Funeral planning is helpful. Buying a prepaid funeral contract – not so much.

That is because there is a huge potential for being scammed in the process.

In one example, a company called National Prearranged Services, Inc. (NPS) victimized 97,000 people and numerous funeral homes in 16 states when it ran a Ponzi-like scheme on prearranged funeral contracts.

Six people were sentenced to federal prison in 2013 for their role in the scam, which ran for over 25 years. https://www.fbi.gov/news/stories/prepaid-funeral-scam

Are all prepaid funeral contracts merely a fraud?

No, but you definitely need to do your due diligence before entering into one.

The Federal Trade Commission and the Texas Department of Banking regulate prepaid funeral contracts that are sold in Texas.  There is a website devoted to educating consumers about the contracts:  http://www.prepaidfunerals.texas.gov/

A prepaid funeral contract is for merchandise and services sold, on a prepaid basis, directly to the public for use in connection with funeral services.   Any funeral home or cemetery that sells the contract in Texas must either have a trust-funded or insurance-funded permit issued by the Texas Department of Banking or sell through a licensed third-party insurance-funded permit holder.

Here is how it is supposed to work:

You agree to buy goods and services for your funeral.  You pay in full, through an installment plan, or by means of a life insurance policy or annuity that you purchase.  If the seller receives funds during your lifetime, then those are put into a trust account or restricted bank account.  If the seller receives funds through an insurance policy or annuity, then the insurance company pays the seller the contract price upon your death.

NPS scammed its clients by not putting all of the customer funds into a trust or life insurance policy, altering application documents, and wrongfully using the money for risky investments, existing funeral claims and personal enrichment.

So how do you avoid being a victim?

Check out the seller with the BBB and on-line research.  Compare the seller’s contract with the model contract on the Texas Department of Banking website. https://www.dob.texas.gov/cemetery-prepaid-funeral-services.

Look up the permit number for the Seller (this is required to be in the contract) on the DOB website.

The contract should describe, in detail, what you are buying.  If you are buying merchandise, then the contract must state the type of material predominately used in the construction (for a casket, urn or outer-burial container), the type of sealing feature (for a casket or outer-burial container) and the material lining the interior (for a casket).  At your option, you can require additional descriptions, such as model number or color.  If you are buying services, then make sure those are described.

Determine if you can cancel or transfer the contract.

Sign the Texas form for Appointment for Disposition of Remains, and give your agent a copy of everything, including your research.

If a permitted seller or provider defaults on the contract, the applicable Prepaid Funeral Guaranty Fund guarantees performance of the contract.

Virginia Hammerle is President of Hammerle Finley Law Firm and is a 1982 graduate of Southern Methodist University Dedman School of Law.  Sign up for her newsletter at legaltalktexas@hammerle.com.   This article does not constitute legal advice.