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

 NPS salesmen had quite a reputation. Commission driven, some were reported to have earned a healthy six-figure salary. And, some had no prior experience in the funeral industry.

To curb the excesses committed by NPS salesmen, Missouri preneed reform bill requires preneed salesmen to be licensed, with a condition that they “have successfully passed the Missouri law examination as designated by the board”.

Since the effective date of the law (August 28th), preneed agents have been required to take the same law examination required of funeral directors. That examination has proved difficult for many preneed agent applicants, and issues were presented to the Missouri State Board of Embalmers and Funeral Directors at their February 4th meeting. The State Board held an open meeting by conference call on February 11th to facilitate further discussion of preneed agent licensing and the Missouri Law Test.

Two basic positions emerged during the February 11th conference call. The funeral directors’ camp views the preneed contract as the sale of a funeral, which should require the licensed funeral director. The proactive preneed seller views the preneed contract as a funding vehicle to pay for the goods and services described in the contract, which would require the salesman to be knowledgeable about the requirements of Chapter 436.

Historically, most Missouri preneed contracts were of the guaranteed variety. If the preneed contract was performed with little or no variation to the prearranged funeral, then the contract represents the purchase of a funeral. But, some families change the terms of their preneed contracts, and under such circumstances, the contract represents a funding vehicle. As more non-guaranteed contracts and final expense products become more common, fewer preneed contracts will represent the “sale of a funeral”.

For the time being, the State Board will continue to require the same law examination given to applicants for a funeral director’s license. But, is the funeral industry best served by restricting preneed agent licensing to legal testing imposed on funeral directors?
 

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With some industry members having already declared the preneed transaction dead, a recent AARP bulletin reports that the patient is not only alive, but it is regaining its strength. But, the reason for increasing preneed sales will only bedevil many death care operators: the rising costs of funerals.

Operators who face preneed competition will have difficulty swearing off the guaranteed contract if consumer advocates such as the AARP begin to recommend the transaction as a way for seniors to control future costs.

While the AARP’s stance on preneed may be moderating, the bulletin offers advice that consumers should heed:

• Visit at least three funeral homes and ask lots of questions.
• Ask for a detailed price list of products and services.
• Examine the insurance policy or trust documents that fund the preneed contract (even have a lawyer review them).
• Make family members aware of the funeral plans, and keep all documents and receipts in an accessible place.

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The question isn’t whether preneed needs to change, but how to change it.

The November 2nd edition of the Funeral Insider highlights a new industry survey by Citrin Cooperman, a highly regarded accounting firm. The newsletter includes a section on preneed, and experts’ take on the survey. Their consensus is that preneed is broken. (Tell us something we didn’t already know!) But for the sake of giving sound bite advice, the experts compromise valid advice by resorting to generalities and false alarms.

The Citrin Cooperman survey is available for $295, a bit too rich for curiosity purposes. The accuracy of any survey is dependent upon sampling an appropriate representation of the population (in this case, the death care industry). What is lost by the FI critique of the guaranteed contract, is that applicable state law is the single greatest determinant of the structure of the preneed transaction.

Most of the country’s laws were written in response to the guaranteed contract, and do not contemplate any other form of preneed. If applicable law does not specifically authorize non-guaranteed preneed, most funeral directors will be reluctant to offer it. The availability of an alternative to the guaranteed contract is state specific, and therefore a survey limited to four states is of limited use to the remaining 92% of the nation.

With regard to the four survey states, it is worth noting that 8% of the respondents stopped offering the guaranteed contract during the past year. But does that mean 67% of the respondents are following the “wrong” strategy because they continue to offer a guarantee? Beyond state law, consumer expectations and/or competition dictate that a funeral home offer preneed, and then what form of preneed to offer. Most funeral homes are forced to respond to an evolving market, and the preneed resources available. It’s a business decision with many unique factors.

