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

Missouri Seller Records: Timely Deposits to Trust

Posted in Compliance, Missouri - SB1, Recordkeeping

The next section of the proposed record keeping rule for Missouri preneed sellers addresses the timely deposit of consumer funds to preneed trusts.  Missouri’s prior preneed law did not specify when consumer deposits were required to be deposited to trust, and National Prearranged Services exploited that omission.  NPS claimed that consumer funds need not be deposited to trust until the consumer had paid their contract in full.  The following language was included when Chapter 436 was re-written in 2009:

 A seller must deposit all payments received on a preneed contract into the designated preneed trust within sixty days of receipt of the funds by the seller, the preneed sales agent or designee.

To be able to confirm compliance with the trust deposit requirement, the State Board staff has proposed the following record requirements:

  1. For trust and joint account funded preneed contracts:

(1)  Records showing the date and amount of the funds received by the seller’s agent;

(2) Records showing the date and amount of funds received by the seller;

(3) Records showing the date and amount of the funds deposited into any account and identifying the institution receiving the deposits and the account into which funds are deposited;

However, Missouri sellers are questioning why records for when the deposit is received by the seller’s agent, and then again when it is received by the seller.  The trust deposit record language could be stated as follows:

  1. For trust and joint account funded preneed contracts:

(1)  Records showing the date and amount of the funds received by the seller or the seller’s agent;

(2) Records showing the date and amount of the funds deposited into any account and identifying the institution receiving the deposits and the account into which funds are deposited;

Both sections of the timely deposit record could easily be met with an Excel worksheet similar to this linked document.

Missouri’s Adequate Seller Records: the Contracts and Agreements

Posted in Compliance, Exams/audits, Recordkeeping

In our continuing review of the Missouri Seller Record Keeping proposal, the rule next addresses what a preneed seller must retain with regard to its consumer contracts.  However, the proposal actually contains two sections requiring the retention of contracts and agreements (Section 2.A and Section 2.F). Of the two, Section 2.F is the more detailed:

  1. Copies of any agreements or contracts related to the practice of a preneed seller including, but not limited to, the following:

(1) Preneed contracts;

(2) Trust agreements;

(3) trust administration agreements;

(4) Provider agreements;

(5) Preneed agent agreements,

(6) Insurance agreements,

(7) Insurance assignments;

(8) Insurance beneficiary designations;

(9) Investment advisors; and

(9) Any other contracts or other agreements between purchasers, beneficiaries, providers, sellers, agents, financial institutions, insurance companies, investment advisors and trustees related to preneed contracts or the holding of preneed funds;

The language from this section that concerns funeral homes are the phrases “including, but not limited to,” and “Any other contracts and other agreements…”

Both phrases suggest that the staff wants open ended authority to seek funding source related agreements that they may not now be aware.  But, the last subparagraph is worded so broadly that it would define the compensation arrangements of preneed salesmen, fund managers, and insurance agency brokers as records to be maintained for the preneed examination.

Section 2.A of the proposed rule reads:

  1. For all preneed contracts:

(1)  A copy of the executed preneed contract;

(2) A copy of all terms of the preneed contract;

(3) A copy of any attachments, additions, or documents supplemental to the preneed contract;

(4) Records related to the funding source for the preneed contracts, and

(4) All other records required by law to be maintained.

It is probably understood by preneed sellers that the retention of an executed preneed contract includes all documents supplemental to the agreement, such as the description of goods and services.  But, if such language is needed, it could be added to Section 2.F.1.  That would eliminate the first three subsections of the 2.A.

The last two subsections of 2.A ( both numbered as (4)) are both vague and ambiguous.  Later sections of the rule proposal cover both of those subsections in greater detail.  Accordingly, Section 2.A should be omitted completely and Section 2.F should then be revised to address the two phrases that are causing funeral directors concern.

Missouri Seller Record Keeping: A Misstep Right out of the Box

Posted in Compliance, Exams/audits, Missouri - SB1, Recordkeeping

The purpose for a record keeping rule is to inform licensees what reports and documents that they must either maintain, or create, to enable the preneed examiner to determine compliance with state law requirements.  But, the opening paragraph of the proposal given the Missouri State Board puts the cart in front of the horse:

A seller shall maintain a copy of each fully executed preneed contract and all records with regard to all preneed contracts related to the receipt, the deposit, the disbursement of preneed funds, and the performance of the preneed contract and to comply with applicable statutes and regulations.

