FSL Chapter 08R3 - Preneed Regulatory Compliance

FUNERAL SERVICE LAW

IN THE UNITED STATES, 2nd ed.

A GUIDE FOR FUNERAL SERVICE STUDENTS

CHAPTER 8: PRENEED REGULATORY COMPLIANCE

© Hudson Valley Professional Services - June 2022

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Laws on Preneeds

� Certain federal laws may apply indirectly or tangentially to preneed funeral arrangements and contracts; however, …

… a far greater influence is wielded by state authorities that oversee
business and banking laws specific to prefunded preneeds.

� State laws cannot supersede or weaken the restrictions or requirements in a federal statute, but they may in certain cases expand on them to exercise greater control.

� Funeral directors must be diligent in researching and understanding the preneed laws and rules as they exist in the states where they practice.

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Preneed Arrangement Conferences

� When making preneed funeral arrangements, most consumers want to both preplan and prefund funeral arrangements.

� In these cases, arrangements are documented in a contract and signed by the funeral director and the purchaser.

� On occasion, there are consumers that want to plan a funeral but not pay in advance for any of the goods or services.

� In these cases, the funeral director provides a written summary of the proposed goods and services to the consumer but does not prepare a contract or other binding agreement

� A copy of the summary is maintained in the funeral establishment files and used as a guide during any future at-need arrangement conference.

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Arrangement Conference Location

� Preneed arrangement conferences may be held in a funeral establishment, private residence, or any other suitable location.

� If taking place at any location other than the funeral establishment, funeral directors must ensure compliance with the federal Cooling-off Rule that regulates door-to-door and other similar sales.

� This rule provides a seller must give written notice to a consumer of the right to cancel a contract for goods and services.

� The Rule is triggered when the seller (funeral director) personally solicits and makes the sale at a place other than their place of business (such as in the purchaser’s home).

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Conference Location continued

� There are various exceptions, waivers, and conditions that may require – or in some cases negate – the need to provide the written notice required by the Cooling-off Rule.

� Funeral directors must determine what action they must take to comply with the Rule on a case-by-case basis.

� Several states have enacted similar rules to protect consumers when funeral arrangements are made in a location other than the business location of the seller, and they may be stricter than the federal rule.

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Preneeds and the FTC Funeral Rule

� The FTC Funeral Rule requirements apply to all preneed cases (prepaid or not) and all at-need cases when making funeral arrangements.

� The FTC Guide states:

In preneed situations, you must comply with all Rule requirements at the time
funeral arrangements are pre-planned. You also need to comply with the Ruleafter the death of the individual who made preneed arrangements. If the survivors inquire about goods or services, alter the pre-planned arrangements, or are required to pay additional sums of money, you must give them all relevant disclosures and price lists. For example, survivors may be asked to pay additional amounts if the prepaid plan does not guarantee prices at the time of death. You must give the
survivors relevant price lists, as well as an itemized Statement of Funeral Goods and Services Selected.

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Preneeds and the Funeral Rule continued

� The Funeral Rule does not apply to any preneed agreements or contracts executed (signed) before the Rule went into effect in 1984; however …

… if a preneed is amended or changed for any reason thereafter, the changes automatically trigger and require compliance with all of the Rule requirements.

� It is not unusual for a preneed to have minor changes at the time of need,and funeral directors must be vigilant to ensure FTC requirements are met when altering or changing a preneed contract, especially at the time of need.

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General Price Lists

� A current GPL must be given to a consumer when:

1.

Discussing the type of funerals or dispositions the establishment can
provide.

2.

The specific goods and services they offer.

3.

The prices of their goods and services.

� All three of these items will be a part of the conversation during a preneed arrangement conference, and the funeral director must promptly ensure the consumer receives a copy of the GPL.

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General Price Lists continued

� The GPL must contain all FTC mandatory disclosures, as well as any state or local statements.

� Certain states may require additional disclosures or statements related specifically to a contract for preneed arrangements.

� The Funeral Rule allows a different GPL for preneed arrangements if the establishment sells different goods and services on a preneed basis.

� A different GPL for preneeds must include all the same required disclosures and offer goods and services on an itemized basis.

� It is not permissible to offer only package funerals with no itemization to

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Other Price Lists

� A funeral director must provide a Casket Price List and/or Outer Burial Container Price List for review if these items are being considered for purchase with a preneed.

� These lists must be given to a consumer before they enter a selection room and see prices on individual products or are orally given any pricing
information by the funeral director.

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Other FTC Requirements

� Embalming - The requirement to have prior permission for embalming applies equally to preneed cases, and consumers must be given written notice the law does not in most cases require embalming.

�Required statement- Consumers must be given a Statement of Funeral

Goods and Services Selected at the close of the arrangement conference. It must contain the three mandated disclosures relating to legal requirements, embalming, and cash advance items.

