Guide to the Funeral Funds Act 1979 and the Funeral Funds Regulation 2011

Cemeteries & Crematoria Association of NSW

Guide to the Funeral Funds Act 1979 and the Funeral Funds Regulation 2011 This Guide explains those sections of the Funeral Funds Act 1979 and the Funeral Funds Regulation 2011 that relate to our members. It helps our members understand how and when they can take money for services which will be provided in the future.

Introduction The purpose of the Funeral Funds Act 1979 and the Funeral Funds Regulation 2011 is to protect money which is taken from a Customer as payment for certain services which are to be provided in the future, once that Customer has died. Such sales are referred to as “Pre-need contracts”, as opposed to “At-need contracts”. We have included a glossary at the end to help you understand the terminology used throughout the Guide. We have divided the services covered by this Guide into two groups: (a)

(b)

Pre-need Funeral Services which include: (i)

burial services;

(ii)

cremation services;

(iii)

the supply of goods connected with that burial or cremation service;

(iv)

interment fees; and

(v)

the supply of a burial site where the Customer does not immediately become the Holder of the specific site; and

Pre-need Burial Sites where the Customer immediately becomes the Holder of the specific site.

The law requires that money taken for Pre-need Funeral Services be held on trust by one of the following two Registered Funds: (a)

Pre-paid Funeral Funds; or

(b)

Funeral Contribution Funds.

The Members of Cemeteries and Crematoria Association of NSW are not Registered Funds and so CANNOT hold money on trust for the provision of Pre-need Funeral Services. This Guide explains that in certain circumstances our Members can receive money as payment for Pre-need Funeral Services where receiving that money does not constitute holding the money on trust. This Guide does not address funeral insurance or funeral bonds.

Penalties A breach of the Funeral Funds Act or the Funeral Funds Regulation will incur a penalty. Different penalties apply to different offences. The penalty for selling a Funeral Service on a Pre-need basis without either entering into a Pre-paid Contract or being a Funeral Contribution Fund is 20 penalty units (which at the time of writing equates to $2,200), and two penalty units for every day that the offence continues (currently $220). If a Member discovered that it had inadvertently held money incorrectly, the Member should contact NSW Fair Trading to obtain advice on remedying the situation. NSW Fair Trading will most likely view the voluntary disclosure favourably, and may simply recommend that the Member transfer the money, with interest, to a Pre-paid Funeral Fund.

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Flow of money and services for Funeral Services sold in advance The following diagram shows how money flows when parties enter into a Pre-need contract. It also shows how services flow after the Customer has died. We will explain the different contracts below – follow the corresponding colour: Contracts between Customers and Members for Pre-need Funeral Services

Contracts for Pre-need Burial Sites

Contracts between Customers and Funeral Contribution Funds for Pre-need Funeral Services

e se y tr rv an ic sf e e pr rre ov d id af ed te r

M

on

W ith in

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bu sin es s

da ys

CCA MEMBER

PRE-PAID FUND

CONTRIBUTORY FUND

CUSTOMER Contract Flow of money at time of payment before the Customer has died

Flow of money or services for provision of services after customer has died

Burial site* sale

Burial site* sale

Contributory Contract

Contributory Contract

Pre-paid Contract

Pre-paid Contract

* Must satisfy The 4 Conditions

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A.

Contracts for Pre-need Burial Sites

Generally, money received by Members for Pre-need Funeral Services must be forwarded to a Pre-paid Fund as explained in Section B below. There is one exception to this rule. A Member can keep money which is taken from a Customer on a Pre-need basis if, pursuant to a contract, that money is payment for a burial site which satisfies the conditions below (The 4 Conditions). Please note, however, that any money taken for services connected to that burial site, including any interment fees, must also be forwarded to a Pre-paid fund.

The 4 Conditions (a)

Make it clear which site the Customer will get The Member must specify the site, or specify that it will be one of the sites within a specified area.

(b)

The Member must own the site before the Member can sell the site At the time of entering the contract, the Member must own the site or specified area, or must have the power to assign the exclusive right to burial in the site or specified area.

(c)

Do not over-sell The Member must not enter into a contract to provide a burial site in a specified area if all of the sites in that specified area have already been allocated to other Customers.

(d)

Payment must only cover the burial site The contract must not promise to provide any services at all in connection with provision of the burial site. The contract cannot, therefore, include the interment service.

What happens to the money? Money taken under a contract satisfying The 4 Conditions would be paid by a Customer to a Member at the time of the sale, and then retained by the Member as current day revenue. The Member has essentially completed the sale of the burial site and the Customer is then the Holder of the burial site which is available for use upon their death. Who provides the service? Once the Customer has died, the Member will make the burial site (that the Customer had pre-purchased) available for the Customer’s burial.

