Death Care Compliance Law

Death Care Compliance Law

Preneed: A Pandora's Box of Problems

William Stalter is the founder of Stalter Legal Services and the Preneed Resource Company. Bill focuses his law practice on preneed and death care compliance, serving banks, funeral homes, crematories, and cemeteries. He has written multiple published articles

Estate Planning and Funeral Arrangements: A Will will be too Late

Posted in Preplanning, Right of Sepulcher, Transition Documents

Funeral and burial preplanning should be a part of every estate plan, but some web pages promoting estate planning can be misleading or impractical.   The estate planning page sponsored by suggests that funeral arrangement preferences can be incorporated into a will or health care power of attorney to alleviate the financial and emotional burdens suffered by survivors.   That advice, though, does not reflect the realities faced by the surviving family members.   Funeral arrangement decisions must be made within days, or even hours of the death.   A will may not be accessible for days, and then opening the probate estate to authorize the executor to care out the funeral arrangement, may take weeks.   The funeral home may also seek immediate payment, or be unwilling to file with the probate estate without additional compensation.

Our preferences about funerals and burials change, and it can become expensive to visit an attorney to amend the will when preference changes.

A power of attorney is a more practical estate planning approach, but the document would need to be coupled with a right of sepulcher that sets out the funeral and burial instructions.  The power of attorney form authorizes the agent to direct the principal’s funeral, but would not set out the funeral and burial arrangements.  Also, the power of attorney does not authorize the agent to pay the funeral bill out of the deceased’s assets.  As we have explained in a prior post, the agent’s authority to spend the principal’s funds terminates on death.  So, the estate plan will have to consider a funding vehicle such as a final expense trust.

NPR’s Stories on the Funeral Industry: On Line Shopping

Posted in Churches/Ritual, Consumer Advocates, Preplanning

NPR’s second story on the funeral industry suggests that preplanning a funeral will typically require visits to multiple funeral homes.

NPR led their story with a consumer attorney sharing his frustrations with getting price information from funeral homes near his father.  To the attorney’s surprise, many of the funeral homes did not include general price lists on their websites.  NPR discussed how the Federal Trade Commission’s Funeral Rule was intended to overcome industry secrecy by requiring the disclosure of itemized price lists.   However, the Funeral Consumer Alliance advised NPR that the Funeral Rule is antiquated because it does not require online price disclosures.  When contacted by NPR, the Federal Trade Commission reminded the reporter that the Funeral Rule was written before the Internet, and an amendment would be required to force funeral homes to post their general price lists on their websites.  What went unspoken in the story is that such an amendment is highly unlikely with the stated goals of the Trump administration.

Another reality is that it is very difficult for Mom and Pop funeral homes to administer their own websites.  Nor are the on line price comparison companies targeting the smaller communities for their services.  As the death care industry representative suggests, on line pricing disclosures are market driven, and the funeral homes in smaller towns are hard pressed to justify the cost of on line pricing disclosures.

A few months ago we posted a sample funeral planning guide for use by churches.  We found one church’s funeral planning guide more beneficial than others because it incorporated actual service costs from local funeral homes.  The guide was obviously prepared with the cooperation of the funeral homes serving that church’s congregation.  Funeral homes do understand the need to provide pricing information for preplanning efforts.

Click the following hyperlink to read NPR’s Funeral Prices are still Unclear.

The Ecclesiastical Preneed Funeral Plan: Exceptional Financial Security

Posted in Churches/Ritual

The promotional website for the Ecclesiastical Preneed Funeral Plan could easily be mistaken for that of a funeral home.  This church stresses to parishioners the need to not only plan their funeral, but to also make financial provisions for their eventual funeral expense.  The website points out that funeral costs are rising, and funding a preneed contract will enable the parishioner to fix the funeral director’s charges and ease the financial burden to their family.  And to ease their own emotional burden, parishioners can “plan their funeral in as much or as little detail as they like”.

Like other churches in England, the Ecclesiastical Preneed Funeral Program administers the parishioners’ funds until they are needed to pay the funeral director.   The inference given is that the church and the fund will be there even if the funeral home has been closed.

