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

Preneed Contract Holders: the lonely 5%

Posted in Guaranteed, Non-guaranteed, Preneed, Preneed Development, Preplanning, Uncategorized

The Memorial Business Journal recently reported on findings from the NFDA’s 2014 Consumer Awareness and Preferences Study.   Some of the findings may not come as much of a surprise to funeral directors, such as consumer demands are changing.  But, findings regarding how many respondents have made efforts to prearrange, and prepay, for funerals were surprising.  The article reported that only 19% of Study respondents had made prearrangements for themselves.  According to the article, prearrangement meant decisions and communications regarding the respondent’s final arrangement preferences.  Of those 19% who had participated in prearranging, only 26% had actually made some form of prepayment towards their final arrangement.  As one commentator to the article points out, only 5% of the Study respondents have purchased a preneed funeral contract.  (These statistics seem much lower than those reported by industry sources ten years ago.)

Of the individuals who have prearranged but not prepaid, the article reports the main reasons for not doing so include:

  • Estate or life insurance will cover the costs
  • Can’t afford to prepay
  • The funeral arrangement is not a priority
  • I don’t want a funeral.

Respondents gave similar reasons for not even attempting to prearrange their own funeral.

In an effort to address the need to prearrange, The Funeral and Memorialization Information Council have initiated the “Have the Talk of a Lifetime” campaign.  Members to the sponsoring organizations can access the FAMIC website for more information and documents.

As the campaign is successful in getting funeral directors and families engaged in the talk of their lifetime, the funeral home will still need to address consumer affordability.  On that issue, one commentator offered the observation of how the industry has steered the consumer to paying for the purchase price upfront.  He went on to suggest consumers need payment options.  We agree with his following comments questioning the mixed messages respondents gave concerning the value of price protections.  For too long, the industry has relied on “cost savings” to sell a preneed contract.  Even with an installment payment option, many older consumers cannot afford the required monthly payment.  Without a non-guaranteed contract option, many of these talks will still end in a direct cremation.

We encourage funeral directors to maintain the memberships in the FAMIC organizations, and to subscribe to the Memorial Business Journal.

Cemetery Care Fund Reports: The Operator’s Vicarious Liability

Posted in Cemeteries, Fiduciary, Reporting

Typically, the standard by which a cemetery is judged to be abandoned is whether the grass is getting cut.  But for licensed cemeteries, some states’ laws may also include provisions to deem a cemetery abandoned when regulatory reports are not filed.   Care fund reports are intended to inform the cemetery regulator whether the operator is making deposits to the fund, and how much the trustee is distributing to the operator.   When the reporting required for a cemetery license is neglected by the operator, state law may provide the cemetery regulator authority to bring legal action to declare the cemetery abandoned even though the grass has been cut regularly.  The purpose for such authority is to enable the regulator to determine if the care fund is being depleted by the operator, and to bring action to preserve the fund.

Kansas has had such authority for many years, but an annual reporting system meant the Secretary of State’s office was viewing information that was 15 months old (if operators filed their reports timely and accurately).  When the Kansas cemetery law was amended in 2012, the operator’s annual report was replaced with monthly reporting required from both the operator and the trustee.  The impact of the new reporting requirements were somewhat negated by a change to the abandonment provisions (requiring a proceeding to prove both that reports were not filed and that the grass had not been cut for a year).

In a compromise sought by the Kansas Cemetery Association, the reporting requirements were changed from monthly to quarterly, and the abandonment provisions were changed back to allow abandonment be sought under either condition.  HB 2172 will take effect on July 1st.

While regulators want to determine that care fund contributions are being made when required, recent disciplinary proceedings have been the result of care fund trustees making improper distributions.   Consequently, the Kansas law requires cemetery trustees to file reports directly with the Secretary of State.  Those reports include the determination of distributable income for care funds.   A trustee’s failure to file its quarterly reports could trigger an abandonment proceeding under Section 17-1366.

Kansas’ trustee filings are intended to avoid a situation similar to that reported on the discipline page of the Missouri Office of Endowed Care Cemetery, where a St. Louis cemetery agreed to return almost $190,000 of care fund distributions.

The Fed’s Tapering Plan: A Bumpy Road for Death Care Trusts?