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What happens if a Member wants to sell a burial site as well as other services? If a Member sells a burial site in a contract that satisfies The 4 Conditions, then it can retain the money from that sale. If the sale includes any other service such as an interment, a funeral, the provision of flowers, or a cremation, then the additional services are deemed to be Pre-need Funeral Services. The Member should treat the sale of the burial site as one contract and the sale of the Pre-need Funeral Services as a separate contract. See Section B below for how the money from the Pre-need Funeral Services contract should be dealt with. Why can Members only keep some money? The purpose of the law is to protect the Customers’ money. The money from the sale of a Pre-need Burial Site does not need to be protected because the Customer has already acquired the asset at the time of payment. Although the Customer is not using the burial site, the Customer is nonetheless the Holder of that burial site. A contract for Pre-need Funeral Services, however, relies on the Member delivering the service when it is needed. If, for example, the Member went out of business after the sale but prior to the Customer’s death, then that Member would not be able to provide the interment services or any other services at the necessary time. Therefore, any money paid for a service which would not be able to be provided to the Customer if the Member was to go out of business, must be protected by being forwarded to a separate fund.

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B. Contracts between Customers and Members for Pre-need Funeral Services (Pre-paid Contracts) Which Funeral Services? If a Member wants to sell any of the following Funeral Services on a pre-need basis, it must enter into what is called a Pre-paid Contract: (a)

burial services*;

(b)

cremation services*; or

(c)

a burial site where the contract does not satisfy The 4 Conditions.

* Where a contract is for a burial service or cremation service, the supply of goods connected with that burial service or cremation service will also form part of the Pre-paid Contract. What is a Pre-paid Contract? A Pre-paid Contract is a contract between a Member and a Customer where the Customer chooses the types of goods and services to be supplied for the Customer’s funeral, and pays for the cost of that Funeral Service in advance. The cost of the Funeral Service to be provided is fixed at the start. The contract may allow a Customer to pay for the Pre-paid Contract in a lump sum or by instalments, but the total amount to be paid cannot increase over time. Any amount paid to a Member under a Pre-paid Contract must be transferred to a Pre-paid Funeral Fund within seven (7) business days of the Pre-paid Contract being entered into by the parties. If the Customer changes his or her mind within thirty (30) days of entering into a Pre-paid Contract, the Customer may end the contract by providing notice in writing to the Member. The Member must refund all money to the Customer, but may keep $50. In the event that the Customer dies before paying the final instalment, the contract will prescribe whether or not the Customer will receive all of the Funeral Services under that contract notwithstanding that all the instalments had not been paid.

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When can a Member enter into a Pre-paid Contract? And how? No Pre-paid Contract may be entered into by a Member until that Member has a contract with a Prepaid Funeral Fund where the Pre-paid Funeral Fund agrees to hold money on trust for the Member’s Customers. A Member and the Customer must do the following before entering into a Pre-paid Contract: (a)

a Customer must be provided with a document that includes all of the information listed below;

(b)

both the Member and the Customer must sign the document; and

(c)

the Customer must be provided with a signed copy of the document to keep.

The document must include the following: (a)

the name and contact details of the Member;

(b)

a statement to the effect that the use of a particular individual as the funeral director supplying the Funeral Service is not guaranteed;

(c)

the arrangements that will apply if the business of the Member is sold to another person before the Funeral Service is supplied;

(d)

full details of each component of the Funeral Service to be supplied under the contract and the costs of each component, including any applicable goods and services tax;

(e)

information about any components of the Funeral Service (which may be goods, services or facilities) that will not be supplied under the contract but that may be supplied for an additional charge at the time of the customer’s death and funeral (so it is clear to the customer that not all aspects of the funeral have been paid for in advance);

(f)

the name and contact details of the Pre-paid Funeral Fund to which payments are to be made;

(g)

the amount and date due of any payment instalments applying under the contract and the arrangements that will apply if the Customer dies before all instalments have been paid;

(h)

the geographic area (including outside the State) serviced by the Member;

(i)

the arrangements that will apply if the Customer dies outside the area serviced by the Member and any associated additional transaction costs;

(j)

the arrangements that will apply if the Customer moves out of the area (including interstate) or otherwise wishes to transfer the contract for the supply of the Funeral Services to another person;

(k)

the existence of a 30 day cooling-off period after entry into the contract during which the Customer may end the Pre-paid Contract and have any money paid refunded (less $50);

