When Does Pre-Need Become At-Need? Regulatory Timeline Guide

Why This Matters: The Regulatory Impact

The distinction between pre-need and at-need isn't just semantic—it determines which set of regulations applies to your transaction. Get the classification wrong, and you could face violations.

Pre-need classification affects:

• Whether funds must be held in trust (vs. collected directly)
• What disclosures you must provide
• Cancellation rights available to families
• How revenue is recognized for accounting/tax purposes
• Interest handling and tax reporting
• Regulatory reporting requirements to your state

At-need classification affects:

• Payment timing (due immediately vs. after service)
• Itemization requirements (must itemize all costs)
• Whether FTC Funeral Rule applies (it does)
• What contracts need to be provided to families

Misclassifying a transaction could mean you failed to place funds in required trust, failed to provide proper disclosures, or failed to follow the correct regulatory framework. State funeral boards take this seriously.

The Federal Starting Point: FTC Funeral Rule

The FTC Funeral Rule provides a baseline definition at the federal level. According to the official FTC Funeral Rule guidance:

"A 'funeral arrangement' is any arrangement entered into by a consumer, on behalf of the consumer or on behalf of another individual, to purchase funeral goods and/or services to be provided at the time of the consumer's death or the death of the other individual on whose behalf the arrangement is made."

This federal definition is intentionally broad—it covers both pre-need and at-need. However, most states have more specific definitions that layer on top of this federal requirement. Here's where it gets complicated.

The Three Main State Approaches

Approach 1: Event-Based Definition (Most Common)

Definition: Pre-need = family arranging before death occurs. At-need = family arranging after death has occurred.

States using this: California, Texas, New York, and many others

How it works:

• A family visits your funeral home to pre-plan their funeral (no one has died) = PRE-NEED
• A family visits after grandmother passes away to arrange her funeral = AT-NEED

Why this matters: Pre-need requires trust accounts and longer contract terms. At-need may not require trust (funds can go directly to the funeral home).

Approach 2: Time-Based Definition

Definition: Pre-need = service date more than X days away. At-need = service within X days.

States using this: Some states define pre-need as "arrangement for service more than 30 days from the arrangement date"

How it works: If a family arranges today for a service 45 days from now, it's pre-need. If the service is scheduled for 10 days from now, it's at-need.

Why this matters: Time-based definitions create gray zones. What if the service is scheduled for 25 days away? This ambiguity can lead to compliance mistakes.

Approach 3: Trust Account-Based Definition

Definition: Pre-need = funds held in trust. At-need = funds not held in trust.

States using this: Florida and a few others

How it works: The classification is determined by where the money goes. If you put it in a trust account, it's pre-need. If collected directly, it's at-need.

Why this matters: This creates a bit of a circular definition—you determine whether it's pre-need by choosing whether to put it in trust. This gives funeral homes some flexibility but also creates confusion.

Common State Definitions: Examples

⚠️ These are examples for illustration. Your state may differ. Verify YOUR state's exact definition with your state funeral board.

The Gray Zone: When Pre-Need Becomes At-Need

The trickiest scenarios occur when a pre-need contract gets activated:

Scenario 1: Pre-Need Contract, Service Activation

A family signs a pre-need contract 5 years ago. Grandma passes away. The family calls to activate the contract.

What happens: The original contract was pre-need (signed before death). The current transaction (service activation) is technically at-need (death has occurred). BUT you're still fulfilling a pre-need contract.

Regulatory treatment: Most states treat this as fulfilling a pre-need obligation, not as a new at-need transaction. You honor the pre-need pricing and terms. The funds are released from the trust account to cover the service.

Compliance note: Make sure your documentation is clear that this is fulfilling a pre-need obligation, not a new at-need arrangement.

Scenario 2: Last-Minute Pre-Arrangement

A family comes in Tuesday to arrange a funeral for Thursday (person died yesterday). Family says "we want to lock this in and pay now."

What is this: The service is 2 days away, so some states might call it at-need (within 30 days). It's also being arranged after death. BUT it's being paid for upfront before service.

Regulatory treatment: Most states would classify this as AT-NEED because the person has already died and the service is imminent. Pre-need requires the arrangement to be made before death.