Posted in Compliance, Investments, Master Trusts, Uncategorized

It has been almost ten years since the return on Government bonds fell below 5%.  But bond returns did not hit bottom until four years later when the sub-prime mortgage market collapsed.  Those conditions threatened the nation’s credit markets, and so, in 2008, the Federal Reserve Board initiated a stimulus program involving the purchase of Treasury bonds and mortgage-backed bonds.  For almost six years, the Fed’s stimulus program supplied demand for low interest debt instruments that did not meet most investors’ objectives.  Last fall, the Fed announced its plan to taper the stimulus program by reducing the Federal Government’s purchase of bonds.  While the Fed has taken the position that interest rates may stay low even as unemployment numbers decline, many investment analysts believe rising interest rates are a matter of time.  The rate at which interest rates climb could have a significant financial impact on many death care trusts.

A decade of low yield Government bonds forced many fixed income investors to look elsewhere for returns.  A significant segment of that market includes 401K administrators who manage accounts for retirees. Death care trusts constitute another major investor in Government bonds.  Death care trusts and 401K plans share two crucial investment goals: income and security.  With more baby boomers hitting retirement age, death care trusts will face increasing competition for Government bonds when rates begin to climb.  That demand may play a role in how fast interest rates could rise.

If interest rates experience a gradual increase beginning over the next few years, death care trusts may be able to adapt with little market value loss.  But if interest rate increases rise quickly, the bond holdings of death care trusts could incur significant market value losses if the funds are not actively managed.

When interest rates do rise, bonds with the longer terms will feel the greatest impact from declining values.  The longer a bond’s maturity, the greater its risk is to market value loss when newer bonds with higher yields are issued.  Consequently, the safe and secure investment favored by some states’ death care laws, the long term Government bond, could actually pose a serious risk in terms of value decline.

Some investors can manage market value loss by holding individual bonds to maturity, but this is not an attractive option for preneed trusts that are required to base performance distributions on market value.  Holding an ‘impaired’ bond to maturity would result in a small portion of unrealized value losses being incurred with each contract performed.  In contrast to equities, market value decline of a long term bond will endure for so long as interest rates exceed that bond’s return yield.

Another strategy against bond investment losses would be to keep a substantial portion of trust investments in cash equivalents.  The return on such funds will increase with higher interest rates but there are downsides to this strategy.  Cash equivalents cannot keep pace with inflation, and the trust will lose ground to rising costs of preneed contract performance during the wait for interest rates to rise.

Bonds may be affected most directly when the Fed raises interest rates, but equities aren’t necessarily immune to the Fed’s actions. Companies that did not take advantage of low interest rates by issuing bonds may see their borrowing costs increase, which could cause their stock value to decline. As interest rates become competitive with the return on stocks, the investment demand for equities could also decline.

Fund managers acknowledge that the Fed’s response to the sub-prime mortgage crisis has created a unique investment environment that is difficult to predict.  Preneed fiduciaries accustom to a conservative investment philosophy now face the challenge of how to implement new strategies efficiently and quickly to multiple trusts, many of which may be relatively small.  For one fiduciary client, such circumstances prompted the implementation of a common trust fund.  Another fiduciary client implemented an investment plan to diversify all of its preneed trusts. In the absence of proactive investment management, the next few years could witness an erosion in the value of many preneed trusts.

Qualified Funeral Trusts: once a simple concept

Posted in Master Trusts, Non-guaranteed, Preneed Tax, Taxes, Uncategorized

In has been almost twenty years since the Balanced Budget Act of 1995 introduced the concept of a simplified tax return for preneed trusts.  Initially, the “Qualified Funeral Trust” concept called for a flat 15% tax on accounts with contributions of $5,000 or less.  A conference committee succeeded in getting a higher contribution limitation ($7,000) but the Balanced Budget Act was eventually vetoed by President Clinton.  The 1995 proposal was resubmitted to Congress, and passed, as free standing bill in 1997.  However, the first Form 1041QFT was anything but a simple return with a flat tax.

Instead of a flat tax, the Form 1041QFT included the graduated tax rates imposed on other types of trusts.  The initial tier of trust net income was taxed at 15%, but a preneed trust would quickly climb to the top tier of 39.6%.  As with other trusts, the Form 1041QFT incorporated Schedule D for the reporting of capital gains.  As an alternative to the simple return (and its higher tax liability), the Form 1041QFT allowed a composite return where tax liability was computed on an individual account basis.  When income and expenses were allocated to individual accounts, the size of each such account assured that the lowest tax rate of 15% would be applied.

