Preneed funeral contracts can help individuals and families plan ahead and pay for funeral expenses before they are needed. Contracts are pre-agreed upon, written and paid for by licensed sellers who are also often funeral service providers. Preneed sellers and funeral service providers may be the same entity.

These types of arrangements allow individuals to plan their own funeral arrangements and pay for them ahead of time so their families do not have to make those decisions or cover funeral and mortuary expenses later.

Often, preneed contracts are also guaranteed, meaning the contract outlines the goods and services that will be provided, without additional charges for those guaranteed items. For example, if an individual enters a guaranteed preneed contract for the cost of $7,000 and then dies 20 years later, the initial payment will cover all of the agreed upon services without any additional charges. 

Remember, a guaranteed preneed contract should not be required to pay any fees except what was agreed upon in the contract, no matter how long ago it was signed. It is a legally binding financial arrangement. It is important for consumers to understand how the money associated with their contract is being kept. Know the rights and obligations of both the customer and preneed contract seller under Missouri law.

First, all sellers of preneed contracts have to be licensed. The licensing body for preneed sellers and providers of mortuary and funeral services in Missouri is the Missouri Board of Embalmers and Funeral Directors, a statewide body that enforces the rules and regulations that funeral service providers are required to abide by.

Only purchase a preneed contract from a licensed seller. If it is unclear whether the seller is licensed, ask them to provide proof of their licensure.

After purchasing a preneed contract, funds should be set aside by the seller. Missouri state law allows preneed contracts to be funded in just three ways: a preneed trust, an insurance policy or single premium annuity contract, or a joint account. Any other forms of funding are considered non-compliant and are subject to regulation by the board.

A preneed trust is a financial account established specifically to hold money paid under a preneed funeral contract. Under this arrangement the money for the contract is placed with a trustee rather than being kept in the preneed seller’s business account. Under Missouri law, the trustee must be a qualifying financial institution authorized to exercise trust powers in Missouri.

This arrangement allows money for funeral services to be preserved while creating a clear and distinct financial record for the funds. 

Under this arrangement, the customer would pay the seller the agreed upon amount. Then, it is the seller’s responsibility to place the money with a financial institution, like a bank, that serves as a trustee and holds the money. When it is time for the funeral services to be rendered, the trustee will disburse the money to the seller.

The customer is entitled to records of deposits associated with the trust, and the seller has 30 days to produce such records after receiving a written request to do so.

Insurance-funded preneed contracts are tied to an insurance policy or qualifying deferred annuity. The customer makes payments that fund the policy or annuity, and a resulting death benefit pays for the goods and services covered in the preneed contract. The customer must own the insurance policy used to fund the preneed contract, and the seller must be named as a beneficiary or assignee of the policy.

While the preneed seller can collect payments on behalf of the insurer, they are legally prohibited from collecting any amount in excess of the amount necessary to pay the insurance premiums. Sellers are prohibited from charging their own separate administrative fees for insurance-funded preneed contracts unless the fee is assessed by the insurer.

Missouri law also sets deadlines for payments. If a customer makes a payment to an insurance-funded preneed contract, the seller has to send payment to the insurer within 30 days. The law also requires that sellers keep records that show money received from customers and payments made to insurance companies. The records are annually reported to the State Board of Embalmers and Funeral Directors. Insurers then verify the accuracy of the report.

Joint account-funded preneed contracts work in very specific ways. Under this arrangement money for funeral services is paid by the customer into a joint bank account held at a financial institution. The account must be in the names of both the customer (or their representative) and the seller.

This arrangement allows both the customer and seller to access the account and its related financial records. The account is subject to specific withdrawal and investment rules, and the funeral seller cannot use the funds as collateral for a loan. Funds from the account can only be withdrawn or paid upon the signatures of both the seller and purchaser. Alternatively, funds can be withdrawn under a pay-on-death designation or as required to pay reasonable expenses of administering the account.

If customers make a payment to a seller, they have 10 days to place the payment into the joint account. State law does not expressly state that every payment must first pass through the funeral home’s hands before being deposited.

Purchasers of preneed contracts may also look for alternative providers. Purchasers have the right to change their preneed contract seller and funeral service provider under certain conditions. A deceased person’s next of kin also has the right to control the burial arrangements for their family member after death under the common law right of sepulcher.

Customers have the right to cancel preneed contracts without cause as long as it is designated as revocable, meaning that the cancellation occurs before final disposition or before the funeral, burial services, facilities or merchandise described in the contract have been provided.

Missouri law allows a purchaser to select an alternative provider as their designated provider under the original contract if the purchaser notifies the seller and original provider in writing, stating the name of the new alternative provider, and if the alternative provider consents to the designation.

Customers cannot legally be penalized or asked to pay any additional fees or costs associated with the transfer and alternative provider designation.

The seller is required to pay the newly designated provider the payments owed to the original funeral provider under the contract. The new funeral provider assumes the rights, duties, obligations and liabilities of the original funeral provider under the contract.

However, the seller still has a right to cancel. Sellers have their own set of rights when it comes to preneed contracts. One of the most important is their right to cancel the contract if a customer defaults on their payments.

Under Missouri law, if a customer goes more than 60 days without making agreed upon payments, sellers can begin the cancellation process. First, the seller has to notify the customer and funeral service provider in writing that the contract will be canceled if payment isn’t received within 30 days.

If the customer fails to pay within 30 days, the seller can cancel the contract, or continue the contract as a non-guaranteed legal document. Then, the seller has the option to return 85 percent of what the customer has paid so far and keep 15 percent for themselves, which may be thought about as a kind of cancellation fee.

Those who have purchased a preneed contract should always keep a copy of the record.

To protect themselves and their finances, customers should keep their own set of records. These can include a copy of the preneed contract, a record of all payments made, proof of the funding method (trust, insurance, or joint account) and a record of any changes or amendments made to the contract.

Understanding the various funding methods used to pay for preneed contracts is important. The laws that regulate these types of contracts can be found in Chapter 436 of the Missouri Revised Statutes. Laws regulating the business of embalming, funeral directing and preneed contract-selling can be found in Chapter 333. Both can be accessed for free online.