Compliance note: Follow at-need regulations (immediate payment acceptance, Funeral Rule compliance, no trust required typically).

Scenario 3: Pre-Death Medical Planning

A terminally ill patient in hospice arranges their funeral with the funeral home. They pay upfront. The person dies 3 days later.

What is this: The arrangement was made before death (pre-need), but death occurred within days.

Regulatory treatment: Most states would classify this as pre-need because the arrangement predates the death. However, your trust fund rules still apply—you might not need to hold funds in trust for more than a few days, but the arrangement is technically pre-need.

Compliance note: Document the pre-death arrangement date to prove pre-need classification if questioned.

Practical Impact: What You Need to Do Differently

For Pre-Need Arrangements:

• Place funds in trust (required in most states)
• Provide written contract with cancellation rights
• Disclose interest handling and fund placement
• Maintain contracts for regulatory inspection
• Report trust fund status annually (in some states)
• Cannot immediately recognize revenue (must defer until service)

For At-Need Arrangements:

• Collect payment at time of service (or shortly after)
• Provide Funeral Rule-compliant itemized statement
• No trust account required typically
• Revenue recognized immediately (generally)
• Shorter contract/documentation requirements
• No long-term fund management needed

Finding YOUR State's Definition

Every state's funeral board has specific regulatory language defining pre-need and at-need. Here's how to find it:

1. Contact your state funeral board directly: Call or email and ask: "What is your state's regulatory definition of a 'pre-need' arrangement vs. an 'at-need' arrangement?" Request written confirmation.
2. Search your state's administrative code: Most states have funeral board regulations in their state administrative code (often labeled "Title [X], Chapter [Y], Section [Z]"). Search for "prearrangement" or "preneed."
3. Use NFDA resources: The National Funeral Directors Association maintains state-by-state funeral law resources.
4. Review your funeral home's license: Often contains references to applicable state regulations.
5. Consult a funeral law attorney: For states with ambiguous definitions, an attorney familiar with funeral law can clarify.

Documentation: Protect Yourself

Protect yourself by documenting your classification decisions:

• Keep written confirmation from your state funeral board defining pre-need vs. at-need for YOUR state
• On every contract, note whether it's classified as pre-need or at-need and why
• If a contract is ambiguous (e.g., service is 25 days away in a state with a 30-day cutoff), document your classification decision
• Train staff on your state's definition and ensure consistent classification
• During annual compliance reviews, audit a sample of contracts to ensure correct classification

Common Compliance Mistakes

Mistake 1: Assuming Pre-Need Means "Funds in Trust"

Some funeral homes treat "pre-need" and "trust account" as synonymous. In reality, some states allow at-need arrangements to be prepaid and held in trust. Don't assume classification based solely on payment timing.

Mistake 2: Misclassifying Due to Gray Zones

A family arranges a funeral for 32 days from now in a state with a 30-day cutoff. Your staff might reasonably disagree on whether it's pre-need or at-need. CLARIFY with your state board before this happens.

Mistake 3: Inconsistent Classification

Your funeral home classifies the same type of arrangement as pre-need one month and at-need the next. This inconsistency can trigger regulatory questions. Standardize your classification process.

Mistake 4: Not Documenting Classification Decisions

If a regulator asks why you classified an arrangement as at-need (not placing funds in trust), you should have documentation showing your reasoning. "I don't remember" is not a defensible answer.

Related Resources on Pre-Need Regulation

• State Regulations for Pre-Need Trust Funds – Detailed state-by-state requirements for trust fund management
• Pre-Need Trust vs. Insurance Requirements – How these different funding mechanisms differ by state
• Complete FTC Funeral Rule Guide – Federal regulations on funeral pricing and disclosures

Bottom Line

⚠️ FOUNDER NOTE: Pre-need vs. at-need isn't just terminology—it determines which regulations apply. Most states use event-based definitions (pre-need = before death; at-need = after death), but some use time-based or trust-based definitions.

Action items: (1) Contact your state funeral board IN WRITING and request their exact regulatory definition of pre-need vs. at-need. (2) Document this definition. (3) Train all staff on your state's specific definition. (4) Audit contracts quarterly to ensure consistent classification. (5) When in doubt on a gray-zone case, err on the side of pre-need (more conservative).