As the FI experts recommend, funeral homes need to pay more attention to their preneed program. But preneed isn’t an addictive drug, it is an option that consumers have come to expect. The problem with preneed is how the guarantee has been used to define the consumer’s expectations. But as funeral homes begin to limit their use of the guarantee and realign consumer’s expectations, preneed will become more complicated (and require more of the funeral director’s attention).

Consumers will still want to address the future costs of the funeral. If they are allowed to fund, but not purchase, how is the transaction to be regulated? Contrary to what one FI expert suggests, regulation of preneed has been based on a transaction involving the purchase of goods and services. Accordingly, many preneed sellers deem the payments as theirs upon receipt, even though those payments may be sitting in a trust, a bank account, or an insurance policy. This view of the transaction is supported by a series of position letters issued by the Securities Exchange Commission’ similar to the one issued to an Iowa preneed seller. The SEC wanted no part of regulating preneed.

As the industry moves to non-guaranteed preneed, or even partially guaranteed preneed, there will be a debate over who owns the trust funds, bank account or insurance policy: the consumer or the preneed seller. The answers will be more complicated, requiring more from our laws, regulators and the documents.

Too complicated for sound bite advice.

 

 

 

 

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The anxiety over Missouri’s new preneed law will temporarily peak this Friday with the passing of the due dates for annual reports and license applications. To give the industry a breather, and to assess SB1’s flaws, the Missouri State Board of Embalmers and Funeral Directors reached an informal agreement on October 20th to table any corrective SB1 legislation for one year. While their emergency rules continue on the path to approval, the State Board will begin exploring ways to identify SB1’s problems, and to prioritize issues for permanent regulations.

To view the Board’s emergency rules click here.
 

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The old axiom was that it would take three consecutive legislative sessions to get a preneed bill passed. If Missouri and Illinois are indicators of the current preneed reform movement, the charm may be based not on attempts but actual bills passed by the legislature.

The Illinois Comptroller’s proposal for preneed reform, SB1682, is progressing quickly towards approval of the Governor’s amendatory veto. While the bill fails to address most of the recommendations made by the Governor’s task force, SB1682 will tighten the trusting requirements of preneed funds until comprehensive legislation is passed. Consequently, Illinois’ preneed sellers face the dual task of complying with SB1682 and negotiating the future of the preneed transaction. With the various pending lawsuits, the question is whether the Illinois death care industry has the capacity to work with regulators towards a consensus bill.

Missouri preneed funeral regulators have been slow to communicate the new requirements of that state’s new preneed law, Senate Bill No. 1. That bill was written without much cooperation from either the funeral industry or the cemetery industry, and the result is an ambiguous law that imposes requirements without sufficient consideration of practical compliance by the funeral industry. The law has been the source of tremendous confusion, and many funeral directors would rather ‘opt out’ completely. Against a backdrop of the NPS failure, regulators and funeral homes would be best served to reconcile their differences in an attempt to address SB1’s flaws.

Missouri’s cemetery industry also faces a similar legislative task. With a strategy based on the old axiom, one constituency of the Missouri cemetery industry pursued legislation that included provisions intended to provide preneed sellers an option out of SB1. That legislation included provisions objectionable to cemeteries with preneed programs, and most of the bill was scuttled at the 11th hour. The resulting bill opened the door for Missouri cemeteries to establish Chapter 214 preneed programs, but does not provide any regulatory oversight for consumer protections. The bill also leaves the Missouri cemetery industry with the prospect of being regulated under SB1.

Historically, it was the internal industry disputes that made preneed legislation so difficult to pass. Legislators would send the squabbling parties home until they could resolve their disputes. What has changed in the dynamics of preneed legislation is the role of the regulator. Frauds measured by the millions are forcing regulators to share in the accountability of preneed failures. The regulator’s agenda is now trumping the industry’s internal disputes in Illinois and Missouri.

But, the regulator’s trump card does not necessarily guaranty a law that best serves the consumers’ interests.
 

