With increasing regularity, preneed consumers are downgrading from traditional funerals to cremation services. To accommodate the consumer, funeral homes often amend the original contract with a downgrade addendum. An addendum is used to avoid a contract cancellation and a new contract where additional state fees might be required. However, downgrade addendum can pose certain problems.
For contracts that are paid in full or have trust balances in excess of the adjusted sales price, a trust funded contract will have excess funding. Most state preneed laws do not contemplate distributions except for performance or cancellation.
State preneed laws that allow a seller to retain sales expense often do so from the initial payments. Consequently, when a downgrade addendum is offered after the full sales expense has been collected, the trust balance will have a deficit for the ‘excess’ sales expense collected.