PRENEED FUNERAL ALL QUESTIONS AND
ANSWERS SET A+
✔✔State Variations in Preneed Laws - ✔✔States differ on trust percentages, approved
trustees, co-mingling, and licensing requirements.
✔✔100% Trust Requirement - ✔✔About half of states require all preneed funds be
placed into trust.
✔✔Master Trust Account - ✔✔A single trust account holding funds from multiple
contracts when permitted by state law.
✔✔Services vs Goods in Preneed - ✔✔Many states require licensed funeral homes for
services, but goods may be sold by others.
✔✔Preneed Contract - ✔✔A legally binding agreement for future funeral arrangements.
✔✔When Preneed Contracts Can Be Created - ✔✔At-need or before death (preneed).
✔✔Most Common Contract Type - ✔✔Express written contract.
✔✔Other Contract Elements - ✔✔May also contain oral, implied, or quasi-contract
elements depending on circumstances.
✔✔Preneed Contract Classifications - ✔✔Every preneed contract is classified as both
revocable/irrevocable and guaranteed/non-guaranteed.
✔✔Revocable Contract - ✔✔Can be canceled by the purchaser before death.
✔✔Revocable Contract Rights - ✔✔Allows withdrawals, additions, and cancellation
before death.
, ✔✔Refund on Revocable Contracts - ✔✔Determined by state law when canceled.
✔✔Irrevocable Contract - ✔✔Cannot be canceled before death.
✔✔Irrevocable Contract Rights - ✔✔Additions are allowed but withdrawals and
cancellations are prohibited.
✔✔Portability - ✔✔The ability to transfer an irrevocable preneed contract to another
funeral home.
✔✔Reasons for Irrevocable Contracts - ✔✔Legal requirements, protection from family
or funeral home abuse, and Medicaid planning.
✔✔Medicaid Spend-Down - ✔✔Irrevocable preneed funds are excluded as countable
assets during Medicaid eligibility reviews.
✔✔Guaranteed Contract - ✔✔Funeral home agrees to provide contracted services and
merchandise regardless of future price increases.
✔✔Guaranteed Contract Risk - ✔✔If contract funds are insufficient, the funeral home
absorbs the additional cost.
✔✔Items Usually Guaranteed - ✔✔Services and merchandise.
✔✔Cash Advance Items - ✔✔Third-party expenses like clergy, flowers, death
certificates, crematory fees, and video tributes that are usually NOT guaranteed.
✔✔Non-Guaranteed Contract - ✔✔Prepaid funds plus earnings are applied toward the
funeral bill, but current prices determine the remaining balance.
✔✔Consumer Responsibility with Non-Guaranteed Contracts - ✔✔The family may owe
additional money if costs have increased.
✔✔IRS Revenue Ruling 87-127 - ✔✔Originally required consumers to pay taxes on
interest earned in preneed trusts.
✔✔IRS Tax Code Section 685 - ✔✔Overturned the earlier IRS ruling regarding taxation.
✔✔Qualified Fund Trust (QFT) - ✔✔Status allowing the trust itself to pay taxes on
earnings instead of the consumer.
✔✔Government Benefits and Preneed - ✔✔Most irrevocable preneed funds are
excluded as assets for government benefit eligibility.
ANSWERS SET A+
✔✔State Variations in Preneed Laws - ✔✔States differ on trust percentages, approved
trustees, co-mingling, and licensing requirements.
✔✔100% Trust Requirement - ✔✔About half of states require all preneed funds be
placed into trust.
✔✔Master Trust Account - ✔✔A single trust account holding funds from multiple
contracts when permitted by state law.
✔✔Services vs Goods in Preneed - ✔✔Many states require licensed funeral homes for
services, but goods may be sold by others.
✔✔Preneed Contract - ✔✔A legally binding agreement for future funeral arrangements.
✔✔When Preneed Contracts Can Be Created - ✔✔At-need or before death (preneed).
✔✔Most Common Contract Type - ✔✔Express written contract.
✔✔Other Contract Elements - ✔✔May also contain oral, implied, or quasi-contract
elements depending on circumstances.
✔✔Preneed Contract Classifications - ✔✔Every preneed contract is classified as both
revocable/irrevocable and guaranteed/non-guaranteed.
✔✔Revocable Contract - ✔✔Can be canceled by the purchaser before death.
✔✔Revocable Contract Rights - ✔✔Allows withdrawals, additions, and cancellation
before death.
, ✔✔Refund on Revocable Contracts - ✔✔Determined by state law when canceled.
✔✔Irrevocable Contract - ✔✔Cannot be canceled before death.
✔✔Irrevocable Contract Rights - ✔✔Additions are allowed but withdrawals and
cancellations are prohibited.
✔✔Portability - ✔✔The ability to transfer an irrevocable preneed contract to another
funeral home.
✔✔Reasons for Irrevocable Contracts - ✔✔Legal requirements, protection from family
or funeral home abuse, and Medicaid planning.
✔✔Medicaid Spend-Down - ✔✔Irrevocable preneed funds are excluded as countable
assets during Medicaid eligibility reviews.
✔✔Guaranteed Contract - ✔✔Funeral home agrees to provide contracted services and
merchandise regardless of future price increases.
✔✔Guaranteed Contract Risk - ✔✔If contract funds are insufficient, the funeral home
absorbs the additional cost.
✔✔Items Usually Guaranteed - ✔✔Services and merchandise.
✔✔Cash Advance Items - ✔✔Third-party expenses like clergy, flowers, death
certificates, crematory fees, and video tributes that are usually NOT guaranteed.
✔✔Non-Guaranteed Contract - ✔✔Prepaid funds plus earnings are applied toward the
funeral bill, but current prices determine the remaining balance.
✔✔Consumer Responsibility with Non-Guaranteed Contracts - ✔✔The family may owe
additional money if costs have increased.
✔✔IRS Revenue Ruling 87-127 - ✔✔Originally required consumers to pay taxes on
interest earned in preneed trusts.
✔✔IRS Tax Code Section 685 - ✔✔Overturned the earlier IRS ruling regarding taxation.
✔✔Qualified Fund Trust (QFT) - ✔✔Status allowing the trust itself to pay taxes on
earnings instead of the consumer.
✔✔Government Benefits and Preneed - ✔✔Most irrevocable preneed funds are
excluded as assets for government benefit eligibility.
