Recognizing millions of dollars in prefunded funerals have already been collected by funeral homes throughout the province, the legislation requires all monies collected prior to the Act coming into force to be deposited into a trust account.

The above referenced monies are the principal amounts only and do not include any income earned nor disbursements made such as the payment of a cemetery plot or HST. Those funeral homes who have not trusted these monies in accordance with the Act have five years to pay the full amount into a trust account and must pay at least 20 per cent of the balance per year.

Where extenuating circumstances may exist and the Minister is of the opinion payment into the Trust as noted above would cause hardship to a funeral home, the amount of money to be paid and the time required to make the payments may be adjusted.

In order to determine what monies have been collected by a funeral home prior to the proclamation of the Act, each funeral home will have to submit audited financial statements to the Minister of Government Services and Lands, under whose jurisdiction the - Act is administered Audited statements must be submitted to the Minister no later than 90 days after the end of the funeral home's fiscal year.

For those funeral homes having a fiscal year end of December 31, 2000 the reporting date would be no later than March 31, 2001. Further, for those funeral homes who have not trusted these monies, the first deposit of 20 per cent of the unfounded amount must be deposited in trust prior to the anniversary date of the proclamation of the Act, that being December 20, 2001.

Anyone wishing to be a "seller" of prepaid funeral contracts must first apply to the Minister in writing for a license. The application must include a copy of the proposed prepaid funeral contract, other records and documents as outlined in the regulations that must be maintained as part of the seller's duties and a fee.

Once a funeral home or branch operation is licensed as a seller or prepaid funeral contracts, individual licenses for staff members operating within these establishments will not be required in order for them to sell prefunded funerals.

As licensing fees are not established in the Regulations, they had not been finalized at the time the Act and Regulations were proclaimed. A proposed "Fee Schedule" has been prepared by Government and it based on 1/10 (one tenth) of one per cent of the dollar value of existing prepaid funerals held by a funeral home in the year prior to license renewal, with the fee not to exceed a cap of $1000. For example if a funeral home has $200,000 in prepaid funerals, its fee will be $200,000 x 1/10 per cent (0.001) = $200, but if a funeral home has $1,500,000 in prepaid funerals, its fee will be $1,500,000 x 1/10 per cent (0.001) = ($1,500) $1,000 are fees capped at $1,000.

Licensing fees must be paid annually. Therefore, under the current proposal, fees will vary from year to year because they will be based on the previous year's totals. Further discussions between Government and industry respecting this matter are anticipated.

One of the key components of this new legislation for the consumer is the establishment of an assurance or compensation fund. The fund will be known as the Consumer Protection Fund for Prepaid Funeral Services and used to pay claims arising out of a prepaid funeral contract against a seller. As an example, this fund would be used to compensate consumers in the case of misappropriate or loss of funds by the funeral home.

The Assurance Fund will be funded by funeral homes or sellers of prepaid funeral contracts only. The amount paid by each funeral hone or seller is based on a percentage of the net amount of a prepaid funeral contract deposited in trust. In other words, the amount required to be placed in trust will exclude the amount paid to a church, place of worship, or non-profit organization for the cost of a cemetery plot and any commissions, administration fees and taxes paid.

As per the regulations, the rate of payment into the Fund has been established as 1 (one) per cent. The following example illustrates how the Assurance Fund assessment is calculated:

Illustration:

Cost of the prepaid funeral contract (including HST) $5750 Less Harmonized Sales Tax (HST) (i.e. 15% of $5000) $ 750 Sub Total $5000 Less Cost of Cemetery plot (estimated) $ 500 Less Administration Fee ( 10% of $5000) $ 500 Net Amount to be deposited in Trust $4000 Amount to be held into Assurance Fund (1% of $4000) $ 40

However, payments into the Assurance Fund, for those funeral homes which do not have all of their prepaid funeral funds placed in trust prior to the proclamation of the Act are based on higher rates depending on the percentage of prepaid funeral funds held in trust. For example, is a funeral home only has between 0% to 20% pf its retroactive prepaid funeral funds put in trust, the rate of payment into the Fund will be 5%; between 20% and 40% the rate is 4%; between 40% and 60% the rate is 3%; between 60% and 80% the rate is 2%; and more than 80% the rate is 1%.

With references to the above noted illustration, the Assurance Fund assessment for a funeral home with less than 20% of the retroactive prepaid funeral funds put in trust will be $200 (i.e. 5% or $4000 = $200). Therefore, it is to a funeral home's advantage to pay 100% of its retroactive prepaid funds, into trust as quickly as possible even though, as earlier noted, it has at least five years to pay the balance.