NPR’s Stories on the Funeral Industry: Crossing the Street can save Thousands

Posted in Consumer Advocates, Preplanning

The take away from the recent NPR stories on the funeral industry is that consumers should preplan their funerals to control costs, and if the objective is to compare funeral homes and their prices then plan to visit each prospective funeral home.

The first story reports on a widow who spent more than $7,000 on a cremation package.  The widow had never planned a funeral, and had not given thought to her husband’s arrangements until prompted by the hospital on the day of his death.  Relying on name recognition of a local funeral home, the widow and her family went to that funeral home and chose a cremation package.  NPR’s investigation found that the funeral home was controlled by a national death care company that owned several funeral homes and a cremation society in the widow’s community, and that each location offered cremation packages that were cheaper than the one purchased by the widow and her family.  NPR suggested that the widow could have saved thousands of dollars by going to one of the company’s other locations.

The story went on to advise that direct cremation services offer consumers a way to compare funeral homes’ prices, and questioned whether the different prices charged by each of the company’s funeral homes were misleading or inappropriate.  But when input was sought from an industry representative, the reporter referenced both package arrangements and direct cremation services.  The story’s shifts between direct cremations and package cremations probably clouded the issues for consumers.

The price charged for direct cremation services includes funeral home overhead and a targeted amount of profit.  Overhead can vary dramatically from funeral home to funeral home.  The same is true even for the different funeral homes owned and operated by the national death care companies.

Package arrangements also differ from funeral home to funeral home.  Funeral homes typically offer multiple package options.  Accordingly, it will be difficult for consumers to compare package arrangements to determine which funeral home is ‘cheaper’.  As the story suggests, funeral homes offer packages because consumers tend to spend more on a package than when they purchase services a la carte.   While the package is cheaper than purchasing each service and piece of merchandise a la carte, the package includes a service or a merchandise item that may not otherwise be purchased by the family.

But, the primary reason funeral homes offer packages is because families want to shorten, or even avoid, the arrangement process.   The arrangement process requires dozens of decisions at a time when the mind and heart are somewhere else.  Preplanning the funeral is the only way to avoid the stress of the arrangement process.

Here is the link to the NPR story “You can pay thousands less for a funeral just by crossing the street”.

Next we will look at NPR’s story about funeral prices are still unclear.

Church and Funeral Directors in Partnership

Posted in Churches/Ritual

We came across the Dioceses of Liverpool website some time ago when researching the income tax consequences of church sponsored preneed programs.  We had found that preneed funeral programs in England, Canada and Australia were often established and operated independent of the funeral home.  With a high cremation rate, English churches saw an opportunity to partner with funeral directors and reclaim their funeral ministry.

The Dioceses of Liverpool is not alone in having established a program to encourage parishioners to preplan, and pre-fund, funeral arrangements.  The Dioceses describes the impact of their program:

… the changes have led to something more profound for parish ministry. Funeral Directors are contacting parish clergy first to make initial funeral arrangements meaning our churches have more chance to reach out to those in need. We have to take a fresh look at our funeral ministry. It has implications for pastoral and bereavement teams, it means that more Readers are being asked to conduct funerals, it means we have to make serious efforts to work harder at funerals.

In the weeks to come, we’ll post more on church and funeral director partnerships

Missouri Seller Records: Avoiding the next Polley

Posted in Compliance, Exams/audits, Recordkeeping

Prosecutors and investigators have commented to our office about how difficult it can be to prove preneed fraud.   They won’t know whether the consumer has been harmed until the death of the contract beneficiary, and then whether the funeral is provided.  In Missouri, prosecuting a bad apple funeral director got much easier as of January 1, 2017.  We discussed the “Oklahoma Option” in a blog post made almost two years ago.

There remains a significant hurdle to the Oklahoma Option in Missouri: the adequacy of preneed seller records.  The State Board and its staff have gone back and forth for more than a year over a rule to define adequate seller records.  The original rule was vague and confusing.  The industry suggested informal meetings to discuss record options, but ultimately, the staff requested, and received, until the Fall of 2016 to submit a more detailed rule proposal.  But in September, the Board tabled the staff’s record keeping rule as unresponsive to their instructions.  In a series of subsequent blog posts, we addressed the issues we had with the staff’s proposal.

