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

Recent problems in Illinois and Kansas have prompted funeral directors, and funeral regulators, to recommend that more regulation should be required of cemeteries, including licensing. What’s good for us is good for you.

When the Illinois Comptroller assured the public that the state was acting promptly to revoke Burr Oak’s license, many distraught families could have reasonably assumed Mr. Hynes was taking drastic action against the cemetery. When a regulator ‘jerks’ a funeral home license, the action puts that establishment out of business. Not so for the cemetery licenses required by Illinois and Missouri.

The licenses granted by these states authorize the cemetery to receive and administer funds for endowed care or preneed. Under Missouri’s cemetery law, compliance with the endowed care requirements is voluntary. If a cemetery wants to hold itself out to the public as having an endowed care fund, then it must comply with Chapter 214. If the cemetery doesn’t want the hassle of maintaining a trust and filing reports, it can operate as a non-endowed cemetery by making certain disclosures. The vast majority of Missouri’s cemeteries operate as non-endowed cemeteries.

So when Mr. Hynes jerks Burr Oaks’ license that means the cemetery can’t accept preneed funds or endowed care contributions. It doesn’t mean the cemetery has been closed for business. In fact, regulators like Mr. Hynes face a dilemma when the encounter a Burr Oak Cemetery, or a Valley View Cemetery: there are still burials to be made.
 

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My kids hate August because it means its time to head back to school.  This year's student population in Missouri will be a little larger than last year's.  The Missouri State Board of Embalmers and Funeral Directors has released its meeting agenda, and the state's preneed industry will be given four crash courses beginning July 30th. 

Generally, freshman orientation is optional, but these classes may start defining a new business model for Missouri's preneed industry.

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What transpired over the years at Burr Oak Cemetery is an atrocity. Hundreds of grave spaces have been desecrated, causing extreme emotional distress to all families having a loved one buried at the cemetery.

The demand for action has been intense, and Illinois politicians have responded with legislative proposals to improve oversight of cemeteries. The Comptroller’s proposal would require cemeteries to be licensed. Governor Quinn has countered with a proposal to establish a commission. Some in the press assert there are enough laws on the books to take action. To an extent, the latter point of view is accurate. There are laws on the books to protect against what happened at Burr Oak. The issue is who has the responsibility (and resources) to enforce those laws? (Hint: It’s not the Comptroller.)

If the public sides with the politicians seeking to create a new state agency for cemetery oversight, there will be a cost to all cemeteries subject to that law. Those costs will eventually be passed on to the consumer and the cemetery industry will struggle with the issue of whether that law should cover the cemeteries owned by municipalities, counties and churches? Such costs will also impact funeral homes when families want a traditional funeral, but have limited resources.
 

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Governor Nixon signed Senate Bill No. 1 on July 16th, giving Missouri preneed sellers six weeks to prepare for Chapter 436’s new requirements. For trust-funded contracts, one of those requirements will be the deposit of all preneed payments to trust. Section 436.430.2 provides in part:

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.

Under the current law, sellers could retain the first 20% of the purchaser’s payments before making a deposit to the trust. While the new law will permit the seller to recover an origination fee of 5% and another 10%, the seller must make a request from the trustee to receive such amounts. The purpose of this requirement is to establish an audit trail of all consumer payments. As reported recently by an Ohio newspaper, Missouri is not alone in its efforts to make operators more accountable.
 

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Rather than defend the legality of its master trust, the IFDA sought to enforce the gentlemen’s agreement that the association perceived it had with the Comptroller. The 2006 exchange of correspondence reported by the State Journal-Register underscores the risks that death care operators take when they structure arrangements that exceed the parameters of applicable law.

When the applicable law is ambiguous, operators may be forced to go outside the four corners of the law. In those situations, the operator should do exactly as the IFDA did: personally work with the regulator. But it becomes incumbent upon the operator to ‘work with’ the regulator when circumstances force changes to the arrangement.

Reading between the lines, the SJR article suggests that as more IFDA funds were put into insurance, the more the IFDA relied upon its ‘declared’ 2% increase as justification for the fees charged the trust. As that domino fell, next went the IFDA’s authority to act as the trust’s fiduciary.

Rather than continue to ‘work with’ the Comptroller’s office, the IFDA sought to enforce their gentlemen’s agreement. Unfortunately for consumers and funeral directors, that agreement was flawed from the start.
 

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NPS' sister corporation, Forever Illinois, used the Illinois self trusting provisions to administer preneed funds.  As with funeral operators, Senate Bill 1682 will force Illinois cemeteries to seek corporate fiduciaries to administer their preneed and endowed care funds. 

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Last week’s exchange between the State Journal-Register and the Illinois Comptroller’s office underscores just how poorly some regulators (and funeral directors) understand the preneed transaction.

The newspaper’s June 24th editorial included the following statement:

The directors allege they didn’t find out about the audit until fall 2007 when the comptroller revoked the IFDA’s license to be the fund’s trustee.

The Comptroller’s office responded two days later with a letter stating they are only responsible for auditing funeral homes and cemeteries that are preneed sellers, and that the IFDA was not a seller. While this position is consistent with that taken by the Comptroller in its September 17, 2007 letter of revocation, it is wrong nonetheless.

State associations serve as a jack-of-all-trades with regard to their master trusts, including administrative agents. But for smaller operators, the association (or its affiliate) typically serves as the preneed seller, discharging compliance and licensing obligations that are too burdensome for the ‘little guy’. With regard to larger members that have a seller's license, contracts between the association and the member determine who is the seller.

One problem with the IFDA situation was that the preneed contracts were so poorly written it may be impossible to tell who the seller is. But, it was the Comptroller that licensed the IFDA as a preneed seller, and it was incumbent upon the Comptroller to have addressed the contract and fiduciary problems before the license was issued.  It is wrong for the Comptroller to now attempt to duck those responsibilities, or to cram a settlement down the throats of funeral directors on any argument that they were the sellers of the IFDA preneed contracts.
 

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