Funeral directors have complained that this provision (and similar language included in prior proposals) would render every document, report, letter, communication or piece of paper that relates in any manner to their preneed program as a “record” that must be retained for examination purposes.  And, those funeral directors have a valid objection.  The proposal’s first course of action should be to describe or define what constitutes a record for purposes of compliance.

Funeral directors are also questioning the purpose for requiring records regarding the disbursement of preneed funds or the performance of preneed contracts.  We could support a requirement for disbursement and performance records if the State Board were proactive in prosecuting sellers that divert consumer funds to their operating accounts.  But, that has not been case.  Disbursement records could also be relevant to determining if fiduciaries are discharging their duties, but does the State Board have jurisdiction over fiduciaries?

Missouri Preneed Seller Records: the Third Time did not prove a Charm

Posted in Compliance, Exams/audits, Missouri - SB1, Recordkeeping

It’s been fifteen months and counting, but the Missouri State Board of Embalmers and Directors and their Division staff are still at odds over a rule for defining minimum record keeping requirements for preneed sellers.  The Division staff first floated an “Adequate Records” rule in July 2015, but the draft was not formally submitted to the Board for discussion until the following December.  That proposal was criticized as ambiguous and overreaching, and a special January meeting was scheduled for further discussion.  (In our January 3rd post, we reported on the outcome of that meeting.)  The staff submitted a revised rule to the State Board in June, and again the State Board tabled the proposal.  So last month, the Division staff submitted a third recordkeeping rule.  But, the Board and staff quickly became frustrated with each other, and the proposal was tabled with a warning from the Board attorney that licensees will suffer the consequences if no rule is adopted.  That warning suggests that the Division staff will continue to direct the preneed examiners to seek the types of records described in the rule proposal.  Some sellers will not be able to produce the requested records, and those ‘missing records’ will be cited as exceptions on the examination report.  It will then be the licensees’ turn to become frustrate when summoned by the staff to appear before the Board regarding the “adequacy” of their seller records.

The reluctance of the Board members to approve the record keeping proposals stems in part from their own uncertainty about what records are being sought, and the purposes for requiring such records.  The mantra expressed by the industry, and echoed by some Board members, is that the staff is attempting to go beyond the mandate of SB1 (to ensure all consumer funds are deposited with the preneed funding agent).

Over the following weeks, we will explore the staff’s third proposal and the examination handbook in detail.

Preneed Trusts and Value Allocations: Total Return vs Income Return

Posted in Administration, Compliance, Investments

As discussed in our prior post, funeral homes are becoming increasingly dependent upon their preneed trustee for individual account administration.  Many trustees that provide account administration rely upon programs that use tax cost basis accounting.  (For a prior discussion of tax cost basis see “Consumer Options and Administrative Hurdles: Market Value Allocations”.)    Tax cost accounting programs require the trust to realize income and capital gains before preneed contracts can reap any investment return.  Prior to the 2008 mortgage crisis, most preneed trusts were invested primarily in long term bonds, and thus, were income return trusts.

Ten years’ of declining bond yields have forced many preneed trustees to diversify investment portfolios into equity holdings.  However, tax cost accounting has had a countering force on the fund manager.  The fund manager must sell assets in order for the trust to reap an investment return.  As a consequence, this year’s investment market surge has not necessarily translated into higher contract distributions for those preneed trusts with a tax cost accounting system.

When a fund manager seeks to harvest growth on a regular basis, he must then find new growth opportunities to provide a consistent return.  The fund manager will be forced to ‘ride the crest’, increasing the trust exposure to market volatility.

Preneed Trust Income: What Accounting Rules?

