Kansas Death Care and Preneed Lawyer & Attorney : Stalter Legal Services Law Firm : Funeral Law, Elder Law : Kansas City

With two reform bills (HB 2469 and HB 2594) already introduced into the legislature, and two substitute proposals in the works, Missouri legislators and regulators are committed to fixing a law that allowed NPS to exploit consumers and funeral homes. However, consumers and the death care industry are both having difficulty analyzing the specifics of the various proposals. The haste with which legislation is being pressed suggests that regulators know more about the gravity of the NPS situation than what has been disclosed to the public.

Chapter 436 has some obvious problems:

• The combination of a low trusting percentage (the last 80% of payments) and the right to withdraw income currently

• Restrictions on the state board to order inspections or audits

• Minimal reporting requirements

• Ambiguity regarding deposit requirements

• Ambiguity regarding insurance funded preneed

• A lack of rulemaking authority

• An underlying assumption that all preneed contracts will be price guaranteed, and most would be trust funded

• Inadequate provisions for consumer protections when sellers or providers go out of business or are sold

• A general lack of independent oversight

What may not be apparent to legislators, and to consumers, are the many competing economic interests that exist under the “death care” umbrella. There is little doubt that legislators are getting a crash course on those interests. The various proposals already reflect certain interests of regulators, funeral homes and preneed sellers. But if legislators are only now learning the issues, how will they know which proposals are in the best interests of the consumer?

If it were not for the NPS meltdown, Chapter 436 would not be a topic of discussion in Jefferson City. Last year, Representative Meadows proposed a reform bill that was blocked before it could even be discussed. The year before, the State Board of Embalmers and Funeral Directors put preneed reform on its agenda, but the chairman, Ken McGhee, received very little support, or interest.  The sudden interest to fix Chapter 436 is being driven by the NPS failure.

Preneed is a complex issue, and Chapter 436 has more faults than most states’ preneed laws. But, the NPS situation cannot be fixed if we do not know the extent of the damage. It is too late to close this barn door. Rather, the legislature must bring structure to a situation that has many competing interests. The NPS meltdown is unprecedented, and a public forum is needed so that all can understand what went wrong, and where should we go from here. 

With regard to drafting preneed reform, the Missouri death care industry has historically relied upon representatives from the State Board, the funeral directors association, the cemetery association, preneed sellers and the consolidators to forge a consensus bill to submit to the legislature. This group has been referred to as the Allied Council. It has been 13 years since the Allied Council forwarded a Chapter 436 proposal to legislators. Ironically, that Allied Council effort was subverted by NPS. 

Chapter 436 will be revised. However it should be done with the input of an Allied Council that includes consumers, insurance companies and the attorney general’s office. 

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While Missouri has had a right of sepulcher law for five years, there has been disagreement whether the law allowed an individual to override the preferences of his/her next-of-kin. The ambiguities of the original law left funeral directors in a quandary about following the instructions of designated agents. This led to confusion for many Missourians who thought they had a right to control their disposition.

Credit should be given the Missouri Funeral Directors and Embalmers Association for pressing legislation that will clarify Missouri residents can use a durable power of attorney to ensure their funeral or cremation preferences are carried out through a designated agent. HB 1871 has been recommended for passage, and its fate for becoming law will be decided in the next few weeks. 

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A few months ago I stumbled across the FuneralAdvice.com website when searching the net for some information on embalming. Google found a post on the site that was somewhat helpful, but did not provide the answer I was looking for. I bookmarked the site, and by coincidence, visited the site again today.

The site’s current post asks what can be done when Grandma’s preneed contract is refused by the new owners of the local funeral home? The site acknowledges this situation is becoming more common, and recommends that the poster contact the state board of funeral directors for suggestions. The response concludes with the following advice:

A good lawyer should be able to quickly and effectively remedy the situation.

If this post is genuine and the site sponsors have extensive experience with the death care industry (as they claim), then I must not be a good lawyer. I have resolved many disputes such as this with a letter threatening litigation. In almost all situations, the new “owners” eventually agreed to honor the contract. However, I do not consider this type of remedy to be either quick or effective for the family. The value of the ritual has been permanently scarred by the experience. 

The About page for FuneralAdvice.com explains the site was born out of the need to find non-biased information relating to the funeral industry. The page also advises that the company that manages the website has extensive experience in the funeral industry through the ownership of other websites related to the industry. If one takes the time to track through the provided hyperlinks to the related websites, additional information can be found about the company’s officers. When I read through their bios, I can’t help but think of that line from the hotel commercial:

            No, I am not a funeral director, but I did sleep at a Holiday Inn Express last night.

