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Losing a loved one: more costly than expected - InvestDfsi

Losing a loved one: more costly than expected

How can you avoid being caught off balance when a loved one dies? The anguish of the moment is compounded by the need to make a host of decisions that could have serious consequences. Here are a few guidelines to help you make sense of things. 

September 13, 2023

As anyone who has had to look after funeral arrangements for a loved one will tell you, bereavement is quickly followed by a host of formalities, both logistical and legal.  

Immediately after death 

Immediately after the death of a loved one, emotions are rapidly overtaken by obligations. Arrangements must be made with a funeral home to transfer and prepare the body, inform the civil authorities, ensure that the death certificate is issued, publish a death notice and plan what comes next: will it be cremation or burial, will there be a ceremony, and if so, where will it be held, what will it be like and who will be involved? 

Funeral homes usually offer full service that covers these details, but this obviously comes at a cost. As well, arrangements may need to be made directly with a place of worship and the cemetery, if applicable, as well as with the officiant. 

Depending on the options chosen, the whole process could end up costing anywhere from $2,500, in the case of direct cremation with no ceremony, to $15,000 or more for a ceremony followed by interment of a casket. Cemeteries generally offer family plots where a specified number of caskets or urns can be buried, if desired. With costs becoming increasingly onerous, some cemeteries are even offering plots that can be shared with other families. 

Indirect costs

Along with all these expenses, there is an additional cost that is real, but hard to quantify. Studies show that when people are experiencing grief, their lives are disrupted on many levels. For instance, consider the job of “emptying the house”: this process can take so long and be so gruelling that there are now companies offering this service – for a fee, of course. 

Some of these sources of disruption can have a noticeable impact on the ability to function in society or carry out one’s professional duties: one person in four needs to take time off work. 

Settling the estate

The tasks that have to be managed immediately after a death are actually just the start of a long list of actions that “close the books” for the deceased person: settling the estate. This process, which can take more than a year, involves extensive dealings with financial institutions and civil authorities and includes taking inventory of the deceased’s assets, settling their debts, filing their final income tax return, and distributing the assets once the taxes and debts have been paid.

Settling the estate can cost the liquidator or executor a considerable amount of time and money. Many people would rather entrust this task to professionals, whose services may be billed by the hour (up to over $400 an hour), or as a percentage of the estate’s value (from 2.5% to 5%). 

End-of-life expenses 

Finally, keep in mind that all these costs may be in addition to substantial end-of-life expenses. Studies show that the amount a person spends on health care in the last three years of life could represent up to one-quarter of their lifetime total. In fact, health care for someone in their eighties could be seven times more expensive than health care for someone under 65. 

Canadians benefit from public health systems that cover some of these costs. But a significant portion might possibly have to be covered by the individual or their loved ones, which could reduce the financial resources available after death. 

What should be done? 

You might think that all these expenses are a non-issue, since they will be repaid once the estate has been settled. The catch is that many of them must be paid before you know the net value of the estate – and perhaps discover that it isn’t sufficient. Furthermore, although the Canada Pension Plan and the Quebec Pension Plan offer death benefits, these only amount to $2,500, and so could fall far short of the mark. 

To save your loved ones from having to make some tough financial decisions after you pass away, you might want to consider taking three precautions: 

  • settle the matter of funeral arrangements right now and make any major purchases, including a funeral plot, if desired; 

  • make your wishes regarding funeral arrangements known to your loved ones so that they won’t wonder or argue about it; 

  • take steps to ensure that sufficient cash will quickly be available after your death; the most common way of doing this is through life insurance, which would provide a financial cushion to give your loved ones peace of mind when making the necessary decisions. 

Of course, your advisor can help you with this and suggest a comprehensive plan that would take  the eventuality of a death into account along with all your other financial needs.