Posted in Administration, Compliance, Missouri - SB1

A Missouri funeral home client recently had a consumer with a trust funded contract cancel their prearranged funeral and request a refund. The contract was sold subsequent to the 2009 law change, which provides the consumer a refund equal to all payments in excess of a 5% origination fee. Missouri law allows sellers to withdraw a sales expense of 10% of the sales price, but that amount must be refunded if the consumer cancels the contract. Trust income can be used to fund the 10% sales expense owed by the seller. However, this particular contract had not been in trust long enough to earn the sales expense amount. When advised of the amount that the funeral home would owe the consumer, the funeral home questioned why the trust could not refund the entire amount. In the absence of a Missouri law provision that entitles the funeral home to the trust income, a nationally chartered fiduciary is bound by the Office of the Comptroller of the Currency rules governing common trust funds. In prior posts we have discussed Regulation Part 9, and how funeral preneed trusts are a form of common trust fund. (Strength in Numbers) Each consumer account is a separate trust, and should be administered accordingly. The OCC would frown upon a trustee withdrawing funds from one consumer trust to fund a distribution owed to the beneficiary of another trust.

Prior to the 2009 law change, Missouri preneed sellers were entitled to trust income, and trustees were exempted out of the OCC rules regarding income administration. It was fairly common for state preneed laws to vest trust income in the seller (as a way to ensure taxation of trust income to the seller instead of the consumer). Missouri’s prior law was an example. Accordingly, trustees could appropriately transfer or distribute income from consumer accounts. The concept that each consumer account is its own separate trust is not only foreign to Missouri funeral homes, but also to Missouri’s State Board of Embalmers and Funeral Directors.

A preneed trustee must look to trust income to fund trust administrative expenses. Similar to the client with the contract cancellation, preneed contracts that are serviced within a few months of sale do not earn sufficient income to offset the cost of creating the consumer account. One Board member’s comment was that the seller should bear that cost. However, the reality is that more and more sellers are dependent upon the trustee for individual consumer contract accounting.

Cemetery Rules and Regulations: the right to control cremation benches

Posted in Cemeteries

Earlier this year, the dispute between a Missouri cemetery and an independent monument dealer made local news. The cemetery had given notice to several lot owners that memorial benches they had placed on graves were going to be removed.  While the cemetery was permitting certain types of benches to remain, other benches proved difficult for maintenance workers to mow around.  An independent monument dealer suggested to the news reporters that the cemetery did not have a right to go on to someone else’s piece of property and remove something that belongs to that person.  Based on his comments, the monument dealer may not understand the property rights of grave space owners.

American property rights are based on an assumption that when you purchase a piece of real estate, you acquire all rights regarding the use of that land.  This is inherent to the deeds we use to convey real estate.  Originally, cemeteries also used deeds to convey fee simple rights in the grave spaces sold to individuals.  However, that began to change several decades ago when cemeteries began to convey limited rights in a grave space.  Those rights were defined as a limited interest of burying the single remains of a human body.  Some cemeteries even changed the name of the instrument from a deed to an assignment.  While some cemeteries retained the title “deed”, they altered the operative language to limit what rights the grave space owner acquired.

Cemeteries also condition the grave space owner’s rights to rules and regulations, that can be similar to what are imposed by homeowners’ association.  The cemetery would permit monuments and decorations subject to rules that could be amended from time to time.

The Blue Springs cemetery dispute may be one that more cemeteries, lot owners and monument dealers encounter.  As lot owners become more accepting of cremation, they will look at using their grave space for purposes of a cremation bench or niche monument.  The cemetery’s rules and regulations contemplate a traditional burial garden that has easier maintenance requirements.  The monument dealer and cemetery may have to work out accommodations to retain their clientele.

Right of Sepulcher: Last Rites Denied

Posted in Right of Sepulcher, Transition Documents

We recently came across a Missouri Law Review article that examined a Missouri Court of Appeals case that ruled a durable power of attorney for health care decisions was ineffective for the granting a right of sepulcher.  The form included a “springing” clause which was never triggered by two physicians’ determination of incompetency.  The article provides detailed explanation of the facts, but erroneously concludes that Missouri law has a flaw regarding the granting of the right of sepulcher.  With R.S.Mo. Section 404.710.6(8), the Missouri Legislature authorized the use of a financial durable power of attorney for the granting of the right of sepulcher.  Springing clauses are not commonly used in financial powers of attorney.

We have seen where specially drafted financial powers of attorney can also ‘backfire’ on the individual attempting to grant the right of sepulcher.  In a ‘special power of attorney for the right of sepulcher’ form found on the internet, a Missouri funeral home offered a form that included the following provisions:

To arrange and purchase funeral goods and services and to enter into contracts with funeral homes and/or funeral home operators on my behalf and for the benefit of myself, and in regard thereto, to execute funeral home contracts upon such terms and conditions as my said Agent shall think fit.

