Developed by the Government and Legal Affairs Task Force of the International Cemetery and Funeral Association


Sound business practices and the principles of consumer protection have mandated certain restrictions on the disposition of preneed funds prior to the performance of the prepaid contracts, without imposing unreasonable and anti-competitive restraints on the marketplace. An adequate portion of the proceeds must be preserved to assure the seller’s performance at the time of need. Sellers who actively market prepaid contracts incur the usual costs of such efforts, such as sales commissions, administrative overhead, and advertising expenses. Each sale must generate sufficient cash flow to enable the seller to cover these costs.

A primary mechanism for safeguarding adequate funds received from the preneed sale of merchandise and services is by placing a portion of these funds into a prepaid contract trust fund, that is administered by a trustee pursuant to a written trust instrument. Following performance of the prepaid contract, the seller is then entitled to withdraw the funds contributed, along with any undistributed earnings attributable to that prepaid contract. This type of trust has a finite life, in that all funds would eventually be distributed when each prepaid contract is serviced.

The seller of a prepaid contract should adopt a written policy which covers the investment philosophy, goals, responsibilities, and strategy for the way in which the prepaid contract trust funds are to be managed and invested.

The imposition of unreasonable investment restrictions may not provide adequate protection of purchasing power of the prepaid contract trust fund. Likewise, unlimited cancellation and refund rights undermine the protection of a mutually binding prepaid contract, necessitating irregular withdrawals from the prepaid contract trust fund.

The trustee’s duties and responsibilities concerning a prepaid contract trust fund should be detailed in the trust instrument. The investment management of assets held in the trust should be governed by the “Prudent Investor Rule,” under the “Uniform Prudent Investor Act,” which was developed by the National Conference of Commissioners on Uniform State Laws, to set general standards for trustees; to allow trustees flexibility in choosing investments; to specify that their work is to be judged on the basis of the performance of all their investments; and to allow them to delegate investment decisions.

Several other alternatives to trusting, such as constructive delivery, financial instruments, and insurance-funded prearrangements, are reviewed under separate guidelines.


  1. Sellers offering prepaid contracts should register with the regulatory authority and establish a prepaid contract trust fund prior to offering such contracts to the public.
  2. All sellers of prepaid contracts including, but not limited to, funeral establishments, cemetery authorities, crematory authorities, memorial retailers, direct disposers, and third party sellers, should be subject to deposit requirements which represent an adequate portion of the proceeds to assure the seller’s performance at time of need. The seller should be entitled to retain a percentage of the prepaid contract that is sufficient to cover sales and operational expenses.
  3. Within a reasonable time after receipt, sellers should deposit the required amount into a prepaid contract trust fund. The deposits into a prepaid contract trust fund should be set aside until delivery or performance has occurred.
  4. The amount trusted should be based on the purchase price or cost of providing the items under the prepaid contract, but should not include finance charges, sales tax, charges relating to the interment rights, arrangement conference fees, or charges for credit life insurance. With respect to merchandise, a reasonable percentage could be based on the wholesale cost; for services, the amount trusted could be based on a percentage of the retail price; and for cash advance items, the amount could be at 100% of the price specified in the prepaid contract.
  5. There should be a determination whether the seller is entitled to receive periodic disbursements of income or to withdraw excess income from the prepaid contract trust fund.
  6. There should be a procedure tor treating capital gains and losses affecting the overall funding level of the prepaid contract trust fund.
  7. There should be a procedure to assess adequate funding levels that may require additional contributions to restore the prepaid contract trust fund to an amount sufficient to satisfy the outstanding liabilities of the seller.
  8. There should be a procedure for converting prepaid contract trust funds to insurance.
  9. Where applicable, the trustee should reimburse the seller from the income of the prepaid contract trust fund for all income taxes and costs incurred with respect to operation of the prepaid contract trust fund. The trustee should be reimbursed from the income of the prepaid contract trust fund for all reasonable costs for serving as trustee, including a reasonable fee for its services. The taxes and costs should be paid from the income of the prepaid contract trust fund prior to allocation of income to individual prepaid contracts.
  10. Prepaid contract trust funds should be subject to an annual filing requirement. The seller should report to the regulatory authority all trust activities including expenses incurred by the trust. Penalties should be imposed on the seller for failure to file in a timely manner.
  11. Verification of the activities of the prepaid contract trust fund should be performed through periodic examination by the regulatory authority or the seller could submit an independent auditor’s opinion.
  12. The “Prudent Investor Rule” should be adopted to govern how prepaid contract trust funds should be managed and invested.
  13. The trustee, designated by the seller, should be a person, state or national bank, trust company, or federally insured savings and loan association, authorized to transact business in the state. The seller should have the ability to change the trustee.
  14. The trustee should have the authority to commingle individual prepaid contract trust fund accounts into a master trust, maintaining separate records of corresponding allocations and divisions of assets, liabilities, income, and expenses.
  15. A prepaid contract trust fund should not be invested in assets that are owned by the seller, nor in assets that are owned, directly or indirectly, by any directors, officers, employees, or relatives having beneficial interest in the seller of the prepaid contract.