It is important to clarify no money is required to be paid into the Assurance Fund by funeral homes for prepaid funds collected prior to the proclamation of the Act and Regulations. Payments into the fund must be made on a "go forward" basis. A funeral home only pays assessments on prepaid funeral contracts sold after the proclamation at a rate of assessment between 1% and 5% depending on the percentage of prepaid funds held in trust, as noted earlier.

Monies paid into the Fund shall be invested in accordance with the Trustee Act. Administration costs and expenses may be paid out of the Fund. Otherwise all interest, dividends and other income earned must remain in it. The Fund will be subject to an annual audit.

Monies received by funeral homes for prepaid funeral services must be placed in a trust fund established with a financial institution and kept separate from all other money controlled by the funeral home. A funeral home need only maintain one trust account, as individual trust accounts are not required for each contract.

The funds deposited in trust must be held in trust for the buyers and beneficiaries of prepaid funeral contracts and invested in investments authorized by the Trustee Act. In order to provide more flexibility in how these funds are invested, the Government also amended the Trustee Act to include the "Prudent Investor Rule". The actual amount required to be placed in trust will exclude the amount paid to a church or cemetery committee for the cost of a plot and any commissions, administration fees and taxes paid. Each funeral home must submit an audited financial statement of their trust fund to the Minister of Government Services and Lands annually. Also, if requested, funeral homes must provide to a buyer a statement of the amount of prepaid funds including accrued income held in trust for the buyer.

The legislation has been established certain restrictions on how funeral homes may solicit prepaid funeral contracts. Funeral homes are not permitted to call or telephone or contact a person cared for or residing in a hospital, long term care facility or personal care home without having received a specific request from the institution in which the person or persons are residing. As no other solicitation restrictions appear in the Act or Regulations, telephone, door-to-door and direct mail solicitation at one's residence or place of business is permitted. Furthermore, there are no restrictions in the manner in which funeral home may advertise prepaid funerals.

A buyer may rescind a prepaid funeral contract without a penalty or reprisal by providing a written notice to the funeral home not more than 10 days after entering into the contract. A buyer may also rescind a prepaid contract if it is determined the funeral home was not licensed to sell prepaid funerals at the time the buyer entered into the contract; it does not provide the buyer with a copy of the executed contract, or it does not comply with the Regulations. A buyer cannot rescind prepaid contracts entered into before the proclamation of this legislation.

The buyer may cancel the prepaid funeral contract at any tome, provided the funeral home is given written notice prior to the intended date of cancellation. The funeral home can charge a cancellation fee of 10% of the money paid under the prepaid funeral contract to a maximum of $250. Not more than 15 days after receiving the cancellation notice, the funeral home must refund to the buyer the funds paid to the funeral home or placed in trust, including income accrued on the money, less the cancellation fee. For tax purposes, T-5 information slips showing the amount of income accrued in the trust will be issued by the funeral home to the buyer. Where the buyer and the beneficiary are not the same person, the funeral home must notify the beneficiary or personal representative in writing of the cancellation.

Funeral homes are permitted to charge an administration fee or commission. The fee cannot exceed 10% of the cost of the contract. For example, if the cost of the prepaid funeral contract, excluding HST is $5000, the funeral home may charge an administration fee or commission of $500 ( i.e. 10% of $5000). These fees and commissions are not normally deposited into the trust account, but rather disbursed to the funeral home. They would be in addition to trust administration fees ordinarily charged by a financial institution and paid out the trust fund to the trust administration.

Legislation does stipulate the information that the seller must include or disclose to the buyer in a prepaid or disclose to the buyer in a prepaid funeral contract, but does not limit the types of contracts offered by the seller. In addition to an insurance contract, funeral homes may offer either a guaranteed or non-guaranteed pricing contract. Under a guaranteed contract, once all the funeral good and services have been all paid in full, the funeral home guarantees the cost of the funeral and this assumes the responsibility for all price increases throughout the duration of the contract. With a non-guaranteed contract, funeral services are provided by the funeral home at prevailing retail prices determined at the time of death. Excess income, if any, accrued in the trust will be paid to the estate of the buyer. Additional funds required because of increased costs or other shortfall will be paid by the estate of the buyer.

A prepaid contract must be written in plain language and include itemized HST and any cost of the funeral goods and services purchased, the date of execution, the names and addresses of the funeral home or seller, the buyer and, if applicable, the beneficiary, a statement that the contract can be cancelled and the amount of the cancellation fee, instructions about embalming if requested, a statement about the substitution of goods and services and disclosure of any good and services and disclosure of any administration fees and commissions.

Like any new legislation, there will be a period of adjustment for funeral homes to revise their documents, apply for licensing, have audited financial statements prepared and make any necessary administrative adjustments needed to meet compliance requirements. Nevertheless, this new legislation now provides consumers purchasing prefunded funerals with the protection they would expect.