Funeral Investments and Centrelink Assessment

Friday, January 31, 2020
Funeral Investments and Centrelink Assessment

Written by Hudson Adviser Ivan Fletcher 

Under social security legislation, amounts set aside for funeral expenses are generally exempt under the income and assets tests up to certain limits. However, in some cases clients may have a combination of these products, which may impact how they are assessed.

The three main ways that you can pre-pay funeral expenses are:

  • pre-paid funeral
  • Purchase a burial plot
  • funeral bonds

FUNERAL BONDS 

A funeral bond is an investment offered by a friendly society or life insurance company that provides benefits upon the death of the nominated person and cannot be accessed earlier.

The investment is released in the event of your death to cover the costs. 

Under social security legislation, funeral bond(s) are an exempt investment where the total amount invested is up to $13,250 (as at 1 July 2019).  Each member of a couple may invest $13,250, resulting in an exempt investment for the couple of $26,500.  

PRE-PAID FUNERALS

A prepaid funeral is where a person makes an advance payment for funeral services for themselves or their partner.  For centrelink purposes pre-paid funerals are an exempt investment, regardless of the amount paid (ie The limit of $13,250 does not apply to pre-paid funerals).

A prepaid funeral may involve assigning a funeral bond to the funeral director as payment. Under this arrangement, the client is the owner of a prepaid funeral, not a funeral bond, therefore the $13,250 limit does not apply.

BURIAL PLOTS

A burial plot is a specific spot or right to a place at a general location, such as an area of a cemetery.  Burial plots are exempt investments, regardless of the amount invested. Clients do not need to advise Centrelink that they own a burial plot.

In Summary

Pre-paid funerals and burial plots provide asset exemption but require detailed and specific future planning whereas funeral bonds allow you to set aside some funding without doing the preplanning (subject to the limit of $13,250 per person).

You can take a combination of all 3 (prepaid funeral, burial plot, funeral bond), however once a funeral bond is involved in the mix, limitations apply on how much can be exempt from CL means testing.  

WHAT IF YOU HAVE A COMBINATION OF FUNERAL INVESTMENTS?

In some cases, you may have a combination of a prepaid funeral, burial plot and/or funeral bond.  Under the Centrelink rules, where a client has both a prepaid funeral and a funeral bond, the funeral bond will not qualify for an asset exemption. However, in all cases, a burial plot and/or prepaid funeral are exempt.

The following table summarises the Centrelink treatment of different combinations of funeral investments:

Burial plot and prepaid funeral

  • Both exempt


Burial plot and funeral bond (below allowable limit of $13,250 for 2019/20)

  • Both exempt


Burial plot, prepaid funeral and funeral bond

  • Burial plot and prepaid funeral exempt
  • Funeral bond assessable


Prepaid funeral and funeral bond

  • Prepaid funeral exempt
  • Funeral bond assessable

The following Government link provides some detail on application of these options :

https://www.humanservices.gov.au/individuals/topics/funeral-bonds-and-prepaid-funerals/28486

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