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

The examination of a Missouri preneed seller begins with a request that certain documents be submitted to the State Board within 3 weeks. The purpose for the document production is to allow the examiner to perform a desk audit of the seller’s operable documents before an on-site visit is made. From those documents the examiner will determine the funding methods used, the compliance of the preneed contract form (and other documents) with Chapter 436, possible funding deficiencies, and possible administration issues.

An important distinction that Missouri funeral homes must make is that the request is aimed at its preneed business written as a seller. The document request does not include preneed written on a third party seller’s preneed contract such as Missouri Funeral Trust, American Prearranged Services, National Prearranged Services and Funeral Security Plans.

The Board's document requests are as follows:

• A current statement from your state or federally chartered financial institution/s authorized to exercise trust powers in Missouri of any preneed trust account/s that you have identifying the payments, earnings, and distributions for each active preneed contract.

If the seller has trust funded preneed, the State Board is requesting a statement from the trustee that sets out aggregate payments, earnings and distributions for each active (outstanding) preneed contract. This requirement will prove problematic for most preneed sellers, particularly for their trusts established under the prior law. While many preneed trusts report income for purposes of Internal Revenue Section 685, they do not maintain records of the aggregate income and expense per consumer account. It is also unlikely the income distributions have been tracked by account.

With this request, the State Board is also putting the seller on notice that the trustee must be authorized to exercise trust powers within Missouri. Foreign chartered institutions have special requirements to satisfy this requirement.

• A current statement from any/all applicable insurance companies with which you have insurance- funded preneed contracts for each active preneed contract.

This seems fairly self explanatory. But, the funeral home needs to distinguish insurance assigned for a spend down for that insurance written concurrently with a prearrangement. Some insurance companies have taken an aggressive position on what constitutes a spend down, and the examiners will have the right to review both types of transactions.

• A current statement from your financial institution/s of preneed joint account/s for each active preneed contract.

If the funeral home used joint accounts, the State Board wants a copy of the current bank statements for the certificates of deposits and depository accounts. If funeral home receives individual statements, this production could require some work. Some banks provide a composite statement (that shows all the CDs). The funeral home may need to cross reference the account numbers to specific contracts.

• A copy of a ledger or computerized report showing all outstanding preneed contracts.

The State Board is looking for a comprehensive list of all outstanding preneed contracts. The current annual report only reflects those contracts sold during the last reporting period. It would probably be sufficient if the outstanding contracts were reported by funding (one report for trusts, one for insurance and one for joint accounts).

• Copies of agreements(s) with providers, agents, funeral director agents and if any contracts are funded by trust a copy of the trust agreement with the trustee.

The State Board is looking for all relevant agreements to the preneed seller program. SB1 was passed in response to National Prearranged Services, and its practice of representing a funeral home without an agreement. While SB1 does not require an agreement between a funeral home and funeral director agent, not all funeral director agents are employees of a funeral home. If a funeral home allows an independent agent to sell preneed on its behalf, an agreement exists. If that agreement has not been put in writing, and the agent violates Chapter 436, a swearing contest will ensue.

If the seller uses trust funding, the State Board is looking for the trust agreement and all contracts or agreements related to the administration of the trust. Many of the preneed programs offered to Missouri funeral homes involved the outsourcing of administration, and the examiners will need to know where to direct questions that may stem from that administration.

• A copy of the trust agreement with the financial institutions for any preneed trust.

Yes, this is a redundant request, and no, the seller doesn’t have to provide the trust agreement twice.

• A blank preneed contract currently used by you as a seller.

The examination will eventually review old contracts (and their compliance with the prior law), but the Board is concerned primarily with the current contract form’s compliance with SB1.
 

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The new era of preneed exams and audits got off to a slow start in Missouri, but now there are indications the process is picking up speed.   The first notices of preneed financial examinations went out to sellers last January, and some are now going through on-site examinations.  A second wave of examination notices has gone out, and the State Board has begun preparations for the first examination reports.       

While the examination process will continue to evolve, the process will likely involve the following stages:

• The notice and request for documents
• A desk audit of the seller's documents
• An on-site examination
• An exit interview
• An examination report and the seller response
• (If violations are found) a request for a corrective plan proposal

In our next blog posts, we look at each of the stages in more depth.

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The need for better preneed oversight is obvious, but regulators often lack resources and expertise. The state of Connecticut made headlines recently for the decision to make budget cuts by de-regulating the death care industry*. Connecticut funeral directors challenged the decision, and the state issued a ‘clarification’ and withdrew the plan. (That’s correct, the funeral industry challenged a plan that would have reduced their regulatory oversight.)

Connecticut still faces the issue of funding for death care oversight, an issue that every state faces. In researching last week’s post about the Maryland Office of Cemetery Oversight, we reviewed the meeting minutes posted to the Office website. Budget issues have been an on going concern, and the Office and the Advisory Council had discussed the per contract fee approach in one meeting, and then the problems with this approach in another meeting. The per contract fee amounts to a tax on the preneed transaction.

Missouri has one of the nation’s highest preneed taxes ($36, thanks to National Prearranged Services). But, as the Maryland regulators have experienced, it is not clear whether the preneed tax will be sufficient. Oversight has to be provided to even the smallest seller, and ten sales a year won’t pay the time required to make an on-site exam.

Missouri’s preneed oversight is provided by an industry board that is made up primarily of licensed funeral directors. You’ve heard the criticism of this arrangement before (the fox has been put in charge of the chicken coop), but service on the State Board of Embalmers and Funeral Directors is a time consuming obligation. These board members are looking for ways to improve the image of the industry, and credit is due to them when they come up with ideas that have merit. One such idea is the posting of disciplinary matters on the Board website so that consumers can perform their own due diligence on an operator before purchasing a preneed contract.

