Preneed Funeral Contracts: Disclosures, Funding, Trusts, and Cancellation/Refund Rules
Contract content
A preneed funeral contract must be in writing, identify the seller and purchaser, itemize the goods and services and prices, state whether it is funded by trust or insurance, disclose the purchaser's cancellation and refund rights, state whether it is transferable, and disclose if it is irrevocable (for example, when assigned for Medicaid eligibility). Give the purchaser a copy.
Funding and trusts
Money paid on a trust-funded contract must go into the preneed trust required by the Act; the statutory minimum (75% of the contract price under Oklahoma's trust provisions) must be deposited, and the seller may retain only the permitted portion for its services. Trust funds may not be commingled with operating money or used for current expenses. The trustee holds and invests the funds, and the seller files required reports. Insurance-funded contracts use a policy assigned to or for the benefit of the seller, with the insurer paying at death; the seller may not also collect the same amount from the family.
Cancellation and refunds
On a timely cancellation, the purchaser is entitled to the refund the Act and contract provide - generally the trust deposit and attributable income, less only permissible fees. Irrevocable contracts cannot be cashed out. If the seller goes out of business, the contract must be transferred to or performed by another licensed provider, or refunded as the Act allows.
Worked example
A family pays $8,000 cash on a trust-funded preneed contract. The seller deposits $6,000 (75%) and keeps $2,000. Before death, the purchaser cancels. Reasoning: the refund comes from the trust balance plus its earnings, not from the seller's general account; the seller may retain only what the contract and Act allow and must account for the trust.
Traps
Depositing nothing until death; commingling trust money; selling an 'insurance' contract but collecting cash twice; failing to disclose irrevocability; promising a refund of the full price when the contract permits deductions.