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The September edition of the Mortuary Management ran an excerpt from a Funeral Monitor article about the California Master Trust suffering a deficit. 

If the story is accurate about the master trust's shortage, the author's speculation about the reasons for the deficit omits a possible factor that has existed for years: the 4% administration fee. 

As explained by the Cemetery and Funeral Bureau's audit guide, California law allows for an annual 4% administration fee.  If the CMT takes the full administration fee allowed by law, no wonder the trust is running a bit short.

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The first week under the new preneed law was a confusing one for the Missouri funeral industry. SB1 has many drafting conflicts and ambiguities, and that has give rise to different interpretations from the Attorney General’s Office, the State Board of Embalmers and Funeral Directors, and the death care industry.

The State Board and the Attorney General’s Office have been criticized for the NPS debacle. While some of that criticism may be justified, NPS exploited the weaknesses of Chapter 436 (and the Board’s enforcement budget), and kept the regulators at bay for years. With SB1, the regulators have been given the keys to a new vehicle for preneed oversight and enforcement, but they are not in total agreement about the map to follow.

The State Board’s immediate agenda are the emergency rules that will keep the preneed industry functioning for the next 3 to 9 months. Consequently, debate over interpretations must be brief and concessions must be made. In some respects, the resulting emergency rules will be overly burdensome. But, these emergency rules will be the law until regulations are promulgated pursuant to the normal rulemaking process. Funeral homes that disregard the emergency rules, do so at substantial risks. It is crucial that funeral directors also understand that the emergency rules will impact the preneed contracts sold prior to August 28th.
 

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News of Randy Sutton’s arrest was greeted by honking hearses in Missouri, Texas, Illinois, and a dozen or so other states. But, the question funeral directors are asking: What about the Cassity family?

Federal investigators need for someone to rollover and give up the Cassity crew, and apparently, Mr. Sutton is their choice.

Matt Damon’s new movie, the Informant will be out soon. That movie is about Archie Daniels Midland, a mega-food conglomerate based in Decatur, Illinois, my old hometown. Part of the movie was shot in the little town of Moweaqua, where my wife’s family lives. For weeks, we received photos of Matt Damon obliging the local residents. The story is about an ADM executive who turned informant on his employer’s misdeeds, but took a fall due to his own conduct.

As the Feds put the screws to Mr. Sutton, funeral directors can only hope those investigators can connect the dots. If they do, and the Cassity family is implicated, who will play Mr. Sutton in the movie?
 

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John Penton has a valid point.

Funeral homes and cemeteries compete for the vault sale. And, the price of a grave space will impact what a family will pay for a traditional funeral and burial. So, when a cemetery faces economic challenges that impact the maintenance of graves, should competing funeral directors be allowed to serve on the cemetery’s board and establish policies regarding pricing?

If the funeral directors serving on the cemetery board vote to keep the prices of graves artificially low, then the cemetery has to mark up the prices it charges for merchandise or services. To the extent the vault is priced higher than what competitors charge, the cemetery loses out (and the funeral home gets the sale).

If the cemetery raises the price of its grave space and services, the family may decide it can’t afford to pay as much for a casket.

While the historic divide between cemeteries and funeral homes is fading or blurring, certain differences will always exist. Funeral directors that assume a fiduciary position at a cemetery must consider the ‘perpetual’ nature of a cemetery, and the costs of the maintenance and care.
 

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With a recent editorial opinion, the State Journal-Register seeks to keep U.S. Senator Roland Burris accountable for his role in the IFDA master trust problems by asking the following questions:

· As comptroller, why did he think it was a good idea to allow the IFDA control of the fund?
· How did he monitor the group?
· Did he ask questions about its administration?
· Did he know that it would be backed by life insurance policies on IFDA leaders and members?
· When he became a lobbyist for the IFDA in 2007, what solutions did he envision?