� Non-declinable fees - Consumers must be made aware of the one

non-declinable fee on a GPL when the arrangements chosen include this fee. The fee is not applicable to arrangements for direct cremation, immediate burial, and the forwarding or receiving of human remains to or from another funeral establishment.

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Cash Advances

� The Funeral Rule does not require any specific goods or services be listed as a cash advance, nor does it prohibit a funeral establishment from making a profit on a cash advance purchase.

� Some states regulate how cash advances are handled, with some mandating certain named items be offered only as cash advances, such as road tolls and certified copies of death certificates.

� Other states totally prohibit funeral establishments from making any profit whatsoever on cash advances.

� All cash advance requirements apply equally to at-need and preneed funeral arrangements.

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Making Changes to a Preneed

� A prefunded preneed is a legally enforceable contract. As such, it must adhere to contemporary standards and practices in business law and may be subject to judicial review if any component calls into question its validity.

� This also applies to any changes or alterations made to a preneed contract after its execution (signing) by the parties involved.

� For non-guaranteed preneeds, changes may result in a change to the total price, and both the purchaser and the funeral director would need to agree to
the changes.

� Changes do not necessarily render a contract invalid or void simply because of the alterations.

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Changes to a Guaranteed Preneed

� Changes to a guaranteed preneed will not affect the legality of the contract if the parties are in mutual agreement.

� A funeral director must be diligent in minimizing any additional financial risk when changing a guaranteed preneed. For example, if a consumer wants to change to a more expensive bronze casket, a funeral director could accept the change but refuse to guarantee the price if they thought the risk of a substantial change in future metal prices was unacceptable.

� The duration of guaranteed pricing may or may not be limited. If limited, extensions may be available for an additional fee. Any changes to the terms would require the mutual agreement of the parties involved.

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Availability of Goods and Services

� Changes that could affect a preneed contract include the unavailability of certain goods or services at the time of need. For example, goods selected at the time of the preneed arrangements may no longer be available, or the supplier may have gone out of business.

� Most states require language be included in the contract that require a funeral establishment to substitute goods or services of ‘equal or greater
value’ for those originally selected and no longer available, at no additional cost to the consumer.

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Reconciliation

� At the time of need, the funds in a preneed contract will need to be

reconciled.

� States require preneed contracts include language on how to reconcile the account when the cost of the goods and services exceeds the amount of the monies paid or, conversely, when the amount of monies paid exceeds the cost of the goods and services.

� As these requirements to reconcile the account are a part of the contract,

changes do not necessarily render a contract invalid.

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Void Contracts

� A void contract is an agreement which has no legal effect or validity and

cannot be enforced by either party.

� A prepaid preneed funeral contract would be void in any of these five

circumstances:

1.

It contains illegal terms or goes against public policy.

2.

A party to the contract was not of sound mind when signing.

3.

A party to the contract was under the age of consent.

4.

Terms of the contractual agreement are impossible to meet.

5.

The agreement restricts the rights of a party.

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Voidable Contracts

� A voidable contract is a contract which would be an enforceable agreement, but due to circumstances may be set aside by one of the parties.

� A prepaid preneed could be voidable in any of these circumstances:

� Any party was:

� Coerced or threatened into signing.

� Under undue influence (one party dominates the will of another).

� Not of sound mind or mentally competent (minor or mentally ill).

� Terms of the contract are breached.

� Mutual mistakes were made on behalf of both parties.

� The contract is fraudulent or there was a misrepresentation or false

statement.

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Other Legal Considerations

� In addition to the preneed contract itself, there may be other laws or documentation that could impose legal obligations on the parties at the time of death, including:

1. Last will and testament.

2. Priority right to control.

3. Court decisions.

4. Third-party contracts.

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#1 Last Will and Testament

� A last will and testament may contain specific instructions from the decedent on what they want for funeral goods and services following their death.

� In some states, these instructions may be deemed reflective of the decedents’ intent and deserve consideration, while in other states they are
considered absolute and must be carried out if legal and feasible.

� When instructions in a will are in conflict with instructions on a preneed account, changes may be required.

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#2 Priority Right to Control

� State laws usually recognize the rights of the person in control of a final disposition supersede the arrangements specified in a preneed. For example, if the person in control finds components of the preneed are not
consistent with the known moral or religious beliefs of the deceased, state
laws would require and allow them to change the arrangements.

� In states that allow an individual to designate an agent to control the disposition of their remains, the document may include specific instructions to be carried out by the agent.

� When instructions are contrary to those contained in a preneed, most states provide for the instructions to the agent to take precedence, although other states defer to the most recent set of instructions.

