousands of dollars.
Insurance
If you have anyone in the world you need to support, whether it’s a spouse, a child, a younger sibling, or an aged parent, it’s important to have insurance. This insurance will help provide for that person after you die.
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If you die with debts, life insurance can also ensure that you will die with more than you owe.
Insurance can also help cover funeral costs so your family isn’t left scrambling to pay for your final expenses.
Types of Insurance
The different kinds of insurance and the right policy for you would be an article of its own, but there are a few basic insurance coverages related to death.
- The first is life insurance, which is generally a lump sum of money paid to a beneficiary upon your death.
- The second is accident insurance, which is paid after a qualifying accident. This doesn’t necessarily mean your death, but it does mean an awful accident. Accident insurance can cover some of the medical bills and loss of income due to major injuries such as burns, lacerations, or dismemberment. If you live, the accident insurance is paid to you. If you die, the accident insurance is paid to a beneficiary.
- Finally, there are specific insurance policies known as “funeral insurance” or “burial insurance”. These are designed to be used specifically for funeral or cremation costs or can be paid to a beneficiary.
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Funeral costs
It’s worth thinking about this cost. It isn’t one you want to pass on to your unprepared loved ones. It can also vary widely depending on your choices (if you’ve made a will) or your family’s choices. A basic cremation can cost a few hundred dollars, and a basic headstone or marker a few hundred dollars more. If you choose a burial for personal or religious reasons, there are a host of other potential costs: a casket, a gravesite, embalming, and funeral home costs.
A full funeral can easily run over $10,000 or more.
It is also worth considering the ecological aspects of a burial. An elaborate casket or a basic wooden box serve exactly the same purpose, but one is far more cost-effective – and releases far fewer chemicals into the earth.
While this may not be a financial cost to you, it is a cost to the earth that holds us all.
Death taxes
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Considering the quote at the beginning of this article, this may come as no surprise: yes, there are taxes when you die.
Since you’d be dead, you clearly wouldn’t be the one paying them, but your beneficiaries will.
Inheritance and estate tax
If you leave a substantial estate of assets and insurance money, there will be taxes due on the money.
Depending on how your will is set up, this may be paid by your estate before it gets to your beneficiaries, or it may be paid by them directly.
However, this generally only applies if your estate net worth is more than $12.9 million – certainly far above the average net worth.
Income tax
There is also one more possible tax. If you earned money in the year that you died, someone will have to file a final income tax return for you the following tax season.
This tax return will be specially marked as a final return for a deceased taxpayer, and it lets the IRS know that your social security number is no longer valid.
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It’s important to keep your tax paperwork organized and make sure someone knows where it is so that if you die, it will be easy for a family member to complete this last tax document for you.
Sad… but true
While all this may come across as a bit morbid, it’s something we will all have to plan for sooner or later.
Even if you can’t leave your family a lot of material assets, it will mean a lot to them if they can see evidence of thoughtful organization in your affairs.
It will spare a lot of scrambling and confusion at an already overwhelming time.
It’s a lot to think about, but it’s worth thinking of.