But in the effort to build a fire under the Senator’s feet, the paper may have innocently misstated the facts.

What little that has been released about the master trust’s current state does not suggest that its value has dwindled down to $59 million dollars. While the fund has undoubtedly lost value, some of the ‘write down’ numbers attributed to the master trust represent an accounting change in what is to be paid funeral homes.

However, this should not detract from the paper’s effort to hold Mr. Burris accountable for his role in the IFDA’s problems.

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The Missouri Senate Committee assigned the task of preneed funeral reform posted a substitute bill to the Legislature’s website on February 6th: SCS SB1. For those who participated in the Chapter 436 Working Group meetings last summer, this bill may seem vaguely familiar. During those meetings, the Division of Professional Registration circulated a 41-page draft proposal for discussion with industry representatives. However, discussions regarding the proposal bogged down when industry members could not agree over several issues. Eventually, the Working Group issued a “Recommendations” statement.

Turning back to the Division staff, the Senate committee has dusted off that earlier draft proposal and added provisions based on the Chapter 436 Working Group Recommendations. This approach is sure to revive the disagreements that derailed last summer’s meetings.

With the NPS failure as a backdrop, the Missouri legislature will have little patience for the internal bickering that has marred prior reform efforts. While SCS SB1 has some legitimate flaws, the status quo is no longer an option.

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A Los Angeles Times story about Jerrigrace Lyons, California’s ‘death midwife’, generated ten days of entertaining barbs and counter-barbs on an SCI chat board. The article describes how Ms. Lyons assists families that choose home funerals in lieu of a funeral home.

One of the posts challenges a fellow funeral director for the assistance he provided a family, stating in uncertain terms that such services exposed the funeral director to legal and professional liability. Because the post was somewhat tactless, the liability issues were skirted in subsequent responses. Undeterred, the poster ("Chuck") challenged consumer advocates and fellow funeral directors on the liability issues.

But, Chuck’s main point has to do with the funeral director’s exposure for professional liability when assisting a home funeral. Chuck attempted to bait consumer advocates into providing a statement that funeral directors should be liable only for the services they provide. Out of better judgment, the consumer advocates advised ‘no can do’.

Incompetence or mistakes can trigger professional liability, but professional liability can also result from the funeral director's failure to discharge an obligation imposed by statute or regulation.

The standards required by a funeral director's license differ from state by state. Only a handful of states prohibit home funerals. Consequently, it stands to reason that most states permit the funeral professional to assist families who want to explore the home funeral alternative. But as with any profession, it is incumbent upon the funeral director to understand what is required by his/her license, and to ascertain from a meeting with the family whether the circumstances and the family’s intent comply with applicable state law.

As another poster explained, some states’ definition of “funeral directing” impose an obligation on the licensee (whether it be the funeral director or the establishment) to maintain control of the body until the final disposition is made. In such states, the funeral director may have an obligation to witness the committal.

Funeral directors willing to assist with home funerals probably do so out of a commitment to professionalism rather than the prospect of revenue. To disparage funeral directors ‘for crossing the line’, or to label families who chose home funerals as ‘crackpots’, serves only to discredit the professionalism of the death care industry.  

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It has to be bad when your main source tells you its time for the Methadone clinic. With the worst financial crisis in our lifetime, and spiraling costs, what funeral director isn’t already battling a case of the sweats and shakes when reviewing his/her preneed program?   And now you’re being told to go cold turkey on the only preneed transaction that you offer.   

With Forethought having joined the bandwagon against the guaranteed preneed contract, funeral directors are being forced to reexamine the transaction.  It is an examination that is long over due. However, dropping the guaranteed contract will not be as simple as Forethought suggests. 

 

For fifty years, the US funeral industry has defined preneed as a cost saving transaction that will provide peace of mind to the "consumer".  As many funeral directors recall, Forethought/Batesville taught them how to structure this transaction around the casket sale. And, now they tell the funeral director it’s a mistake. No wonder some funeral directors are a bit miffed with their insurer. Funeral directors that embrace Forethought’s prescribed medicine could suffer sharp withdrawal pains that have long-lasting side effects.   