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#3 Court Decisions

� Judicial rulings, decisions, or orders may impose legal obligations on those persons with the right to control a final disposition. As an example, a court may prohibit a person from exercising their priority right when they have been implicated in causing the death of the person for whom they would control the disposition. These situations are often referred to as ‘ultimate estrangement.’

� Some states have statutorily restricted individuals from controlling the final disposition of human remains when charged or convicted with a crime related to the death of the decedent, such as vehicular manslaughter or murder.

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#4 Third-Party Contracts

� Third-party agreements are incident to providing goods and services other than by the funeral establishment, e.g., caskets, vaults, urns, cremation services, etc.

� Third-parties are not a party to the funeral service contract but have a duty and responsibility to provide certain goods and services pursuant to the contract.

� When they cease to exist or no longer offer the goods and services specified in a preneed contract, state laws proscribe appropriate remedies.

� Remedies may include such resolutions as refunds, credits, or the substitution of like items of equal or greater value than the original item.

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Supplemental Security Income (SSI)

� Restrictions may apply to the goods and services a preneed is paying for if the beneficiary is receiving Supplemental Security Income assistance.

� SSI is a federal program that pays benefits to disabled adults and children who have limited income and resources and were either unable to work or earn enough work credit due to a disability to be eligible for similar benefits through Social Security.

� SSI is a means to help with medical and cost of living expenses, and the program is funded by the federal government.

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Medicaid Programs

� Restrictions may apply to the goods and services a preneed may pay for if he beneficiary is receiving Medicaid assistance.

� Medicaid is a federal program that provides health coverage to eligible low-income adults, children, pregnant women, elderly adults, and people with disabilities.

� The Medicaid program is funded jointly by the states and the federal government but administered by the states, often through the counties or
parishes located within the state.

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Protections for SSI and Medicaid Recipients

� When a person receiving Medicaid benefits dies, the states, with some exceptions, are required to seek reimbursement of government funds spent on their care.

� Medicaid provides this information about estate recovery following death: State Medicaid programs must recover certain Medicaid benefits paid on behalf of a Medicaid enrollee. For individuals age 55 or older, states are required to seek recovery of payments from the individual's estate for nursing facility services, home and community-based services, and related hospital and prescription drug services.

� Under a variety of state laws, the beneficiary of a prefunded preneed receiving SSI or Medicaid benefits is protected from having the funds in the account seized by the government to recover benefit payments.

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Protections continued

� As a result of the protections afforded to SSI and Medicaid recipients, states and counties have placed conditions on these preneeds to minimize abuse and exploitation.

� There are generally three types of conditions:

1. Identifying customary and acceptable goods and services.

2. Identifying goods and services that would not be acceptable.

3. Mandating these special preneeds be irrevocable.

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#1 Identifying Acceptable Goods & Services

� States identify customary and acceptable goods and services eligible for a preneed when the beneficiary is receiving SSI or Medicaid benefits.

� Acceptable goods and services usually include:

� These ‘acceptable’ items may be further described by counties or parishes to limit the expense, such as setting maximum allowable expenses for the burial space or casket, or limiting the number of visitation days or hours.

Transfer of remains

Custodial care

Supervision of visitation

Dressing and casketing

Cosmetology

Supervision of a funeral service

Casket

Hearse

Out-of-area shipping

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#2 Identifying Unacceptable Goods & Services

� States identify goods and services that would not be eligible for a preneed when the beneficiary is receiving SSI or Medicaid benefits, including:

� food, lodging, or transportation expenses for family, friends, or guests;

� newspaper obituaries;

� flowers;

� burial plots; and

� urns.

� These items may be further described or expanded by counties or parishes to more accurately reflect customary charges in certain geographical areas or regions of a state.

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#3 Mandating Preneeds be Irrevocable

� States mandate these special preneeds for SSI and Medicaid recipients be irrevocable.

� An irrevocable account may not be closed or refunded, and the funds may not be used for any other purposes.

� In addition, the arrangements may not be altered or changed to facilitate a refund to any survivors.

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Why Make Certain Preneeds Irrevocable?

� There are instances where survivors attempt to take possession of preneed funds for purposes other than for which they were intended.

� As an example, assume an irrevocable preneed account has $12,000 in funds to pay for a full-service funeral; however, at the time of death, the survivors want to change the arrangements to an $1800 direct cremation and get a cash refund for the remaining $10,200.

� The family may have the right (in some states) to change to a direct

cremation; however, if they do, state and federal law require the $10,200
refund be remitted as a reimbursement to the agency that paid SSI or
Medicaid benefits to provide care for the deceased prior to death.

� Survivors have no legal right to a refund.

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THE END

Author: Larry J Cleveland

Publisher: Hudson Valley Professional Services

PPT Release: #3 June 2022
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FUNERAL SERVICE LAW

IN THE UNITED STATES, 2nd ed.

A GUIDE FOR FUNERAL SERVICE STUDENTS