Lesson 4: Prefunded Pre-needs

What is a pre-need arrangement conference?

A planning conference where a funeral director agrees to provide goods and services, and the purchaser agrees to pay for them for a beneficiary.

What is the beneficiary in a pre-need arrangement?

The person who dies and receives the funeral services specified in the contract.

How does a pre-planning conference differ from a pre-need conference?

In a pre-planning conference, the funeral director reviews options and prepares a written summary, but no contract is signed and no payment is received.

When is the FTC cooling off rule triggered?

When a funeral director personally solicits and makes a sale in a place other than their funeral establishment or place of business.

To which three categories does the FTC funeral rule apply?

The rule applies to pre-planning, pre-need (pre-funded), and at-need cases.

What is the effective date threshold for the FTC funeral rule regarding pre-need agreements?

The rule applies to all new pre-need cases made after $1984$, but it also applies to agreements made prior to $1984$ if they are changed or amended.

According to the transcript, what three events trigger the requirement to give a consumer a General Price List (GPL)?

1. Discussing types of funerals or dispositions; 2. discussing specific goods or services; 3. discussing the prices of any goods or services.

What is required for package funerals in pre-need cases to be allowed under the funeral rule?

The rule requires an itemization of the individual items and prices within the package list.

When must the Casket Price List and Outer Burial Container Price List be provided to a consumer?

Before the consumer enters a selection room or reviews prices on individual goods.

What specific written notification regarding embalming must be given to consumers?

That the law does not require embalming in most cases.

What is the 'statement of funeral goods and services selected'?

It is the funeral contract that must be given to the consumer at the conclusion of arrangements, detailing everything they have selected.

What are the three required disclosures on the statement of funeral goods and services?

Legal requirements, embalming requirements, and cash advance items.

What is the 'non-declinable fee' and what does it cover?

A flat fee for the basic services of the funeral director and staff that covers overhead costs.

In which four situations is the non-declinable fee not applicable?

1. Direct cremation; 2. immediate burial; 3. forwarding remains; 4. receiving remains.

How is a 'cash advance' item defined?

A charge for something outside the control of the funeral home, where the funeral home collects the fee to pay a third party on behalf of the family.

What is the federal rule regarding making a profit on cash advance items?

The Federal Trade Commission does not prohibit a funeral establishment from making a profit on a cash advance, though some state laws may.

What must occur if a pre-selected product is unavailable at the time of need?

The funeral director should provide a 'like kind' product of equal or greater value, and the parties must agree to the change.

What five factors can make a funeral contract 'void'?

If it involves illegal terms, a party of unsound mental mind, a minor, impossible terms, or restrictive rights.

What six factors can make a funeral contract 'voidable'?

Coercion/threats, undue influence, mental incompetence, breached terms, mutual mistakes, or fraud/misrepresentation.

What is the controlling factor when a last will and testament and a pre-need contract conflict?

The dates of execution; usually, the document written closest to the time of death takes precedence.

What is the Supplemental Security Income (SSI) benefit?

A program that pays benefits to disabled adults and children who have limited income.

What is the difference between Medicaid and Medicare?

Medicaid provides health coverage to low-income individuals of various ages, while Medicare is a national health insurance program for people over $65$ years old.

What status must pre-needs have for individuals receiving SSI or Medicaid?

They must be irrevocable.

Why must pre-needs for SSI or Medicaid recipients be irrevocable?

To protect the funds from being seized by the government as reimbursement for healthcare costs.

What happens to remaining funds in an irrevocable pre-need after the funeral bill is paid?

The money must be remitted to the county supervising the Medicaid case and cannot go back to the family.

How are preneed funeral arrangements defined?

Funeral service arrangements made in advance of the need.

What is the difference between preneed and at need arrangements?

Preneed refers to arrangements made before death, while at need refers to arrangements made at the time of death.

What is the difference between preplanned only and preplanned and prepaid arrangements?

Preplanned only means the arrangements are planned but not paid for, while preplanned and prepaid (or prefunded) means they have been both planned and paid for.

What are the contractual roles in a prepaid preneed agreement?

The funeral establishment agrees to provide goods and services upon death, and the purchaser provides payment in advance.

What are the four primary reasons consumers purchase preneed funeral arrangements?

1. Financial considerations, 2. Consumer control, 3. Decision making, and 4. Putting end of life affairs in order.

How do preneed arrangements assist with Medicaid eligibility?