There is a need for Internet websites that provide objective information relating to the funeral industry. While FuneralAdvice.com does provide some useful information, the site goes too far in holding itself out as “Funeral Advice You Can Trust”.   The format also seems to be misleading, and I sense that FuneralAdvice.com is just seeking to establish traffic for the web services offered to the funeral industry.      

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Certainty? In this world nothing is certain but death and taxes.

Benjamin Franklin

The “collapse” of National Prearrangement Services comes as a shock to both the company’s clients and competitors. For the seventeen states in which NPS transacted business, regulators are scrambling to get their arms around the magnitude of the problem. NPS’ adversarial reputation will cause many regulators to move cautiously. However the capitulation by NPS to the termination of its marketing operations should cause regulators to consider whether the individuals that control NPS and its related sibling corporations have employed a rearguard strategy.

Missouri and Texas will figure prominently in regulators’ efforts to protect consumers. NPS maintains its corporate headquarters in St. Louis, Missouri.   The insurance company to which NPS funnels its preneed sales, Lincoln Memorial Life, is a Texas company located in Austin. Accordingly, records of NPS’ preneed sales should be in St. Louis and the funds received by NPS should (hopefully) have made their way to Austin, and subject to the jurisdiction of the Texas Department of Insurance (TDI).  

However, the news from TDI has been a bit confusing. On April 9^th, TDI issued a press release that disclosed that an Agreed Order had been entered into with NPS. The press release states:

The TDI-issued Hazardous Financial Condition Order requires the companies to establish a plan to pay policyholder claims and to address existing contracts.

"While every effort was made to secure the companies and return them to normal operations, the decision was made to take this regulatory action," said Texas Insurance Commissioner Mike Geeslin. "As we move forward, our goal is to use every law on the books to protect consumers, coordinate with other regulators and states and - most importantly - keep all parties informed as issues develop."

"It is imperative that we work closely with NPS and the funeral providers to ensure all Texas consumers receive their prepaid funeral goods and services as originally promised," said Texas Banking Commissioner Randall James.

For years, these companies have been dependent upon new sales (and trust transfers) for revenues to meet promises made to funeral homes. Consequently, TDI’s assurances about returning these companies to ‘normal operations’ rang hollow when news of NPS’ termination of its sales personnel was leaked. A day later, the Kansas City Star reported that a Kansas lawyer had taken “control of the company Tuesday as action manager of behalf of Texas,…”    So, what is going on? 

The lawyer referenced by the Kansas City Star article has experience with insolvent insurance companies, and so one explanation could be that Texas is preparing to take control of Lincoln Memorial Life. 

With NPS being deprived future sales, the Lincoln Memorial assets may be the only source of payment for hundreds of thousands of consumers. Texas reported 39,000 policyholders, and Missouri reported 46,000, and while these two states may account for a substantial portion of NPS’ business, there are 15 other states with NPS sales.

 With information in such short supply, one must be careful not to read too much into these press releases. But each seems to place emphasis on “Policies” and “Policyholders”. There seems to be an assumption (or at least a hope) that each NPS sale ended in a Lincoln Memorial policy. Yet, many of us know that NPS aggressively pursued trust rollovers that included questionable records for the preneed contracts involved. With regard to those transactions, it is unlikely that purchasers were ever contacted. The question then becomes what NPS/Lincoln did with the funds from their trust rollovers? 

To know just how deep the NPS waters are, Missouri is key to obtaining NPS and its corporate records. On April 9^th, the Division of Professional Registration issued a press release that advised:

Funeral directors are cautioned to ensure they maintain adequate records and evaluate any preneed arrangement sold on behalf of their funeral establishment.

On April 11^th, The Kansas City Star reported the following comments:

“We want people to know we are working to safeguard their interest,” ……….. “We’ve stopped the flow of business to look at what’s going on. Our concern is that they get what they paid for.”

While terminating NPS’ authority to enter new transactions had to be its first priority, Missouri must now determine how it can best protect all consumers, not just those from Missouri. If there is any doubt about the trust rollover transactions, Missouri needs to take prompt action to secure NPS’ corporate records. 

Which brings this post back to its introductory muse: has NPS been sacrificed as some sort of rearguard maneuver?  

We can hope that NPS will take all actions necessary to provide assurances to its policyholders, including cooperation with Missouri’s regulators. But if push comes to shove over records that document the company’s money trails, NPS may resort to its true colors when responding to Missouri’s requests. Funeral directors must prepare for that potential conflict.

