Funeral Bonds vs Prepaid Funerals

TL;DR (For Quick Reference) Funeral bonds: Put in up to $15,500 (current Centrelink exemption limit), grows over time, but is not assessed by Centrelink or Aged Care at all. Payout only happens when the person passes away. Most clients leave it to be returned to the estate. Prepaid funerals: No limit. Pay a funeral provider directly for a specific service. More flexible, but riskier — you take on the provider's solvency risk. Used wisely, both can help reduce assessable assets, potentially increasing Age Pension or reducing aged care fees.

What is a Funeral Bond? Think of It Like Superannuation

A funeral bond is a special financial product, much like a super fund for your funeral:

You invest up to $15,500 (as of May 2025), which is the maximum exempt limit under Centrelink’s rules.
You can choose your investment style – conservative (like term deposits) or more growth-oriented.
It grows tax-free, and Centrelink ignores it completely, regardless of how much it grows to.
You cannot access it while alive. It’s only paid out after death, like a vault that opens only when it’s needed.

Analogy: It’s like superannuation, but instead of retiring at 67, the trigger is passing away. You can’t touch it, Centrelink won’t touch it, and it doesn’t affect any payments or fees while you're alive.

💸 What Happens When Someone Dies?

Once the person passes away, the funeral bond is released:

You can assign it to a funeral director to pay for the funeral (not usually recommended).
Or, and this is what we recommend in most cases, it gets paid into the estate, just like bank accounts or property.

This means:

You don’t have to spend it all on a funeral.
If you choose a small family ceremony, the remainder goes to the beneficiaries of the estate.
It still served its purpose: excluded from Centrelink’s means testing the entire time.

❓But What If It Grows to $30K or $50K?

That’s actually great. Even if the bond grows beyond $15,500, Centrelink still exempts the full amount.

So:

You invested $15,500.
It grows to $40,000.
Still exempt from Centrelink.
On death, $40,000 goes into the estate and is split according to the Will.

Analogy: It’s like planting a tree in a Centrelink-invisible garden. It grows big, but Centrelink never sees it. Once the person dies, the fruit becomes part of the estate harvest.

⚰️ What’s a Prepaid Funeral Then?

A prepaid funeral is different. You pick a funeral home and pay upfront for a specific funeral.

No Centrelink limit — you can spend $1,000 or $200,000.
It’s also exempt from Centrelink.
But it’s a contract — if the funeral provider goes bust, you may lose the value.
Not refundable. You're locked into that provider and those terms.

We only recommend prepaid funerals when:

A large spend is needed (e.g. mausoleums).
A spouse is already buried and the person wants to be next to them.
Death is imminent (within 12 months) and decisions must be locked in now.

Analogy: A prepaid funeral is like booking a non-refundable international flight in advance. Great if you know the exact destination and dates — risky if plans change or the airline collapses.

🎯 When Do We Use These in Strategy?

Funeral bonds and prepaid funerals are useful tools to:

Reduce assessable assets.
Help clients qualify for Age Pension or the Seniors Health Card.
Reduce Means-Tested Care Fees in residential aged care.

We may recommend either as part of:

A Centrelink restructure strategy.
An aged care fee minimisation plan.
Or simply to lock away money from Centrelink's eyes, knowing it’ll return to the estate.

🧠 Final Thoughts: Our Recommendations

✅ Funeral bond: Best for most clients. Simple, safe, tax-efficient, and flexible upon death.

⚠️ Prepaid funeral: Use only when specific preferences or large expenses are required — and the provider is trustworthy.

💡 Both can complement each other in specific strategies, and we’ll guide clients based on their situation, goals, and what they’re eligible for.