This is not a new concept. The Mississippi Secretary of State posts disciplinary orders on its website. For the most part, the postings are fully adjudicated matters that involve an agreed upon procedure for future conduct. But, the postings also provide some of the facts that gave rise to the disciplinary proceeding. Such postings help to inform not only consumers, but also funeral homes and cemeteries. 

*Reprinted with permission from the August 11, 2011 issue of the Memorial Business Journal. To subscribe please call 609-815-8145.

 

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When a cemetery operator and the regulator get crossways with each other, the threat to close the cemetery is often countered with the question of whether the regulator is going to step in and perform the burials. And when the regulator sticks to his/her guns, the results are often similar to that seen in Dunkirk, Maryland.

One family has waited more than a month to bury a loved one. From the quote given a local news station, their wrath is clearly aimed at the court and the regulator:

We’re going to remember the amount of days that she sat decomposing in the funeral home because of the judge here and the cemetery oversight committee.

The story also provided the cemetery owner’s comments, which suggest the cemetery’s license was revoked over a petty paperwork dispute, and that the regulator’s actions have driven the cemetery into foreclosure.

Most cemetery operators will lend a sympathetic ear to this owner’s complaints. Many operators tend to regard regulators as intrusive, and incompetent with regard to the death care business. But, when you look beyond the news reports that would not seem to be the case in this dispute.

The Maryland Office of Cemetery Oversight works in tandem with an Advisory Council of Cemetery Operations. The agency’s website explains:
 

The Advisory Council on Cemetery Operations is composed of 11 members selected by the Secretary of the Department of Labor, Licensing and Regulation. Of the 11 members:

• Three shall be registered cemeterians representing the for-profit cemetery industry;
• One shall be a registered cemeterian representing a non-profit cemetery;
• One shall be a registered seller from a monument company;
• One shall be a representative from a religious cemetery; and
• Five shall be consumer members. 

The Advisory Council is required by Code to meet at least once per year to provide advice to the Secretary and the Director. However, the Council typically meets monthly to discuss various issues facing the death care industry. These meetings are open to the public and are held at the DLLR Offices located at 500 North Calvert Street, in Baltimore. You are invited and encouraged to attend and participate in discussions that affect the cemetery and burial goods professions.

Missouri once had an advisory committee for cemetery regulation, but operators lost interest. Prior to recent reform, the law had no teeth, and the industry had little incentive to participate. Kansas also toyed with the concept a few years ago, but also failed to get much input from the industry. But, the minutes posted to the website for the Maryland Office of Cemetery Oversight reflect active participation by industry representatives.

So, if the Maryland Office of Cemetery Oversight has some clue of what it’s doing, did it act in an intrusive manner?

The operator’s comments indicate disciplinary actions were taken in 2010, and the cemetery’s license was revoked a year ago. While the Office had brought suit in 2010, the matter was closed until 2011. When the court proceedings were reopened, the parties entered into a consent order which allowed the cemetery some room to continue operations. But within a few weeks, the Office went back to court seeking an order to close the operator down.

Other than this dispute, the Maryland court records reflect the Office of Cemetery Oversight having resorted to court action twice before. So, there are no court records to suggest the OCO has been intrusive on Maryland’s cemeteries.

Consequently, the family’s reaction to the situation seems misplaced. The foreclosure filings indicate the cemetery had significant debts. The OCO had sought at-need and preneed records from the cemetery, and cemetery was not responding. A compromise may have been offered, but failed. The regulator had few options but to pull the license, which precluded lot sales and interment services, and that proved the death blow to the company.

Unfortunately, the industry may see this scenario playing out more frequently than we care to acknowledge.

 

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The economy has preneed regulators concerned about depository accounts used for preneed funding.  A story reported in the Atlanta Journal-Constitution underscores the reason for this worry.  When a funeral home fails, consumers have little chance of defending the depository account from creditors' claims.  Insurance and trusts offer the consumer better protection when the creditors come knocking. 

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The “R” word is back again. We’re only three years removed from the housing bubble burst, but a sense of normalcy seemed to be returning to the death care industry. It wasn’t necessarily a return to the old ways, not with the increase in cremations and regulations. But, many operators were coming to grips with the changes that needed to be made. This past week’s events suggest the nation’s economy has entered another turbulent period that could last several years.

The debt-ceiling crisis, cuts to government spending, and foreign debt problems impacted US government bonds, foreign bond markets and the stock market. That’s bad news for insurance companies, preneed trusts and perpetual care trusts. Regardless of what type of funding a death care operator uses, the two-year economic forecast has to be concerning. The costs to servicing a guaranteed contract will likely outpace the funding growth.

Insurance companies will attempt to adjust through premium rate changes. But, can the consumer afford the premiums? As reported by the Wall Street Journal a year ago, consumers are finding they cannot afford the multiple pay policy, and if they have to cancel, the cash surrender value is a fraction of the amount paid.

We panned this article when published because it tried to characterize preneed as an investment, and for the elder attorney’s naïveté. However, the concluding recommendation has merit. A final expense trust provides both the consumer and death care operator a funding alternative that can meet their respective needs: affordability, flexibility, protections and higher cancellation refunds. But, it is not practical advice to tell the consumer to start up his/her own trust. Rather, this is an opportunity for death care operators to offer a product matched to the times.
 

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