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F E Smith
F E Smith, Advocate
Category: Law
Satisfied Customers: 8550
Experience:  I have been practising for 30 years.
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Protection of clients money

Customer Question

Protection of clients money
Submitted: 4 months ago.
Category: Law
Expert:  F E Smith replied 4 months ago.

Do you have a question about this? Thank you.

Customer: replied 4 months ago.
I am a funeral director, the industry has been controlled by 3 large companies in the uk for years and now they have a monopoly on pre paid funerals. 20% of future funerals are prepaid in uk. The large companies cotton this market and insist that the funerals are carried out you their own funeral homes, no matter the distance or the wishes of the family. I want to start selling funeral plans using my own business but want security for my clients, can I use a property, owned by me not the business, in some kind of trust as protection should the business fail ?
Expert:  F E Smith replied 4 months ago.

I can understand you wanting security for your clients but what exactly is your concern and what are you talking about when you ask and you use a property owned by you personally?

Why don’t you simply put the money on deposit in a trust account (which keeps it safe from creditors) and then draw it down on each death?

Customer: replied 4 months ago.
Funeral costs are set to increase by up to 15% per year, in part because the same large companies are buying crematoriums and cemeteries all over the country and controlling the prices, any money placed in an account will not earn enough, I don't need to draw down money to do the funerals as I gave the infrastructure anyway, the property has a mortgage with interest rate of 6.2 above base, every thousand paid of it effectively will be a saving of that 6.2%. The equity created would be the security families need. The large companies charge more than £4500 for a plan, they also charge for admin, the plans do not guarantee full payment of a funeral. When the plan holder dies we get a call effectively asking "how low will you go on price" to do the funeral. They make there money on the difference between what the family pay and what they pay for the funeral. I want to charge a reasonable ammount (not more than a funeral costs now) and promos to cover all costs at time of death. This main question asked is, what if the business fails,people trust in property .
Expert:  F E Smith replied 4 months ago.

I see what you are doing and the ultimate reason (the funeral payment) is actually not relevant with regard to the legalities of the scheme. What you are doing is getting people together to invest in a property which hopefully, is going to be future proof, by virtue of rising property prices.

Because it is investment related you would need to be registered with the FCA. The property would be held in trust for the benefit of the scheme members. The company that is running the funerals would be paid by the trustees.

The potential problem here is that there may not be liquid cash to pay for the funeral when it’s required if the fund is fully invested.

Customer: replied 4 months ago.
Thank you that's sensible thanks for your help
Regards Stephen
Expert:  F E Smith replied 4 months ago.

I am glad to help. By having the property owned by a trust, it keeps it separate from the company that is doing the funerals and hence, if the funeral company goes bust, the property is still there for the benefit of the scheme members.

It is the liquidity which is problematical.

You could have the fund, for example, 75% invested and leave the balance in a trust account but it still problematical if there is a spate of panic dying and more than 25% of the unit holders all need funerals at the same time.

You may get to the stage where there are enough new ones coming in to pay the ones going out but there is no guarantee.

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