The Form 1041QFT hasn’t changed much since 1997 except that the Tax Rate Schedule has crept up.  In 1997, when certificates of deposits were paying 5.5%, a modest preneed trust of $250,000 could expect to hit the highest tax rate of 39.6% if it filed a return as the industry had envisioned.  For a trust of $500,000 that had a net return of 4.5%, the trust’s tax liability doubled when a simple return was used in lieu of the composite return.

The IRS hasn’t provided much guidance regarding the Qualified Funeral Trust other than that cemetery merchandise trusts are subject to Section 685 (Notice 98-6) and income and expense allocations to an individual account must cease within 60 days of the preneed beneficiary’s death (Notice 98-66).  To comply with latter notice, many tax administrators use a spreadsheet to allocate income and expenses among the year end active accounts.  So long as the trust was invested primarily in fixed income producing assets, there was no need to address the Schedule D requirements.  Also implicit in this simplified allocation of income and expenses is that all accounts are guaranteed contracts where the seller ultimately pays the taxes.  Serviced contracts have been excluded from income and expense allocations leaving active contract accounts to bear their tax liability.

As we suggested four years ago, trends towards non-guaranteed preneed and diversified investments will complicate the allocations required for Section 685 compliance.  (See our prior post: Non-guaranteed preneed: time to review the duties .)  QFT return preparers will need more than an Excel spreadsheet to properly allocate income and expenses.

Form 1041QFT: Reducing Tax Liabilities

Posted in Uncategorized

Tax day is only a week away, and preneed trust returns will look a little different this year.  As we reported back in December, the IRS took the position that preneed trusts are subject to the Medicare Tax used to fund the Affordable Health Care Act.  Accordingly, Federal Form 1041QFT now requires the reporting of “Net Investment Income” or “NII”.   The NII threshold for the Medicare Tax is $11,950, and most preneed trusts will need to file a composite return to avoid this 3.8% tax.

The composite return requires an individual account to report each character of income and expense, and now a column for “net investment income” or “NII”.   The NII column is also helpful to distinguish an individual account’s gross net income from net taxable income.  With the position taken by the IRS to impose the Medicare Tax on the QFT, preneed administrators can be more confident in applying the Schedule D tax rates on an individual account basis.  For trusts diversified into equities that produce long term capital gains and qualified dividends, the difference between NII and net taxable income could be substantial.

If an individual account’s NII is $2450 or less, long term gains and qualified dividends would not be taxable.  If these two types of income account for half of the trust’s income, the trust’s tax liability is reduced by half.  With a NII threshold of $2450 for the Schedule D rates, most preneed contracts will not be taxable on qualified dividends or long term capital gains.  The challenge for administrators may be documenting that fact.  The Form 1041QFT instructions reference Part V of Schedule D.  It is not practical to prepare a Schedule D for each individual QFT account.

Excess Preneed Funds: The State’s Collection Agent

Posted in Preplanning, Uncategorized

Over the past few months, we have been pressing state officials in Illinois and Nebraska on the issue of who is the state’s collection agent for excess preneed funds.  Is it the funeral director or the funding source (the preneed trustee or the preneed insurance carrier)?

Back in 2010, the Missouri State Board of Embalmers and Funeral Directors ‘adopted’ the policy of MO HealthNet that the funeral home should be the states collection agent.  Illinois and Nebraska seem to be leaning towards making the preneed funding agent responsible.  As counsel for preneed fiduciaries, I have been challenging that duty because of positions like that taken by Missouri and Nebraska on other administrative issues: if trust income is insufficient to pay for an account’s administration, the cost of such services must be charged back to the seller.  With regard to unique services, I disagree.  The costs of collection services should be charged to the excess funds.

If the duty is to be imposed on the funeral home, acting as the state collection agent is not a service that one will find among those included in the non-declinable service charge.  Rather, the state collection services are akin to the services described in FTC Funeral Rule Opinion 13-2, where the funeral home would charge a fee collecting insurance proceeds or trust proceeds.  When funeral directors ask whether they can charge such a fee, it’s difficult to provide a conclusive answer.  Regulators are prone to challenge any fee imposed upon the consumer.  Missouri regulators went so far as to include the following language in their preneed law:

A seller may not require the consumer to pay any fees or other charges except as authorized by the provisions of chapter 333, RSMo, and this chapter or other state or federal law.

