Wealth Insights

Preneed programs and funeral trusts: Unlocking liquidity without selling

Create cash flow stability for your funeral home with a preneed program.

Many funeral home operators face liquidity challenges driven by high upfront operational costs, delayed payment collections and shifting consumer preferences toward lower-cost services. Revenue from services is often not immediately available, making it difficult to cover payroll and supplies.

That’s where preneed programs backed by trusts come in. “Any business owner could use more money to support their ongoing operations and avoid feeling like things are dire,” says David Falconer, Senior Vice President, Funeral and Cemetery Trust Division Manager at Regions Bank. “A skilled trust administration and investment management team may help identify funds to be unlocked to help pursue a sense of stability and generate cash flow for a funeral home owner.”

The potential of preneed programs

Every year, Americans put billions of dollars into preneed programs that allow them to contract with a specific provider for funeral and burial expenses in advance through purchase of a preneed funeral contract. Laws require the funeral home to deposit a percentage of the of the purchased preneed funeral contract into a state-regulated funeral trust account or to purchase a life insurance policy with the death benefits assigned to the funeral home.

Investment managers like Regions Funeral and Cemetery Trust Services may help manage the funds in these trusts. “If they pay $10,000 today, costs may increase in five or 10 years,” says Jenny Crespo, Vice President and Relationship Consultant, Funeral and Cemetery Trust Division at Regions Bank. “The trust may offset the inflation in merchandise and services over time. It generates cash flow by ensuring the funeral home has the funds needed to cover the higher costs when the service is eventually provided.”

Another benefit of a preneed program is that it builds strong community relationships. “Families tend to be traditional. If a family purchases a preneed plan with a funeral home, that starts a relationship and increases the likelihood the family will use that funeral home again,” Crespo says.

Insurance-based vs. trust-based

Understanding the differences between insurance-backed and trust-backed plans may help you choose a strategy that aligns with your goals. Many funeral homes utilize both options.

Insurance-backed preneed plans face strict regulation, and their underlying investments are often linked to 10‑year U.S. Treasury bonds, which have delivered annual growth rates below 3 percent for most of this decade.

Trust-backed plans operate similarly in that they promise future funeral services in exchange for the amount placed in the trust. However, the way funeral homes earn money from these trusts may vary depending upon state regulations. Many states require the full balance of the preneed contract (together with any interest) to remain in trust until delivery of the service. However, other states allow a percentage of the interest income to be distributed from the trust fund while the contract remains in preneed status.

A funeral trust operates as a dedicated financial structure designed to map cash flows from initial funding to final disbursement for end-of-life services. The cash flow moves from contributions to investment earnings, and finally to disbursements (payment to providers) upon the consumer’s death. “There may be a one-time injection of cash flow by identifying unallocated gains, and then an ongoing opportunity as the trust continues to grow—assuming the investments aren’t too conservative,” Falconer says. “There have been many times where we have discovered significant unallocated gains that the funeral home owner is entitled to but hasn’t claimed. That tells us these opportunities likely exist elsewhere. Many funeral home owners ‘don’t know, what they don’t know’ and they need an experienced administrator like us to help them identify it.”

In addition, many states offer trust-based preneed plans with the flexibility to be invested in accordance with the state’s adopted “prudent investment” rule which allows trusts to invest in a broader variety of assets. This offers funeral directors a more diverse portfolio as well as access to investments that have the potential for higher returns. Preneed trust returns may average in the high single digits or even higher in recent years, according to Falconer. “One client said he likes using a trust instead of insurance because it helps him earn more market rate returns and more growth over time,” Falconer says.

Choosing a funeral trust investment manager

Because funeral trusts are state-regulated legal entities, it’s important to choose an investment manager who understands the nuances and requirements of each jurisdiction. Every state has different rules for how funds may be invested. Not knowing those rules may cause compliance issues or lead to investment strategies that don’t support the client’s goals.

You’ll also want a provider with strong experience in asset allocation, governance and risk management, investment policy statement design, and transparent manager selection criteria. Hiring a provider that offers scenario analysis, stress testing and transparency on fees may also be a game changer.

“Unlocking gains requires a smart, disciplined investment plan. Growth mainly comes from proper asset allocation,” says Falconer.

“It's critical to have a team with a depth of knowledge and experience to go through a full transition analysis to evaluate the current assets and ensure the portfolio is aligned to meet the overarching goals of the funeral home owner,” says Marcus Hopkins, director of institutional consulting for Regions Bank.

“At times, portfolios we review are too conservative relative to a client’s goals, and in some cases, they're too aggressive,” Hopkins says. “We have the ability to model portfolios using our long-term capital market assumptions and share an analysis on what the expected risk-return trade-off is going to be over the long-term. We also evaluate the portfolio during the transition analysis to make sure the client is cognizant of the potential gains or losses that may be embedded in the securities—this enables us to be thoughtful and deliberate in how we approach any changes from a tax standpoint.”

Building a resilient, compliant preneed program

No matter how you update your approach to preneed programs, Falconer recommends keeping a close watch on your preneed contracts. With growth rates expected to change over the next 10 years, you’ll want to plan for the returns those contracts may produce moving forward.

When you get to the point of choosing an investment manager, “depth of experience is crucial,” Hopkins says. “You need investment knowledge plus fiduciary and regulatory knowledge. Every state has different rules, so the manager must work closely with the team to understand statutes, fiduciary requirements, conflicts of interest, liquidity needs and risk management.”

A well-structured preneed program backed by a funeral trust may do more than support long-term planning. It may strengthen day to day cash flow, deepen family relationships, and help funeral home directors uncover additional cash flow opportunities they may not realize exist. With the right investment manager, funeral homes gain access to specialized guidance, transparent oversight, and a disciplined approach that aligns each trust’s investment strategy with its intended purpose.

As operational pressures continue to rise, these programs may offer an alternative to selling a business or taking on debt. By monitoring contract performance, understanding state specific regulations, and working with experienced professionals who know how to identify unallocated gains, you can pursue a more resilient, compliant path forward. The goal is simple: create stability today while protecting the financial health of the business for years to come.

If you’d like additional guidance, contact the Regions Funeral and Cemetery Trust Services team or explore our funeral and cemetery trust capabilities.