 

Preneed insurers are crucial to most preneed programs, but funeral directors need to appreciate that their insurers are responding to changing market forces. Insurers are looking for alternative markets, and consequently, we are hearing more about ‘final expense policies’ and ‘funeral expense trusts’. These products can be marketed independently of the funeral home, relegating the funeral director to an end provider.   For the funeral home that maintains an insurance agency, the final expense product offers a larger commission. But, the final expense product also targets a more affluent consumer. How many of your consumers are candidates for a $20,000 policy that provides a 2% return, and requires a $200+ monthly premium?

 

Rather than go cold turkey on the guaranteed contract, the industry will begin to explore hybrid contracts that provide partial cost protections. For the older, and less affluent, consumers, the industry needs to look at cooperative trust arrangements similar to those offered in England, Canada, New Zealand and Australia.   With regard to these alternative trusts, we face a 'minor' hurdle: our preneed exemption from certain securities regulations is based on the guaranteed contract being a sale of goods and services. 

 

To facilitate the administration of preneed contracts and trusts, the Securities and Exchange Commission has issued a series of “No Action Letters” regarding the preneed contract or the preneed master trust. See, e.g., Fleet National Bank (Sept. 5, 1990); Funeral Services of Iowa, Inc. (September 28, 1987); Michigan Funeral Directors Association (August 27, 1987); Associated Funeral Directors Service, Inc. (September 5, 1986); Drexel Trust Company (September 12, 1983).

 

For purposes of collective investment, the trust-funded, non-guaranteed preneed contract will need to utilize an alternative exemption from the SEC regulations. 

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In terms of the toxic NPS fallout, Texas ranks a close second to Missouri.  In response, the Texas Department of Banking has released a legislative proposal aimed at closing what it perceives are the loopholes in Chapter 154 of the Texas Finance Code. 

To facilitate discussion of the issues with death care operators, insurance companies and fiduciaries, the Department of Banking released an Explanation of Intent of Proposed Changes.   A few of the DOB issues include:

• Putting cemeteries on notice that they could be defined as a "funeral provider".
• The seller/permit holder must exercise reasonable controls over contract administration.
• The elimination of third-party preneed sellers.
• A minimum net worth of $100,000 for permit holders.
• A standard information brochure that covers both forms of funding.
• Income allocation requirements for non-guaranteed items.
• Distribution documentation.
• A new guaranty fund.

 

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Funeral homes and cemeteries are businesses that serve families when they are most vulnerable. To guard against exploitation, the death care industry establishes standards of professionalism, and state governments pass laws and regulations. Consumer advocacy plays an important role in educating consumers about these standards, and providing families tools in evaluating death care operators. To best serve their members, consumer advocates must be informed and objective in responding to potential abuses. If not, these organizations can discredit their purpose and damage their relationships with the death care industry. 

A Fort Myers newspaper ran a recent story about the frustrations of an elderly couple that wanted to trade in their burial crypts for cremation services. The story indicates the couple had purchased two burial crypts more than a decade ago, and became angry when the cemetery would not provide a credit equal to their original purchase price. The story relies upon Bill Swain, President of the Florida Funeral and Cemetery Consumer Advocacy, to flesh out the facts and to provide a perspective. In doing so, Mr. Swain seems to have spun the facts in an attempt to kill two birds with one stone: labeling the cemetery as greedy and disparaging preneed.

In response to the cemetery refusing to re-purchase the burial crypts from the couple, the paper attributes the following to Mr. Swain:

This is one of the drawbacks of prepaying for any funeral needs, ….

Why not just give them the money back when (the cemetery) can sell it for three times as much?

The laws in Florida are on the side of the funeral business, not on the consumers.