If states want either the funding agent or the funeral home to police excess preneed funds, they will have to allow those funds to be tapped for our collection services.

My Preneed Account: Interest Alone Won’t Cut It

Posted in Non-guaranteed, Preplanning, Trust Funded, Uncategorized

Since President Obama unveiled the new MyRA as his plan to revive Americans’ saving habits, we have been making comparisons between funding for retirements and preneed.   Like the MyRA, the non-guaranteed preneed contract could represent more of an introduction to preplanning funding than the final preneed product.  As the AARP acknowledged a few years ago, the guaranteed price contract offers a benefit to the consumer.  However, fewer consumers can afford to purchase their prearrangement without installments.   Low preneed funding returns preclude death care operators from extending price guarantees during installment terms (or from offering any price guarantees).  Consequently, we are seeing a variety of ‘hybrid’ preneed programs that evolve around the non-guaranteed arrangement.  But as critics of the MyRA point out, the new brand of consumers’ preneed accounts cannot survive on interest income alone.

Through the Government Securities Investment Fund (“G Fund”), the MyRA provides a safe, short term savings plan. Chuck Jaffe of MarketWatch suggests that despite such safety, the G Fund has severe limitations as a long term investment vehicle.  While the G Fund is intended to “produce a rate of return that is higher than inflation while avoiding exposure to credit (default) risk and market price fluctuations”, Mr. Jaffe’s analysis shows that the fund has not been keeping pace with inflation as measured by the Consumer Price Index.  Those numbers fall even shorter of the 3% to 4% funeral cost increases reported by industry surveys.

The government bond has long been a staple investment of preneed and care funds, and death care fund managers have been facing difficult decisions whether to assume credit risk (corporate bonds) or market fluctuations (long term government bonds).   The Economic Stimulus Package of 2009 resulted in an extended period of lower government bond rates.  To produce an interest return that paces not only CPI, but also industry cost increases, fixed income portfolios have been forced to assume more exposure to credit (default) risks and/or market price fluctuations.     Now as the Federal Reserve begins to ‘taper’ the program, the value of long term government bonds will decline.  How quickly will depend on the Federal Reserve’s actions.

The court filings made by the receiver for the Wisconsin Master Trust provide a perspective of the preneed fund manager’s dilemma.  Decimated by investment losses and high administrative costs, the program is finding it difficult to produce an “adequate” return from the fixed income market.   But for the Wisconsin Master Trust, the adequacy of investment return does not yet include funeral cost increases or true costs of administration and taxes.

The MyRA critics advise that a true retirement plan must eventually provide an investment return that exceeds inflation.  That cannot be done with an investment plan like the G Fund.  An interest bearing MyPA may serve as a short term introduction to another preneed product, but a viable long term non-guaranteed product will need proactive asset management.

Death Care Legislation: Not Without a Consensus

Posted in Associations, Legislation, Uncategorized

The reversal of the Heffner decision generated a wide range of comments, but those made by Wilson Beebe resonated most with our initial review of the decision.  The lower court decision was based on a challenge that the Pennsylvania Funeral Law was unconstitutional on its face.   A law can also be challenged as unconstitutional because of the manner in which it is applied.  The “facial” challenge of a law has far greater consequence because if successful, the entire law is invalidated.   The Supreme Court has expressed concerns how the facial challenge might be used to undermine the legislative process, and accordingly, the challenging party is held to a higher standard of proof:  To succeed in a typical facial attack, [the respondent] would have to establish “that no set of circumstances exists under which [the statute] would be valid”, United States v. Salerno, 481 U.S. 739, 745 (1987).  Put another way, the challenge will fail if the law serves a single legitimate purpose.   The higher standard of proof is to avoid the courts being used to erase a law that the aggrieved could not otherwise change through the legislative process.

As witnessed in Pennsylvania and Wisconsin, competing economic interests are the cause for most death care legislation never advancing out of its assigned committee.   The competing interests need not be as large and divisive as common property ownership and preneed solicitation.  On its face, the bill recently introduced for the Missouri Funeral Directors and Embalmers Association might seem non-controversial.  But, SB883 steps on the toes of large preneed sellers and preneed insurance carriers.   One section of the bill would reduce the window for trust deposits from 60 days to 30 days (requiring sellers to make deposits before internal accounting reconciliations are performed).  Another section would impose preneed contract requirements on insurance assignments that insurance companies are challenging as being outside the current law.  Not looking to take sides in an internal industry dispute, legislators pull back from such proposals until a consensus is worked out.   And then, regulatory approval may also be required.