All funeral homes that have NPS contracts should begin an inventory of their paperwork.   For funeral directors that participated in an NPS trust rollover, the inventory should include documentation regarding the application of the trust funds. If their records do not include such documentation, funeral directors need to consider making an immediate written request to NPS. An even tougher (but necessary) decision may be whether to copy that request to your state preneed regulator. 

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A bank client recently asked that I provide some standard of accountability for administration provided to a master preneed trust. As I struggle to provide the client a concise answer, I can’t help but to think that the issue will also become a crucial concern to consumers and funeral directors alike. As news reports reach consumers about the regulatory actions taken against the preneed programs maintained by NPS and by the Illinois Funeral Directors Association, families will begin to contact their funeral directors for reassurances about their preneed payments. Unfortunately, many state associations have not made accountability a priority, and their members may be ill prepared to respond to consumers’ concerns. 

For the independent funeral home, the state association can be a valuable resource to understanding the requirements imposed upon the profession by federal and state laws. As the preneed transaction grew in acceptance, most state associations formed master trusts to serve their member funeral homes.   These master trusts came to reflect not only the respective state’s preneed law, but also the attitudes and values of the association leadership.

Consumers need to appreciate that master preneed trusts are an important source of income to the sponsoring association. Because there are costs to providing contracts, administration, compliance, and asset management, the master trust provides the smaller funeral home the economies of scale necessary to reducing costs that would otherwise be prohibitive. However, the Illinois situation suggests that former association leadership may have exploited both members and consumers. While the association’s website is finally acknowledging the issue, the response lacks in terms of accountability. 

Getting back to my client’s question, how should accountability be measured for preneed administration from state to state? The diversity in the approaches taken by the state legislatures in regulating the preneed transaction is the single greatest hurdle to a comprehensive, national evaluation of preneed accountability. But perhaps transparency in terms of disclosures to both members and consumers would be one measure of accountability. On this standard, I would give kudos to the New Jersey Funeral Directors Association. It may be a sad reflection on the industry, but many funeral directors do not know what they are being charged for preneed services. The NJFDA provides this information for all to see.

If consumers do call for reassurances, funeral directors should have some basic information available to provide:

• How the preneed contract is funded (insurance vs. trust).
• The name of the insurance company or trustee.
• If the contract is trust funded, whether the trust holds deposit accounts, investments dictated by statute, diversified investments or insurance.
• Contact information for the person who can provide more information about the account.

When funeral directors begin to call for reassurances, association leadership should be prepared to provide the following information:

• The name and address of the trustee.
• The costs and expenses of the master trust.
• The master trust’s written investment policy.
• The fees paid to the trustee and account administrator.
• The taxes paid by the trust.
• A summary report of the trust’s performance and asset description.
• A disclosure of related party transactions (loans, discounts, service agreements, etc.)
• A summary of all trust expenses (excluding distributions for preneed contract performances and cancellations).
• The sponsorship fee paid the association. 

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NPS, beleaguered by state regulatory proceedings in Kentucky, Illinois, Ohio, Texas and Iowa, has called it quits. 

NO MAS! 

ENOUGH! 

Much to the surprise of industry leaders, NPS has suggested it will do what's in the best interests of the consumers.  Could this mean a refund to everyone?

April Fools Day!  

If anything, NPS is a fighter, and will battle each of these states.  Does NPS have problems?  Sure.  The insurance in the trust scheme has had competitors mad for years, and for good reason.  Does NPS' problems make it vulnerable to the funeral homes it contracts with?  Better go read those associate agreements.   The Funeral Service Insider suggests funeral homes could be taking the hit if NPS fails.  That may not be the case.  Nor is FSI's source on point when suggesting that the purchaser money that NPS collects is also the funeral home's money.   Funeral directors need to start reading those NPS contracts to determine if they are an 'obligor'.   Frequently, NPS associates are agreeing to provide the described funeral when they are paid pursuant to the terms of the agreements (note: plural..... agreements, you need to read more than the preneed contract). 

The consumer is the one most exposed by a possible NPS failure.  And if that were to happen, it would also be catastrophic to the industry's integrity, and the arguments against federal regulation.

But, it is a little early to be giving NPS any final rites.  Industry leaders need to take a calm approach to the situation, and avoid contributing to the rumor mill.  Consumers need to contact their state regulators to obtain more information about the safety of their funds.  Funeral directors need to get out those associate agreements, and begin to read.

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