It is no secret that consumer advocates oppose preneed, and a casual read of the story would suggest that this is another example of preneed abuse. The couple also has the perception that the cemetery has been earning interest on the funds paid for the burial crypts. However, the story is misleading, and one can question whether Mr. Swain is responsible.

It is not clear from the facts whether the couple even purchased their burial spaces through a preneed contract. If the couple went to the cemetery, paid the purchase price and then received a deed to the spaces, that does not constitute a preneed transaction. If the spaces were purchased through a preneed transaction, the news report indicates the couple own the spaces, and therefore, one can conclude they received the property they contracted to purchase.  Consequently, Mr. Swain’s statements are misleading, particularly when you attempt to reconcile the 3rd statement from above with the FFCCA website:

Friends and Neighbors: The Governor signed SB 528, "The Sen. Howard Futch Memorial Act," into law!! We win!!! Whee!! Thank you, ALL of you, both industry and consumerr reps, for the support you gave our good cause. NOW...(you knew this was coming, didn't you?), we have to stay on top of the process by which the new regulatory structure will be put in place. Please stay alert. The effective date to implement "our" legislation is October 2005. There are lots and lots of critical dates between now and then, and we (FFCCA) will keep you informed. Let's all take a few deep breaths and yell: "Yeeeee-haw!! Bill Swain

Putting the preneed issue aside, another question is whether Mr. Swain is suggesting that cemeteries should refund a burial space purchase price whenever the owner changes his mind. If so, then it’s fair for the Florida death care industry to question whether Mr. Swain has made the necessary effort to become informed, and whether he can be objective in responding to consumers and reporters.

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 While the completion of the document may have felt like a birthing process to the staff of Missouri's Division of Professional Registration, the Chapter 436 Working Group Recommendations more accurately reflects an industry position paper that has yet to be completed.   Faced with a deadline imposed by the Missouri legislature, the Division 'finalized' the Recommendations in an 11th hour meeting of the State Board of Embalmers and Funeral Directors.  The State Board meeting underscored that many industry members have yet to grasp how the preneed transaction is structured and administered by competitors.  This is best demonstrated by the State Board vote to revise the Recommendations to include the following:

 

·         The board recommended a 100% trusting requirement with no administrative or trustee expenses by a vote of 4-2.

 

 During various meetings, the issues of preneed sales expenses and trustee administration expenses having been erroneously interchanged by Committee members.  This confusion is due in part from Chapter 436 allowing all income to be distributed currently.  If the trust does not accrue income, the law requires the seller to assume responsibility for trust expenses.  Trustees normally look to trust income for administrative expenses.  If the trust has no income, the trustee is dependent upon the seller for reimbursement.  This aspect  compromises the fiduciary's duty to the trust. By its action, the State Board would perpetuate a major flaw in Chapter 436 (if trust funding is to survive at all). 

The State Board's objective is to protect the consumer, and to do so it must think comprehensively about the three forms of funding: insurance, joint accounts and trusts.   Is the consumer better served if trust funding is effectively precluded?   Of course not. 

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Trust a lawyer to add to the tension between clergy and the funeral director.  

A Kentucky priest felt the need to re-establish the ground rules for funerals conducted in his parish, and a local funeral director took offense.   Claiming the rules were "an intentional and wrongful interference" with his business, the funeral director brought suit against the Archdiocese of Louisville.  

The lawsuit has the unfortunate consequence of highlighting what some clergy disdain about today’s funeral: the commercial aspects of the death care profession. However, the lawsuit has also generated dialog about a tension that is also worthy of attention: reconciling the church’s message of hope with the funeral director’s focus on the immediate family.

The GetReligion blog has a thoughtful post regarding the Archdiocese lawsuit.  Denominations can differ substantially in their approach to funeral liturgy, and some provide very little training to its clergy when counseling parishioners facing end of life issues. Every funeral director has a story about a minister who alienated the family with a sermon unrelated to the deceased. But, even trained pastoral ministers are often placed in the awkward position when requested to officiate at a funeral by families they do not know, or for a deceased who did not attend a church.  

