The conventional guaranteed preneed transaction is premised upon investment returns offsetting performance cost increases to the funeral home.  Many funeral homes restrict consumers to single payment preneed contracts to limit their exposure to funding short falls.  If the funeral home allows the consumer to pay the preneed purchase price over 60 months, the preneed trust is put at an investment disadvantage until the contract is paid in full at the end of the five year payment period.   The lure of non-guaranteed preneed is that consumers can pay on the arrangement at their own convenience until the trust is large enough to have investment returns that offset cost increases.  But while the arrangement is in the non-guaranteed phase, the consumer bears the investment risk and the trustee must therefore make reasonable market value allocations to the consumer’s account.  As we alluded to in prior posts, the master trust programs in Illinois and Wisconsin skirted this issue with fixed rate returns.   It was not that long ago when some industry experts recommended that preneed trusts use ‘book value’ or tax cost basis as the basis for allocations to individual accounts.  The simplicity of this approach would be that the trust could use its tax accounting platform for ‘market value’ allocations.   That approach was defendable with preneed trusts invested exclusively in fixed income securities held to maturity.  The last decade has been particularly brutal to preneed trusts that stayed their course with an investment policy that relied exclusively on interest income.   As trusts have revised their investment policies to incorporate diversification into equity holdings, the trustee must have administration that makes periodic allocations of actual market value.