Q My mother recently received an inheritance of more than $11,000. We're wondering what to do with the money that would be in her best interest. She is a 69 and a widow, and she lives on Social Security. She owes about $27,000 on a home equity mortgage on her house at 5.5 percent. Her car is paid off.

She wants to have some kind of burial fund valued at around $4,000. Rather than pre-paying through a funeral home, she'd like to have some kind of interest-accruing account for the funeral fund. She has also considered another annuity. She's also wanting to pay down her home mortgage. I'm concerned about her nonexistent savings. What would you recommend?


A If she were my mother, I'd be concerned about her lack of savings, too. I'd prefer that she not buy a funeral insurance plan. I would rather that she pay down some debt, have some savings and splurge a bit.

To be sure, for many older people, especially those on a fixed income, it's important to them that they protect their family from the high cost of burial. Certainly, dying isn't cheap. Her figure of $4,000 or so for the funeral is in the ballpark, with $4,000 to $6,000 the average range. Burial insurance is really targeted life insurance. In general, these life insurance/burial insurance policies are small, typically $5,000 and less. A common alternative to pre-paying through a funeral home (which she doesn't want to do) and burial insurance (which she is considering) is establishing a Totten trust. It's also known as a Payable-On-Death account, or POD. The Totten trust involves a bank savings account or security; the beneficiary gets the money at death and it can be used for funeral expenses.

That said, I'd rather she kept the money for herself. The inheritance could help pay down some of her debt. The rest could serve as savings for unexpected expenses. I'd also encourage her to take a portion of the money and enjoy it.

For this scenario to work, the family would have to agree to pay for her funeral expenses. I don't know the finances of the family members. The $4,000 or so it could cost may be too much of a burden for them -- or perhaps just you if you're an only child -- to take on.

The estate could eventually pay people back, but it usually takes time to settle an estate with probate and selling the home (which I imagine is the main asset to pass on).

One last point: The inheritance makes for a good opportunity for having a larger conversation about your mother's finances and desires. Will she continue to live in her home or does she feel it may be time to think about moving? Has a will been drawn up? These conversations are difficult but worthwhile.

Chris Farrell is economics editor for "Marketplace Money." Send questions to cfarrell@mpr.org.