The Oklahoma Option is why we have advocated that seller records include more detail about monthly receipt and deposit records.  (Follow this hyperlink.)  Even if the State Board will not proactively refer cases to local prosecutors for criminal proceedings, they must not handcuff the prosecutor with record keeping requirements that fall short.

The Missouri Funeral Consumer Board: a step closer to reality?

Posted in Missouri - SB1

A few weeks ago we posted about HB596, the legislative bill that would shake up the State Board of Embalmers and Funeral Directors by replacing two industry members with two public members.  Funeral directors worried about that bill will have further cause for concern when they visit the State Board’s membership page.  The most recent industry appointments are no longer on the Board.  Currently, the Board has three vacancies, and lacks a quorum to transact business.   Missouri funeral directors are bound to speculate that there is a conspiracy to get HB596 passed, and then to allow the Governor to fill the open chairs with public members.

The reality is probably that Missouri’s new Governor rescinded interim board and agency appointments in order to give his team an opportunity to vet those individuals.  Two of the current State Board vacancies had been filled by interim appointments made by former Governor Nixon.  Those appointments included a Republican and a Libertarian, probably with philosophies more in line with the new Governor than the old Governor.  The two interim appointments have also exhibited a business oriented approach to Board matters during the two meetings they had served.  Consequently, we fully expect the Governor to reappoint them both.

However, until those appointments occur, the Board cannot take official actions.  But before Missouri funeral directors jump to the conclusion the Board is out of business, it should be noted that the Board staff continues to operate under the preneed examination procedures and guidelines last approved by the State Board.

Nebraska Preneed Legislation – Clarifying Trust Liability

Posted in Compliance, Exams/audits, Investments, Reporting, Trust Funded

On January 30th, the Nebraska Legislature will conduct a hearing on a bill to fix a problem with the state’s preneed funeral law.  The Burial Pre-Need Sale Act was originally passed in 1986, when preneed trusts invested almost exclusively in government bonds.  The intent of the Nebraska law was to require the preneed seller (that used trust funded contracts) to deposit 85% of the preneed contract payments into trust, and to thereafter, require the trust to accrue income each year equal to the CPI published by the Department of Insurance.  In years where the trust earned more than the CPI requirement, the preneed seller could withdraw the excess income.  The law included the following definition:

(23) Trust principal shall mean all deposits, including amounts retained as required by section 12-1114, made to a trust account by a pre-need seller less all withdrawals occasioned by delivery or cancellation

This definition would eventually prove to be problematic.  Banks have their own definition of “trust principal”, which is the same as tax cost basis.  Nebraska’s annual report failed to make a distinction between the statutory definition and the bank’s trust principal, and incorporated the bank’s reporting of trust principal.  So long as a trust holds a bond to maturity, there is little difference between the two definitions.  However, a bank’s trust principal includes all characters of income, and trust principal will be reduced when capital losses are realized.  And that is what several Nebraska preneed trusts experienced in 2008 and 2009 when the bond mortgage crisis occurred.

From the Department of Insurance’s perspective, capital losses from bond selloffs represented a double threat to the funding adequacy of the state’s preneed trusts.  Not only were trust principal’s declining, CPI requirements were declining with trust principal.  Consequently, the Department began to revise the annual report away from the bank’s definition of ‘trust principal’.  Over the course of five years, the Department tweaked the annual report, incorporating market value factors and unrealized gains/losses factors.  For preneed sellers that had not incurred significant capital losses, the annual report revisions inflated their CPI requirements, and reduced their excess income withdrawals.  Accordingly, Bill LB239 is a welcomed return to law’s original intent.

Nebraska’s larger preneed sellers will want to know how the Department will adapt the annual report for trusts invested for a total return, rather than an income return.  Ten years of a Federal Reserve interest rate at near 0% have forced many preneed trusts to switch to a total return investment policy.  The market performance over the past 12 months has been robust, but fueled by rising equity values, not interest income.  Preneed trusts may experience a 4% investment return, but only a 1.5% net income return.  When the CPI is at 2%, the total return looks good and the net income return not so good.  But, the Legislature’s intent has been met: if all preneed contracts were to be canceled or performed today, the trust has market value in excess of trust principal/liability.