……….and to make prepayments and/or payments for such goods and services utilizing my funds.

This Power of Attorney shall become effective immediately, and shall not be affected by my disability or lack of mental competence, except as may be provided otherwise by an applicable state statute. This is a Durable Power of Attorney. This Power of Attorney shall continue effective until the final disposition of my body is carried out as directed in this instrument.

We have highlighted language from the form that is vulnerable to challenge.  Borrowing the general powers of the Missouri statute, the form purports to give the designated agent the authority to pay for a funeral and burial after the principal’s death.  It is probably the assumption of the principal, agent and the funeral home that the principal’s resources can be used for payment of the funeral and burial.  However, while the statute grants authority to carry out the right of sepulcher, the authority to use the principal’s resources will terminate with the principal’s death.  If the funeral and burial arrangements are not prefunded through preneed contracts or a final expense trust, the right of sepulcher agent will be deprived the funding needed to carry out the principal’s wishes.

Avoid the Long Spring Lines: File your Missouri Preneed Renewals Early

Posted in Compliance, Missouri - SB1, Recordkeeping

Missouri’s preneed seller and provider license renewals expire October 31st of each year, and many funeral directors approach this deadline like they would their tax return: if it is in the mail by Halloween I’m good.  But, dozens of Missouri funeral directors found otherwise this past year when they were summoned to appear before the Board for selling or servicing contracts while the license(s) had lapsed.  The Division staff has taken the position that seller and provider licenses must be renewed prior to October 31st.   The staff contends that the renewals have to be received with sufficient time to permit their review and approval prior to the deadline.

The State Board updated their website this past week to include an automated request for replacement renewal forms and the PDF schedules that may be prepared by the seller’s funding agents.

Besides the timeliness of the renewal filing, funeral homes were also summoned to appear before the State Board for incomplete filings.  More than one funeral home contended that it had included all of its renewals in a filing, only to have the Division misplace one of the renewals.  To avoid this situation, and to document the timeliness of the renewal filing, we would recommend that sellers and providers mail their renewals by October 1st, and include a cover letter that sets out: the applicable seller/provider names and license numbers; each renewal form included; each check that is included; and the date deposited to mail.  The renewal document packet should be sent certified mail to the State Board’s physical address (not the PO Box address):

Missouri State Board of Embalmers and Funeral Directors

3605 Missouri Boulevard

Jefferson City, MO 65102-0423

Facing 14 Years’ of Hard Time: One Missouri Funeral Director’s Failure to Deposit Preneed Funds

Posted in Compliance, Exams/audits, Recordkeeping

The Missouri Iron County Mountain Echo ran the following story on August 15th:

A former Ironton Funeral Home Director has pleaded guilty to two counts of stealing in Iron County Circuit Court.  The charges stem from the sale of pre-need funeral plans.  George Treaster of Ironton entered a plea of guilty to two counts of theft/stealing where the value of the property or services is $500 or more but less than $25,000.  Treaster is the former owner of White Funeral Home in Ironton.  The funeral business is no longer in operation and the building and lot were sold to the county.  Treaster received a sentence of seven years incarceration with the Missouri Department of Corrections on each count, with the execution of the sentence suspended.  He was placed on supervised probation for five years.  The court further ordered restitution to the victims of approximately $30,000 and ordered Treaster to spend 120 days in the Iron County Jail.  According to Iron County Prosecuting Attorney Brian Parker, the suspended execution of sentence means that if Treaster violates his probation, he will be required to spend 14 years in the penitentiary.  “Under a suspended execution of sentence, a person is a felon for the rest of their lives,” Parker said. “As part of the terms of his probation he must serve 120 days in the Iron County Jail.”

To avoid 14 years in prison, the Missouri funeral director has agreed to repay $30,000 of consumer funds that he applied to his business rather than deposit to a trust pursuant to Missouri’s preneed law.   The funeral director had initially sought to sell his preneed contracts to other funeral homes, but those efforts failed with the funeral director could not produce preneed examination reports.  A source advises that 120 days in the Iron County ‘dungeon’ will be no picnic.