They reduce the consumer's assets in the bank to help meet the asset limits required for Medicaid qualification.

What are examples of consumer control in preneed arrangements?

Selecting the method of final disposition, choice of burial container, visitation preferences (open or closed casket), and the contents of the obituary.

How does preplanning benefit survivors regarding decision making?

It relieves survivors from making difficult emotional decisions and helps resolve potential conflicts among family members during the arrangement conference.

What is a revocable preneed contract?

A contract that may be terminated by the purchaser at any time prior to death, with the money being refunded.

What is an irrevocable preneed contract?

A contract that cannot be terminated or canceled by the purchaser.

In what situation is an irrevocable preneed contract state mandated?

When the beneficiary is seeking Medicaid or SSI (Social Security) benefits.

What is a non-guaranteed preneed contract?

A contract where prices are not guaranteed; the prepaid amount and interest are applied to a balance based on prices at the time of death.

What is a guaranteed preneed contract?

A contract where the funeral establishment agrees to provide goods and services for an amount not to exceed the original contract plus interest, regardless of current market prices.

What are cash advance charges in a preneed contract?

Fees for outside vendors that the funeral home does not control, such as the honorarium for the pastor or obituary fees for the newspaper.

Who regulates preneed accounts and funeral contracts?

They are regulated by state laws; there is no federal oversight.

What are the six possible mechanisms to fund preneed accounts?

Trust accounts, escrow accounts, burial insurance, funeral insurance, financial institutions, and preneed entrepreneurs.

What is a fiduciary duty in the context of trust accounts?

The responsibility of the trustee to act on behalf of another and put the interest of the beneficiary ahead of their own.

How does an escrow account function for a funeral preneed?

A third party holds the funds until both parties fulfill their obligations, with the death of the beneficiary being the triggering event for payment.

How does burial insurance differ from funeral insurance accounts?

Burial insurance pays a lump sum that may be used for expenses without an itemized preneed contract, whereas funeral insurance usually includes preselected goods and services.

What is a tax disadvantage of trust accounts compared to insurance accounts?

Interest earned on trust accounts is taxed as ordinary income, while insurance accrual benefits are usually nontaxable for income tax purposes.

What are TOD and POD in financial institution accounts?

Transfer on Death (TOD) or Payment on Death (POD) are methods to list a beneficiary on a preneed financial account.

What are preneed entrepreneurs?

Private companies that administer preneed funds for funeral establishments, often operating as an arm of a state or regional funeral director association.

What does portability mean for a preneed contract?

The ability of a consumer to transfer a preneed contract and related funds to a different funeral establishment at any time.

Why might a state specify a number of days to complete a transfer request?

To ensure companies do not drag their feet in transferring funds, which might cause the consumer to die before the transfer is completed.

What are the specific funeral homes mentioned as examples for portability?

Sam Houston Funeral Home and Metcalf Funeral Directors.

Prepaid preneed

A planning conference where a funeral director agrees to provide goods and services, the purchaser pays for a beneficiary, and payment is due at the time of contract signing.

Pre-planning only

A conference where a funeral director reviews options and prepares a written summary of a funeral plan but does not sign a contract or receive payment.

FTC Cooling-off Rule

A rule regulating door-to-door and similar sales that requires a written notice of the right to cancel a contract within a certain time period when a sale is made away from the place of business.

General Price List (GPL)

A document FTC requires be given to consumers when discussing types of funerals, specific goods or services offered, or the prices of any goods or services.

Itemized basis

The required method for offering goods and services on a preneed GPL, as the Rule does not allow package funerals if there is no individual listing of items and prices.

Casket price list

A document that must be provided to a consumer for review before they enter a selection room, see individual prices, or are orally given prices on goods.

Outer burial container price list

A price list required to be provided for consumer review before they enter a selection room or see prices on individual burial containers.

Embalming notification

A written notice on the Statement of Funeral Goods and Services Selected informing consumers that the law does not require this procedure in most cases.

Statement of Funeral Goods and Services Selected

An itemized statement given at the conclusion of arrangements containing mandated disclosures related to legal requirements, embalming, and cash advance items.

Non-declinable fee

A fee for the 'basic services' of the director and staff which is not applicable to direct cremation, immediate burial, forwarding of remains, or receiving remains.

Direct cremation

One of the four specific services for which the one non-declinable fee for basic services of the director and staff is not applicable.

