As Paul Davies suggests, the situations with regard to the funeral plans are not dissimilar to the arrangements used as an alternative to ABTA bonding, or even the CAA bonding. In each case the terms of the arrangement between providers may be subtly different and, certainly, the earlier ones appear to reflect little recognition of any taxation consequences (having been drafted by commercial lawyers with little apparent trust knowledge).
It is not unusual for the plans to be structured to keep the future liability off the provider’s balance sheet, as this might otherwise require the liability for each funeral to be re-assessed on a regular basis – an onerous task.
In many schemes the income accretion is intended to help fund any increased costs of providing the funeral and may, or may not, be transferred to the funeral provider on an annual basis. I believe that more often they remain within the “trust fund” with the funeral provider taking out only the costs of the funerals that have happened, and any refund where a client has withdrawn from the plan. In such cases, the documentation may provide the income accrues to the funeral provider, not the plan member.
In general, the plan member’s rights are contractual between them and the funeral provider, and they are not party to the trust arrangement, even though in some trust deeds they are clearly the settlor as the funeral provider is acting merely as a bare trustee when setting up the arrangement (which likely conflicts with the underlying contractual arrangement between the client and the funeral provider).
Few, if any, clients would even suspect there to be any tax consequences upon them of entering into a funeral plan.
Anyone looking at the consequences of the trust created should look at those terms together with the terms and conditions of the contractual arrangement between client and funeral provider. They may find that the underlying client only has an entitlement to anything if the funeral provider goes into liquidation. Until then, the monies are held upon the instructions of the funeral provider. I appreciate this does not address the taxation aspects, but they will merely follow on from identification of the beneficial interests. As identified above, unfortunately, every scheme might have a subtly different outcome.