Arkansas State Board of Embalmers and Funeral Directors Service Laws, Rules, and Regulations (LRR) Practice Exam

What happens when a prepaid contract is canceled?

1. Refund is issued immediately

2. Trustees may disburse funds

3. Contract remains in effect

4. Seller retains all rights to the proceeds

The correct answer is: Trustees may disburse funds

When a prepaid contract is canceled, the situation usually involves the management of any funds that have been held in trust as part of that contract. If the funds were placed in a trust, the trustees have the authority to disburse those funds according to the terms agreed upon in the prepaid contract and any applicable laws. This means that rather than issuing an immediate refund to the party who canceled the contract, the trustees ensure that the funds are handled appropriately, maintaining compliance with state laws and the conditions in the trust agreement. This could involve returning funds to the consumers, reallocating them for other use as directed by the contract or law, or holding them for another purpose, depending on the specific circumstances surrounding the cancellation. The other options imply actions that are typically not permitted once a prepaid contract is canceled. For instance, an immediate refund might not always be granted as there are procedures and regulations governing the disbursement of trust funds, and the contracts often include stipulations that may affect refund eligibility. The notion that the contract remains in effect contradicts the premise of cancellation, while the seller retaining all rights to the proceeds after cancellation may violate the trust agreements in place designed to protect consumer funds.