 

Funeral directors that serve denominations that have well established funeral liturgy should adopt cooperative approaches to working with clergy. Suing the priest makes no sense (unless, of course, those parish rules are causing families to cancel their preneed contracts). 

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Mortuary Management’s July/August Colleague Wisdom column underscores how difficult it can be to run a trade association. I can empathize with the funeral home operators who took the time to provide their thoughts. As an attorney who specializes in the death care industry, I have to weigh the costs and benefits of membership in trade associations from two industries.

Every so often, the American Bar Association calls to solicit my renewal to the ABA. I was an ABA member back in 1986, the first year out of law school. After that first year membership, I never renewed again. Yet, they continue to call. And I will continue to decline, because the ABA is not a resource that is worth the cost (to me).   

  

In contrast, I do belong to the Missouri Bar Association.   The MBA provides services and programs that justify its membership costs to me. The MBA is not only a good source for forms and information, it provides some reasonable discounts for continuing education classes. However, I have not found that to be same for the Kansas Bar Association. The KBA seems to be marketing primarily to the trial attorney bar (a reflection of an economic reality).

 

If comments published in The Colleague Wisdom are representative of the funeral industry, the article reflects that funeral directors also tend to look more to their state association for the services and programs they need. It should come as no surprise but the level of satisfaction among funeral directors varies greatly. It is difficult to compare state associations because each has its own unique set of factors or hurdles. However, there seems to be certain common standards.

 

The Colleague Wisdom comments provide some insight to what industry members expect from an association, and why some do not participate. The comments also touch upon the revenues that subsidize the association. As Mr. Wigger so succinctly states: membership in a state association is a matter of weighing the costs vs. the benefits. One reality is that an association must impose costs in order to have the funds needed for programs and services that will attract membership. It is also a reality that some industry members will complain no matter what the cost. 

 

Some of the Colleague Wisdom comments have been highlighted in yellow, green and pink. The yellow comments seem to reflect an association’s perceived values. The green comments make note of a source of revenue, and the pink comments reflect criticisms. Associations need to be sensitive to criticism, and adapt to the membership’s needs. In order to do so, the association must seek input (even if it is done so by a coded survey). 

 

Now for the obligatory preneed comments:

 

Funeral directors who are opposed to preneed will need to appreciate that master trusts are an important source of revenue for association programs and organizational expenses. The master trust is an even more important revenue source for associations in states where continuing education is not required. But as one Colleague Wisdom commentator points out, association leadership must be careful with regard to the master trust becoming a competitor to its own members. In a sense, the master trust cannot help but be a competitor to larger independents that have their own preneed administration. The master trust may be the only way for the small operator to effectively compete for the preneed sale. Accordingly, it will become incumbent for association leadership to diffuse these situations through cooperation and attempts to find mutual benefits. 

 

Association leadership must also be careful that the master trust does not become a source of dissatisfaction when earnings and/or expense expectations are not met. Disclosures, accountability, frequent communications, innovation and leadership will be crucial to retaining membership satisfaction. 

 

With the NPS failure, associations may have an opportunity to expand their master trusts. But to do so, some state associations need to assess why funeral homes turned to NPS in the first place. Some funeral homes did succumb to the promises of profit, or looked forward to the Rep visit, but many did so out of dissatisfaction with their master trust. For some funeral directors (like those in Illinois), the state association may have a difficult task in regaining the membership’s faith.

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It was once fairly common for a funeral director to take a preneed purchaser's funds and establish a joint account at a local bank.  Missouri's preneed law contemplates the transaction and requires that the funeral home and the purchaser have joint control over the account.  Prior to 9/11, banks would freely provide account forms, allowing the funeral director to obtain the purchaser's information and signature at the funeral home.  However, the security requirements imposed on banks by the USA Patriot Act have probably made the joint account an impractical method to funding a preneed contract. 