(l)

the circumstances in which the Customer has the right to cancel the contract after the cooling-off period has ended (either because of a right specified in the section ‘Cancelling a Pre-paid Contract’ below or a right under the contract) and obtain a full or partial refund of money paid under the contract;

(m) a statement to the effect that the Pre-paid Contract is a legal document the terms of which can be changed only if both parties to the contract agree; (n)

a statement of any fees, brokerage or commission payable to any person in relation to the Pre-paid Contract; and

(o)

if the services to be offered under the Pre-paid Contract include any of the items in Column 1 below, the Pre-paid Contract must contain a description of the service with the particulars described in Column 2 below in relation to that service:

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Column 1

Column 2

Component of funeral service

Particulars

Supply of coffin or casket

•

The principal material to be used in the coffin or casket;

•

The type of lid on, and the method of closure of, the coffin or casket;

•

The types of any external or internal trimmings on or in the coffin or casket; and

•

The finish to be applied to the external surfaces of the coffin or casket.

•

The classes of vehicles; and

•

The number of vehicles in each class.

•

The maximum distance over which conveyance will be provided;

•

The maximum number of persons who will be conveyed; and

•

The hours and days when conveyance will be provided without additional charge.

Disposal of the remains of the deceased

•

Whether disposal is to be by way of burial or cremation.

Provision of memorial or urn

•

The design, size and material of the memorial or urn.

Provision of vehicles Conveyance of persons and the remains of the deceased

The Member and the Customer must then sign again upon entering into the Pre-paid Contract: Upon entering into the Pre-paid Contract, the Customer must again be provided with a copy of a document that includes all the information listed above. Both the Member and the Customer must again sign the document and the Customer must be provided with a copy of that signed document to keep. What happens to the money? A customers pays money to the Member. Money taken by a Member under a Pre-paid Contract must be passed onto a registered Pre-paid Funeral Fund within 7 business days of the contract being entered into, or for subsequent payments, within 7 business days of the Member receiving that money. The Pre-paid Funeral Fund must then hold the money on trust for that Customer. Once the Customer has died and the Funeral Service has been supplied by the Member, the Pre-paid Trust will pay the Member the amount that was held on trust. A Pre-paid Funeral Fund may pay the money to the Member where the funeral is no longer needed with the approval of the Director-General or an inspector. Who provides the service? Once the Customer has died, the Member must provide the Funeral Service which was agreed to in the Pre-paid Contract. Cancelling a Pre-paid Contract The Customer, or the Customer’s legal representative, may cancel a Pre-paid Contract by providing notice in writing to the Member: a)

in the manner prescribed by the Pre-paid Contract; or

b)

if the Director-General is satisfied that the service will not be supplied because the Member has ceased to carry on the business; or 8

c)

if the Member is unwilling or unable to supply the service when it is required; or

d)

if the Director-General is satisfied that the service was not carried out because the person who arranged for the service to be carried out did not know or had no reasonable means of knowing that the Pre-paid Contract existed.

The Member can cancel the Pre-paid Contract by notice in writing to the Customer if the contract allows it. If a contract is cancelled according to the above rules, the Customer is entitled to be paid by the Pre-paid Funeral Fund all of the money held on trust by that fund under their contract at the time of cancellation. Where a Pre-paid Funeral Fund has reasonable cause to believe that a Funeral Service agreed to under a Pre-paid Contract is no longer required, and the contract cannot be cancelled in accordance with the rules above, the Fund may transfer the money to the Member with the approval of the Director-General. Recovering money for services where a Pre-paid Funeral Fund existed When a Member enters into a Pre-paid Contract with a Customer, that Member can only recover money from the Pre-paid Funeral Fund for payment for any Funeral Service it provides to that Customer. A Member cannot demand payment, or take action to recover any money from a Customer or anyone else unless: a)

the Funeral Service supplied was different from or additional to the service that the Member had agreed to supply under a Pre-paid Contract;

b)

the person who agreed to the different or additional service had, before agreeing thereto, signed a statement to the effect that the person was aware that the deceased was entitled to be supplied without cost with the service specified in the contract but that the person agreed to the different or additional service; or

c)

the charges for the service so supplied are reduced by the amount paid or to be paid to the person from the trust funds under the Pre-paid Contract.

