South Carolina Funeral Law Practice Exam

What type of trust(s) may a trustee establish for preneed contracts?

1. Only common trust funds

2. Individual trust for each contract only

3. A combination of both individual and common trust funds

4. No trusts are allowed

The correct answer is: A combination of both individual and common trust funds

The correct response indicates that a trustee may establish a combination of both individual and common trust funds for preneed contracts. This flexibility allows financial management that can be tailored to the specific needs of the preneed contracts while also capitalizing on the advantages of pooled resources through common trust funds. Individual trusts for each contract can provide specific accountability and track for each client’s investment; however, they may result in higher administrative costs due to the number of separate accounts needing management. On the other hand, common trust funds allow for economies of scale, risk diversification, and potentially better returns due to pooled investments. The use of both types of trusts helps trustees navigate the varying demands of clients, administrative efficiency, and fiduciary responsibility. This approach allows funeral homes and their clients to balance the specific needs of individual contracts with the broader benefits of shared investing. Thus, establishing a combination of individual and common trust funds is a prudent financial strategy that aligns with best practices in the industry.