While anyone can derail a death care bill, associations closely aligned with their regulator have a definite advantage in getting bills through the legislative process.  As a facial challenge to the entire Pennsylvania Funeral Law, the Heffner decision threatened the foundation of the PFDA, and similarly positioned funeral associations.

MyPA: No Free Passes

Posted in Non-guaranteed, Preplanning, Uncategorized

Our recent post on similarities of the MyRA and non-guaranteed preneed concluded with references to how criticisms of President Obama’s new retirement account were applicable to preneed.  One such criticism relates to the lack of investment performance, but we will save that issue for a future date.  For this post we want to address the costs associated with implementing and maintaining the MyRA.

Bloomberg News noted in an article that fewer employers maintain a pension plan or 401(k) plan due to their costs.  The report included a quote indicating that research has shown middle and moderate income workers are likely to save for retirement when they can do so with a payroll deduction, and are unlikely to do so when they don’t have that option.   The report goes on to note that even though the MyRA would help avoid most administrative costs associated with formal retirement plans, small business groups have opposed basic savings plans because of costs associated with payroll deduction requirements.  If forced to provide payroll deductions for a voluntary retirement program, employers are fearful the accompanying costs will be wasted when employees do not follow through.

Trust funded preneed programs have many of the same administrative costs of a 401(k) plan.  Plan administrators must track individual purchaser accounts and make periodic allocations of income, expense and value.  With the guaranteed contract, preneed sellers have assumed the risks and rewards of investment performance.  Under many states’ preneed laws, the seller also controls income earned by the trust.  Consequently, the seller has been expected to bear excess costs associated with the trust funded preneed program.  While each preneed trust is a common trust fund for purposes of 12 CFR Part 9, Federal policies have been ‘modified’ to reflect the economic realities of the guaranteed contract. In states where trust income can be distributed prior to performance, the IRS and the OCC have been flexible regarding income, expense and value allocations.  In states where income is required to be accrued, trustees can also take comfort in the seller approving allocation procedures.

But when the price guarantee is eliminated from the preneed contract, the purchaser becomes the primary beneficiary of the arrangement, and assumes the risk and reward of investment performance.  There are fewer (if any) penalties to canceling the arrangement or transferring the funds to different funeral homes.  The purchaser can defer payments when emergencies arise, or make payments whenever convenient.  The arrangement has the portability features that consumers and regulators seek.  And, it comes with the tax benefits of the Qualified Funeral Trust (no messy 1099’s or Grantor statements).  The non-guaranteed preneed contract could be called the purchaser’s “MyPreneedAccount”.

But, the funeral home offering MyPA to consumers cannot collect a purchaser’s payments and hand them over to the Federal government for investment and administration.  Instead, preneed administrations arguably have greater administration duties than with the guaranteed contract.  Instead of a single seller, the trust now has multiple income beneficiaries.  The premise for Federal agencies granting administrative flexibility has changed.   And there is the new ‘voluntary’ nature of the MyPA.  Like the MyRA account holder, the non-guaranteed contract purchaser has less incentive to make payments on the preneed contract.  How should the account’s expenses be paid if purchaser has found payments inconvenient after only paying $25?

We are of the mind that non-guaranteed preneed will be beneficial to consumers that need flexibility in preparing for final expenses, and who want to retain greater controls over the account.  But, those benefits and rights come at a cost.  Locally, state regulators have given early indications that they expect the seller to continue to foot the expense of the non-guaranteed contract.   That position is difficult for this author to reconcile with the realities of the MyPreneedAccount.

Rulemaking Procedures: The Due Diligence Factor

Posted in Legislation, Reform

Because, that is our Policy.

The death care industry is hearing that more frequently these days.   Last July, an Illinois client was advised by the Department of Healthcare and Family Services that his preneed contract would have to be revised to comply with the Department’s new policy about excess preneed funds.  A few clients in other parts of Illinois began to report the same.  I asked that the clients request a copy of the policy.  The Department did not respond to the funeral directors, and so, my office began to make written requests to the Department.  The Department finally replied after 4 months with a contact number to the Department (that proved to be disconnected).  The Department also provided us contact information to the Illinois Funeral Directors Association (an individual who left the association two years ago).  We continued to press the request to the Department, and finally this week, the Department provided hyperlinks to the policy that has been cited to the funeral directors.

