What happens when the family opts for a cremation at the time of need when the preneed contract provides for a traditional funeral?  If the preneed contract was purchased in a spend down situation, the funeral director and the family may be caught in a Catch -22.  Many states’ laws preclude the refund of the funds to the family. 

Missouri law (RSMo 208.010.4) provides that if a preneed contract beneficiary was receiving public assistance, any cancellation or amendment of a preneed contract will result in the amount in excess of the cost of the funeral being refunded to the state (up to the amount of the benefits received).  Kansas law imposes a similar requirement on the funeral home to refund the excess to the state.  A Kansas Attorney General opinion states this is even required in the absence of a contract amendment. 

These laws have the effect of inducing the family to spend up rather than allow the funds to go back to the state.