Time to save for your funeral… CPP isn’t going to do it for you.
By Adrian Walton, Co-founder, RESOLVED.
In December 2017, Canada’s Finance Ministers met to review the Canada Pension Plan system, including the “CPP Death Benefit”, frozen for over 20 years at a maximum of $2,500.
Representatives of Canada’s funeral industry argued that had this benefit been indexed, the amount today would be over $5,500. In case you didn’t know, the CPP Death Benefit in 1997 was $3,580 before it was cut to the current figure.
So what was the outcome of the Finance Ministers’ meeting? The CPP Death Benefit will remain fixed at $2500 and will NOT be indexed.
There is a little good news for some. Beginning in 2019, the $2,500 benefit will be available to all CPP recipients, instead of being rated against contributions or CPP income. However, it will remain taxable and an application will continue to be required. It cannot be paid directly to the funeral home. In most cases, the CPP Death Benefit is payable to the estate.
In Ontario, it is not unusual for funeral costs to exceed $11,000, and they can easily approach $15,000, especially in larger cities. If you want to be buried, hopefully you have rights to a grave purchased long ago. If not, expect to pay anywhere from $3,000 to $10,000 for that, on top of funeral home costs. Would you like that grave marked with some sort of memorial? That’s extra too.
The lesson here is not new, but seems more important than ever before. Funeral and final expense funding, in one form or another, must be an integral part of retirement and estate planning. These expenses are a certainty. Costs for even the most basic funeral are significant and generally payable immediately. At best, they will be required within days of a death. Cemetery and crematorium fees are almost always payable in advance.
Legal costs, the Ontario “Estate Administration Tax” (formerly “probate” fees and the highest in Canada) and various estate resolution costs can easily total several thousands of dollars. Even when an estate’s value far exceeds projected “final expenses”, almost all are payable well before the estate is settled and funds become available.
There’s a little good news here too. There are opportunities, options and incentives available for Canadians to protect themselves and their families. Canada Revenue Agency designates a tax-free saving plan known as the Eligible Funeral Arrangement (EFA) with a lifetime contribution limit up to $35,000 per person. Think of it as a TFSA for funeral costs.
An EFA, regardless of the funding vehicle, must be linked to a contract with a funeral service provider. Contributions to the EFA can exceed the value of the funeral. This excess, with its interest, is paid tax-free for other qualifying final expenses.
One of the most popular funding plans in use is a unique insured annuity, specially developed to qualify as an EFA and comply with provincial bereavement industry regulations. The contributor makes manageable, interest free, deposits to their EFA over several years. Should they die before the scheduled deposits are completed, their family won’t be left struggling to make up the shortfall. The full “insured” EFA value, plus interest on that insured value, will be immediately available to satisfy the intended final expenses and contracted funeral services.
Yes, other funding options are available for the tax-free EFA. However, many see the insured annuity plan as a wise choice since existing savings and assets are preserved while funeral and some other costs are guaranteed. It’s affordable, tax-free peace of mind.
It has always been essential to consider final expense provisions as part of your retirement and estate planning. As costs for these inevitable services increase, and assistance available continues to decrease, it makes no sense to put it off any longer.
February 02, 2018 by Resolved