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Wendy Russell Wiener, Esq.
(850) 681-6810


Many states allow trustees of certain types of deathcare trusts to invest trust funds in life insurance policies. The type of deathcare trust for which such investments is permitted is a trust into which funds received from the sale of preneed contracts are deposited.1

In other states, such as Florida, however, such an investment is currently prohibited. An examination of the current, relevant law does not contain an express prohibition against investment in insurance policies. The prohibition is by operation of the removal of the permission to invest in insurance policies that was once contained in the law.

Florida Law Until 1998

Until 1998, Section 497.417, Florida Statutes, expressly authorized a trustee of a preneed trust to “purchase from an insurance company, licensed by this state, life insurance policies or annuity contracts not to exceed the aggregate amount of $250,000 on any one individual life.”2 Most trustees that chose to use trust funds to purchase policies as contemplated by the statute did it the “right” way, which is to say that such trustees purchased life insurance policies on certain persons who purchased preneed contracts with the funds deposited as a result of those specific preneed contracts. Therefore, the assets in trust (insurance policies) were directly tied to the need addressed by the trust (funds to fulfill the preneed contracts). Funds resulting from the preneed contract for beneficiary Jane Doe, were deposited into trust and used to purchase a life insurance policy on the life of Jane Doe. Upon Jane Doe’s death, the death benefit of the policy would flow into the trust and provide funds to the funeral home to pay for the services and merchandise purchased on the preneed contract.

Some unknowledgeable trustees, however, abused the language of the statute and instead allowed bundled funds paid on several, even hundreds of, preneed contracts to purchase a single life insurance policy on the life of a single person. Sometimes the insured was one of the preneed contract holders for whom money was deposited into trust, and other times the insured was a person wholly unrelated to the preneed contracts for which funds were deposited into trust. Put more bluntly, some trustees used trust funds to purchase life insurance policies on owners of funeral homes that sold the preneed contracts. Rumor has it that some unscrupulous funeral home owners persuaded trustees to purchase life insurance policies on persons whose names were simply gathered from the local phone book.

Of course, myriad problems ensued as a result of life insurance investments owned by the trust that were unrelated to the preneed contracts to be served by the trust. Most significantly, funds were unavailable to funeral homes to pay for services and merchandise provided when preneed contracts were fulfilled. For instance, if funds from 100 preneed contracts were used to purchase a single life insurance policy on a single life, even assuming that the insured was one of the 100 preneed contract beneficiaries, funds relating to the other 99 preneed contracts were not in trust when those contracts were fulfilled, unless the insured happened to die first among the 100. Worse still, if the insureds were not “related” in any way to the trust funds used to purchase the insurance policy, and the funeral home has no information about the insureds, the funeral home’s preneed trust will contain assets that are worthless to the funeral home. Those insurance policy assets actually cost the funeral home, as the funeral home must pay the trustee’s fees, and insurance policies do not generate income from which fees can be collected by the trustee.

Other issues associated with the purchase of insurance policies on “unrelated” insureds involved questionable policy validity due to lack of insurable interest by the trust on the insured.3

The Law Today

The relevant law was amended, effective 1998, to eliminate the subsection entitling preneed trustees to purchase life insurance policies using proceeds from a preneed contract deposited into trust. Oddly, the amendment, which could have been widely heralded based on the issues created with the language of the law, was agreed to in a quiet deal between power players in the deathcare industry. The amendment was signed into law without any real notice to, or discussion by, the insurance industry operating in the space. By the time the insurance industry became aware of the change, it was too late to undo it.

Today, Florida continues to prohibit the investment of preneed trust assets in life insurance policies despite the efforts of several insurers, insurance agents and preneed licensees. Insurers and others have argued to deathcare regulators and to the legislature that permission to invest in life insurance policies should be restored to the law now, albeit, with parameters for such investment. Such arguments have failed but not for sensible reasons.

Life Insurance Is a Suitable Investment For a Deathcare Trust

The use of preneed trust funds to purchase life insurance policies was, and continues to be, a trust investment strategy effectively employed by trustees in many states. The purchase of life insurance by a trustee on individuals related to most or all preneed contracts for which funds are deposited into trust does not necessarily result in an “investment” concentration in a single trust. This is because the purpose of the trust is to marshal funds for use only at the time that the preneed contract must be fulfilled. Therefore, if the trust funds related to preneed contract 001 are used to purchase a life insurance policy on the life of the beneficiary of preneed contract 001, then the trust funds are used in a way directly related to the subsequent need that will arise for the trust funds. Additionally, when considering the value of a single preneed contract, life insurance is a prudent option.

The key to correctly investing trust funds in life insurance policies is recordkeeping. It is imperative that a trustee tie each insurance policy purchase to the preneed contract it is to support. Further, the purpose of the trust – to marshal assets to pay for merchandise and services rendered at the time of death of the preneed contract beneficiary – is the reason that face value of the life insurance policies purchased with trust assets is an appropriate value of the preneed trust assets related to each preneed contract. Trust assets are only needed at the time of death of the preneed contract beneficiary who is also the insured. Inasmuch, the value of the trust assets related to the preneed contract should be the amount of money to be paid to the trust upon the death of the insured – the face value of the life insurance policy.


Constraints such as those described above support an amendment to Florida law to allow for purchase of life insurance policies with preneed trust funds. The limitations discussed above would eliminate the potential for abuse and offer trustees the opportunity to invest trust funds in vehicles directly related to the intended purpose of the trust – provision of funds to pay deathcare expenses for the insured.

1. Preneed trusts are different than other types of trusts. This is so primarily because of the purpose preneed trusts serve, i.e., to marshal funds paid on preneed contracts to offset the cost to fulfill such contracts when fulfillment is necessary (when the preneed contract beneficiary dies). Preneed contracts are sold by entities or persons licensed in the state in which the preneed contracts are entered into. A consumer may, on his or her own behalf or on behalf of another, purchase a preneed contract. The preneed contract can be “funded” by the placement of funds into trust, or by the purchase of an insurance policy assigned to the funeral establishment that will fulfill the preneed contract or by other means in some states. The insurance policies contemplated herein are not purchased by the consumer directly. Instead, once funded, they are purchased by the trust as investments.

2. Fla. Stat. § 497.417(4)(b) (1997).

3. Insurable interest questions have arisen in other states, such as Illinois, wherein funeral homes and trustees were engaged in schemes similar to those carried out in Florida under the law of the day.