A few years ago, banks were required to implement programs to collect more information about their customers and to verify their identities.  The purpose of these new requirements was to prevent money laundering that could involve the financing of terrorism. 

What this means to the funeral director is that he/she can no longer prepare bank account applications at the funeral home.  All parties to the account must be present at the bank when the account is opened.  I have encountered one bank that interpreted the Patriot Act to prohibit the joint account arrangement contemplated by Missouri law.  

While the joint account provided a funding mechanism to funeral directors who did not have the volume of preneed business to warrant the expense of trusting or insurance, there are ample indications the arrangement has been abused and may need to be discontinued.  An unknown number of funeral homes have rolled joint account contracts to NPS.  Unwittingly, some funeral homes have combined multiple contracts in a single certificate of deposit, exposing the consumers' funds to the claims of the funeral home's creditors.  

As states seek to respond to the NPS failure by tightening preneed laws regarding trusting and insurance, consideration must be given to how a safe and affordable preneed arrangement can be offered to the rural consumer.  

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Yesterday, the St. Louis Post-Dispatch ran an article that examined the history of NPS, and raised some of the questions that need to be explored in depth in the months to come.   The system failed in several states, for both consumers and funeral homes.   While most funeral homes will try to make good on the NPS promises to consumers, regulators must share in the responsibilities for what went wrong and what has to be done.

NPS was an innovative company that grew frustrated with the fragmented nature of state preneed laws, and exploited the gaps and ambiguities of state regulation.   Some will say that NPS exploited the greed of funeral directors, and this should be sufficient reason for holding funeral homes responsible for performance of the NPS contracts. While this will ring true for some funeral directors, this is too simplistic an explanation of the situation.   The reality is that many funeral homes will fail if regulators do not recover sufficient assets from the Cassitys. 

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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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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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Two recent newspaper articles help to underscore the distinct directions the funeral ritual seems headed. 

The Kansas City Star reported on how more families are opting for personalization over formal funeral rituals.  As the article indicates, personalization often requires the funeral director to spend more time with the family planning a memorial that is unique to the deceased.  This approach also challenges the preneed approach of selling a package arrangement that covers 'everything'. 

Personalization represents a departure from the Christian liturgy that allowed a standardized approach to funeral planning.  While some theologians criticize the funeral industry's departure from the traditional (religious) funeral ritual, others have come to realize how clergy often overlook the emotional needs of the surviving family members.  The Calvin Institute of Christian Worship devotes several pages from its website to the "funerals that minister to those left behind".  

As more clergy become more sensitive to the psychological needs of the surviving family members, funeral directors may have an opportunity to work more closely with churches seeking to provide a more spiritual ritual for their congregations.  The latter approach was underscored by an article about funeral directors seeking to serve the needs of immigrants.

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The Scarborough Council just announced increases in their funeral, cremation and burial prices. There are going to be nearly 80 different levels of charging Some of the charges depend on whether they involve cremation, burial, the times when funerals take place, the use of the service chapel and scattering the remains and whether the remains are those of a child or adult. Interment prices will depend on whether the rights are for 100 years, or less, and the depth of the grave.

Makes one wonder if the Brits have a GPL requirement?

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The National Funeral Directors Association has taken the lead in getting legislation introduced to eliminate the dollar cap imposed on qualified funeral trusts.  While I hope the NFDA succeeds, it won't be without a fight from the IRS. 

As the death care industry inches towards the non-guaranteed preneed transaction, the IRS will express its concerns over abusive trusts.  While funeral directors ponder whether consumers will embrace a preneed transaction that does not provide price guarantees, the IRS will question whether the transaction will be abused as a tax shelter. 

The Section 685 needs to be increased substantially, but I anticipate the Service will pull no punches while fighting the NFDA's efforts.   

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