Another question is whether the Department will continue to use the trust’s market value as the benchmark for the adequacy of funding.  A return to the use of the bank’s definition of trust principal as the benchmark could result in situation that Missouri Legislators rejected 20 years ago.  Prior to 2009, Missouri’s preneed law allowed sellers to withdraw excess funds so long as the trust’s market value exceeded trust deposits.  When bond values fell in the mid-1990s, preneed sellers were caught off from excess funds withdrawals.  The industry proposed legislation to allow government bonds to be held at cost rather than market value.  The legislation was rejected, and bond values recovered before the industry could seek another chance at the legislation.    The criticism made of the bill was that it would encourage sellers to have trustees hold on to ‘dog’ investments when market conditions recommended changes.

Missouri Rule Rollback: The 18 Month Deadline

Posted in Missouri - SB1

Keeping true to a campaign promise, one of the first acts of Missouri Governor Eric Greitens was to issue an executive order that gives each state agency until June 30, 2018 to repeal or cease any regulation that is ineffective, unnecessary of unduly burdensome.  The Governor’s order sets out the following review procedures:

  1. Every State Agency shall undertake a review of every regulation under its jurisdiction within the Code of State Regulations.

a.  As part of its review, every State Agency shall (i) accept written public comments for at least a 60-day period; (ii) hold at least two public hearings to allow citizens and businesses to identify regulations that are ineffective, unnecessary, or unduly burdensome; (iii) solicit and incorporate comments and advice from private citizens, stakeholders, regulated entities, and other interested parties; and (iv) complete the review by May 31, 2018.

b.  Every State Agency shall designate an individual to oversee the review.

c.  For each existing regulation, and any future proposed regulation, every State Agency shall affirm in a report submitted to the Office of the Governor by May 31, 2018:

i. The regulation is essential to the health, safety, or welfare of Missouri residents;

ii. The costs of the regulation do not outweigh their benefits, based on a cost-benefit analysis;

iii. A process and schedule exist to measure the effectiveness of the regulation;

iv. Less restrictive alternatives have been considered and found less desirable than the regulation;

v. The regulation is based on sound, reasonably available scientific, technical, economic, and other relevant information; and

vi. The regulation does not unduly and adversely affect Missouri citizens or customers of the State, or the competitive environment in Missouri.

d.  By June 30, 2018 every State Agency shall take any action necessary to repeal or to cease rulemaking for any regulation that does not meet any criteria in Section 3(c) of the Order.

This represents a very tall order for the Missouri State Board of Embalmers and Funeral Directors.  That Board has been mulling over a number of rules and regulations drafted since the preneed law was re-written in 2009.   Although none of the rules approved by the State Board have been submitted for the formal rulemaking process, the State Board has been enforcing those rules.   For those disgruntled with one of those rules, the Governor’s order will provide funeral homes a 60 day window to provide written comment about how that rule is “ineffective, unnecessary, or unduly burdensome”.

Missouri Funeral Legislation: The Funeral Consumer Board

Posted in Exams/audits, Missouri - SB1

A bill has been filed in the Missouri General Assembly that proposes to divide the State Board of Embalmers and Funeral Directors membership evenly between the public and industry representatives.  That Board currently consists of 5 industry members and 1 public member.  The bill sponsor, Representative Joe Don McGaugh, is from a district that includes Ray County, where hundreds of consumers lost preneed funds paid to Polley Funeral Home.  The Representative is of the opinion that the State Board’s industry members sat on their hands despite consumers and funeral home competitors complaints against Polley Funeral Home.  The State Board’s discipline page reflects that the Polley preneed seller license was first suspended in 2011, and quickly reinstated, only to be suspended and reinstated in following years.  After Mr. Polley was arrested on drug charges in 2015 (smoking meth in his hearse while parked in a casino lot), the Ray County prosecutor sought assistance from the Missouri Attorney General in pursuing criminal charges for preneed fraud.  By the time fraud charges were filed in 2016, the consumers’ preneed funds were gone.

In 2009, the Missouri Legislature rewrote the state’s preneed law, requiring the State Board to conduct periodic preneed audits, and granting the Board concurrent jurisdiction to pursue criminal prosecutions against funeral directors that failed to handle consumer funds appropriately.  At least one Legislator feels the State Board will take those responsibilities more seriously if consumers have an equal say.