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C. Contracts between Customers and Funeral Contribution Funds for Pre-need Funeral Services Funeral Contribution Funds are like funeral savings schemes. Funeral Contribution Funds undertake to provide Customers with Funeral Services upon their death. Customers make small periodic payments towards the cost of the Funeral Service until their death. Unlike Pre-paid Contracts, the cost of the funeral is not set at the date of entering into the contract. The contribution amount which customers pay is generally determined by the Fund based upon actuarial assessments. Members cannot take money from Customers for Funeral Contribution Funds because they are not registered to carry on contributory funeral benefit business. Funeral Contribution Funds may enter into contracts with Members whereby those Members supply any number of the services which the Funeral Contribution Fund had agreed to provide to Customers. What happens to the money? A customer pays periodic payments directly to the Funeral Contribution Fund. Upon the death of the Customer the Fund will then either contribute towards the payment of a Funeral Service or provide a cash benefit towards the cost of the service. The Fund may contract with, and pay money to, a Member for provision of the service. Who provides the services? A Funeral Contribution Fund that undertakes to provide Customers with Funeral Services may enter into a contract to have all or any number of those services carried out by one or more Members. Recovering money for services where the Member had a contract with a Funeral Contribution Fund Where a Member provides a Funeral Service to a Customer pursuant to a contract that that Member had with a Funeral Contribution Fund, that Member can only recover money for the service from that Funeral Contribution Fund. The Member cannot demand payment, or recover any money in court from a Customer or anyone else unless: a)

the service supplied was different from or additional to the service that the Funeral Contribution Fund had undertaken to provide;

b)

the person who agreed to the different or additional service had, before agreeing thereto, signed a statement to the effect that the person was aware that the contributor to the Funeral Contribution Fund was entitled to be provided without cost with the service that the Funeral Contribution Fund had undertaken to provide but that the person agreed to the different or additional service; and

c)

the charges for the service so carried out are reduced by the amount that is equal to the cost of the service that the fund had undertaken to provide.

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Glossary To help understand the Funeral Funds legislation, we have included a glossary of some commonly used words. The definitions provided are not the definitions from the Act – they are a plain English description of the term: At-need

Where the person who is to be provided with the service has already died and the service is required.

Contributory Funeral Benefit Business

A business offering a scheme or arrangement for the provision of the following Funeral Benefits to contributors: --

burial or cremation services;

--

goods connected with that burial or cremation service; and

--

the payment of money upon the death of the Customer for the purpose of meeting at least part of the expenses of that Customer’s funeral.

Customer

A person wishing to pay to receive a Funeral Benefit or a Funeral Service which will be provided to that person once the person has died.

Director-General

The Commissioner or equivalent for Fair Trading in the NSW Department of Commerce.

Funeral Benefit

Supply of burial or cremation services with or without the supply of goods connected with that service; or the payment of money upon the death of the Customer for the purpose of meeting at least part of the expenses of that Customer’s funeral.

Funeral Contribution Fund

The easy answer: A Funeral Contribution Fund is like a funeral savings scheme. The detailed answer: A Funeral Contribution Fund is a company or person registered to carry on Contributory Funeral Benefit Business.

Funeral Services

Burial services, cremation services, and in certain circumstances, the supply of a burial site1.

Holder

A person who has a holding (as defined in the Crown Lands Act 1989) of any crown land

Member

A member of Cemeteries & Crematoria Association of NSW Inc. At the time of writing this guide, no Member is a Registered Fund.

Pre-need

Where the person who is to be provided with the service has not yet died and the service will be provided in the future, once that person has died.

Pre-need Burial Sites

Burial sites which are sold to a Customer on a Pre-need basis that satisfy The Four Conditions set out on page 4 above.

Pre-need Funeral Services

The following services which are sold to a Customer on a Pre-need basis:

Pre-paid Contract

--

burial services;

--

cremation services;

--

the supply of goods connected with that burial or cremation service; interment fees; and

--

the supply of a burial site where the Customer does not immediately become the Holder of the specific site.

The easy answer: A Customer chooses the funeral that they will want and pays for it in advance of their death (either in a lump sum or by instalments). Pre-paid contracts are entered into between Members and Customers. The detailed answer: See Section B – ‘What is a Pre-paid Contract’.

Pre-paid Funeral Benefit Business

Means the business of supplying Funeral Services under Pre-paid Contracts.

Pre-paid Funeral Fund

A person or group that is registered to act as trustee of trust funds under Pre-paid Contracts.

Registered Fund

A Pre-paid Funeral Fund or a Funeral Contribution Fund. At the time of writing this guide, no Member is a Registered Fund.

Note: The Act does not include the supply of burial sites in its definition of Funeral Services. We have included it here to help explain that in certain circumstances the supply of a burial site does constitute a Pre-paid Contract. 1

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www.ccansw.org.au PO Box A233, Sydney South NSW 1235

Document prepared for Cemeteries & Crematoria Association of NSW by Mills Oakley Lawyers