What we wanted to determine from the Department policy was the duty owed with regard to excess trust funds, who owed the duty, and the statutory authority for the policy.  If the Department policy was that the trustee had a duty to determine if excess funds existed, and that such funds must be paid to a specific State office, new fiduciary procedures would have to be implemented, and a decision would have to be made with regard to the expense of the handful of accounts affected.  (The policy would likely be triggered only when a family downgraded from a tradition funeral to a cremation.  Even with non-guaranteed contracts, the family tends to spend the entire trust.)

As support of their position that trust funded preneed contracts must pay excess funds to the state, the Department cited my office to the Policy section addressing insurance funded preneed contracts.  Illinois law was amended to require insurance contracts be transferred to trust when a family wants to exclude the insurance cash value from their assets.  Neither that law, nor the Department Policy, was intended to apply to the trust funded preneed contracts used by our Illinois funeral homes.  The Department has atrust funded burial contract section, but no mention is made of excess preneed funds.

Two years ago, the Missouri Division of Professional Registration took the position that it had been State Board of Embalmers and Funeral Directors policy that insurance beneficiary designations were preneed contracts long before the new law passed.  In support of that position, the Division referenced an internal legal memorandum.  As we have explained in prior posts, this “Policy” is motivated in part by the State needing the ‘preneed contract’ definition so that excess insurance funds must be paid over to the State.  (We pressed this issue in the blog and to the Division because we anticipated that the Division will make similar legal reaches to impose “policy decisions” on preneed trustees.)   Nebraska made such a leap last month.

In an email to preneed sellers, the Nebraska Department of Insurance notified funeral homes of the following policy:

Irrevocable Trusts

The Department has found that some Trustees have allowed Pre-Need Purchasers to cash irrevocable trusts without the Pre-Need Seller’s authorization and/or knowledge. Any pre-need contract cancellation request must come from the Pre-Need Seller (in writing), as outlined in the Pre-Need Burial Sales Act. We are working with these Trustees to help them understand their fiduciary responsibilities and the ramifications of cashing irrevocable trusts. Accurate and timely reporting helps reduce the instance of Trustee errors.

What is troubling about the Nebraska “policy” is that most of the banks that will receive the Department’s attention are not fiduciaries.  Those institutions have issued a depository account in conjunction with a Totten trust arrangement.

So, what does this all have to do with the rulemaking process and due diligence?  Not to pick on the Nebraska Department of Insurance, but their introduction of a short, and insignificant, bill (and then issuing a new Irrevocable Trust policy) helps to underscore that regulators are skewing the formal rulemaking process in favor the more expedient policy position that has a higher probability of being erroneous.

Section 12-1109 of the Nebraska Burial Pre-Need Sales Act states that the Department director shall adopt and promulgate rules and regulations necessary to carry out and enforce the act.  In seeking to substitute the word “may” for “shall”, the statement of intent for LB926 advises that the director has not needed to adopt regulations for any purpose.  Industry members maintaining master preneed trusts take issue with the fact the director implemented substantial changes to the annual report form without using the rulemaking process.   While the Director would be advancing legitimate State interests, adherence to the rulemaking procedures would have afforded the industry the opportunity to raise valid objections.   With regard to the master trust users, the Department lacked statutory authority to introduce a market value element to the annual report.  With regard to individual accounts, the depository accounts do not owe fiduciary duties to the State.

These agencies have made known their reasons for avoiding the rulemaking process.  In response, this author would offer the following in support of the rulemaking process.

The preneed transaction has evolved more in the past 3 years than it had in the thirty years preceding 2010.  Experts are debating the virtues of guaranteed versus non-guaranteed, we have witnessed more than one major preneed insurance company partnering with a trust company to offer new forms of hybrid funding, and death care operators are receiving an increasing number of final expense policies sold independent of their facility.  While change to the preneed transaction is long overdue, the pace of developments exposes ‘regulatory gaps’ in even the newest of preneed reform laws.  Missouri is a case in point.  SB1 is less than five years old, and  the Division must stretch that law to address preneed structures and issues that the legislature did not contemplate.  Some of these preneed developments will benefit both consumers and the industry, and some may not.   The rulemaking process provides a forum to obtain information on the issues.   Policies are made in a closed room where there is a higher probability of error.  When an erroneous policy is struck down as invalid rulemaking, the regulator loses credibility with the industry.