Immediate burial

A service that is exempt from the non-declinable fee for the basic services of the director and staff.

Forwarding of human remains

One of the four services designated by the Funeral Rule as not being subject to the non-declinable basic services fee.

Cash advances

Goods or services for which the Funeral Rule does not require a specific listing or prohibit the funeral establishment from making a profit, though state laws may differ.

Non-guaranteed agreements

Preneed contracts where proposed changes to any goods or services after signing may increase the price for those items.

Guaranteed agreements

Contracts where the pricing is fixed, requiring the funeral director to be careful not to increase financial risk when changes are made.

Void contract

An agreement that is invalid because it contains illegal terms, involves a party not of sound mind, involves a party under the age of consent, or is impossible to meet.

Voidable contract

A contract that may be set aside because of coercion, undue influence, mental incompetence, breach, mutual mistakes, or fraud.

Undue influence

A situation where one party dominates the will of another, making a contractual agreement voidable.

Last Will and Testament

A legal document whose instructions may be deemed 'reflective' of wishes or 'absolute' and taking precedence over a preneed, widely controlled by the date of execution.

Priority Right to Control

The authority given by most states to a specific person to change preneed arrangements at the time of need, sometimes dependent on whether the preneed is irrevocable.

Third-Party Contracts

Agreements for goods and services provided by entities other than the funeral establishment, where state laws may provide remedies like refunds or substitutions.

Supplemental Security Income (SSI)

A benefit program for disabled adults and children with limited income who are unable to work or earn enough work credit.

Medicaid

A state and federally funded program providing health coverage to low-income adults, children, elderly adults, and disabled persons.

Irrevocable preneed

A mandatory contract for persons receiving SSI or Medicaid benefits used to protect funds from government seizure as reimbursement for health care costs.

Preneeds

Funeral service arrangements made in advance of need.

Prepaid Preneeds

Funeral arrangements that are both pre-planned and prefunded in advance of need.

Beneficiary

The individual for whom the funeral goods and services will be provided upon death.

Purchaser

The person who makes payment in advance to the funeral establishment for a preneed contract.

Revocable Contract

A contract that may be terminated by the purchaser at any time prior to death, requiring a refund of monies.

Irrevocable Contract

A contract that cannot be terminated or cancelled; often state-mandated for beneficiaries seeking Medicaid or SSI benefits.

Non-Guaranteed Contract

An agreement where none of the prices are locked in, and the prepaid amount plus interest is applied to the final balance at the time of need.

Guaranteed Contract

An agreement where the funeral home provides goods and services at the time of need for an amount not to exceed the original contract plus interest earned.

Cash Advance Charges

Charges for items a funeral director does not control the price of, which are typically excluded from price guarantees.

Trust Accounts

Accounts created by one person to be held for the benefit of another, creating a fiduciary duty on the trustee.

Trustee

The party, usually the funeral establishment, who holds the responsibility for managing the trust account funds.

Escrow Accounts

An arrangement where a third-party holds funds and transfers them only after both parties fulfill their contractual obligations at the time of death.

Burial Insurance

A policy where consumers pay recurring premiums for a lump sum payment at death for funeral expenses, usually without an itemized preneed contract.

Funeral Insurance

Accounts that usually include preselected goods and services and allow the consumer to make payments over time to pay for the funeral in advance.

TOD

Transfer on Death; a method used by financial institutions to list a beneficiary on an account.

POD

Payment on Death; a designation for a beneficiary on accounts held at financial institutions.

Preneed Entrepreneurs

Private companies that offer to administer preneed funds for funeral establishments, often operating under a trust fund model.

Portability

The consumer protection right to transfer a preneed contract and related funds to a different funeral establishment at any time.

Medicaid Eligibility

A financial consideration for preneeds that allows a consumer to reduce assets to qualify for government healthcare benefits.

At-need Funeral Arrangements

Funeral arrangements made at the actual time of death, rather than in advance.

Fiduciary Duty

The legal and ethical obligation of a trustee to act in the best interest of the beneficiary when managing trust funds.

Right of Survivorship

Rules governing joint accounts that allow a funeral establishment access to funds upon the death of the beneficiary.

Commingling

The prohibited practice of mixing interest or funds from one trust account into another separate account.

Commission

Upfront payments funeral directors may receive in some states for acting as funeral insurance agents.

Federally Insured Financial Institutions

The type of entity where most states require preneed accounts to be deposited for security.