Death Care Law Blog

Going cold turkey on the guaranteed preneed contract

wastal@swbell.net (Bill Stalter) — Tue, 25 Nov 2008 15:46:24 -0600

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.

Mark-to-Market and Preneed: a bitter, but necessary, pill?

wastal@swbell.net (Bill Stalter) — Sat, 08 Nov 2008 12:47:30 -0600

For twenty-two years many Missouri funeral directors have deposited 80% of the preneed funeral contract purchase price into trust, and withdrawn all income in excess of that deposit. For a $5,000 contract sold in 1998, the funeral director has been required to maintain $4,000 in trust. When that contract is performed in 2008, the funeral director is authorized under Chapter 436 to withdraw an amount equal to that deposited to trust: $4,000. Today, and for the foreseeable future, that distribution will exceed that contract’s ‘value’ under the mark-to-market approach. Depending upon the facts of a particular trust, the difference between these two approaches could exceed the trust’s annual realized income. This puts the trust further into the hole and threatens the funeral director’s long-term viability.

Assume the funeral director has a $1,000,000 trust with a contract population that averages 10 years in duration. On the average, 10% of the trust’s contracts are serviced each year, or $100,000. Depending upon trust’s asset allocation, the current financial crisis could have trimmed a third of that trust’s value. If a 25% value decline is assumed, the funeral director’s trust is worth $750,000. If the trust’s value remains ‘flat’ over the next year and the funeral director services 10% of the trust’s contracts, he will withdraw $25,000 ‘excess’ value over the next year, or 2.5% of the trust’s value. For trusts invested exclusively in fixed income, the difference may exceed the trust’s actual return.

Switching to the mark-to-market approach will be painful for funeral directors. For that ten-year old, $5,000 preneed contract, the funeral director would receive $3,000. Today, that service might sell for $6,500. The cost to provide the service will vary from funeral home to funeral home, but many will find it difficult to do so for a profit when only paid $3,000. Of course, there has been income distributed from the trust over the past ten years, but not necessarily to the funeral director performing the contract.

Consequently, Missouri legislators need to consider two important Chapter 436 revisions: the mark-to-market approach and trust income accrual. If the Missouri funeral director had accrued the income and earned a net 3.5% over the past 10 years, the mark-to-market approach would have paid the funeral director $5,642 instead of $3,000.

The mark-to-market approach has proven a bitter pill for Illinois funeral directors, and legislators should expect a similar reaction from some Missouri funeral directors. The legislature can not retroactively apply the mark-to-market approach, but funeral directors need to consider whether the approach is in the best interests of existing business.

Who would have thought it: a Forever cemetery and financial irregularities

wastal@swbell.net (Bill Stalter) — Tue, 04 Nov 2008 08:52:00 -0600

When its Halloween, the media is naturally attracted to a story that involves horror and a cemetery. The Belleville News-Democrat found a new type of horror for its seasonal article involving a cemetery: Missing Trust Funds!

For added suspense, the newspaper reports there are two cemeteries, and both were (or are?) owned and operated by Forever Illinois, a sister corporation of National Prearranged Services. Determining who owns and operates the cemeteries seems to be an issue of confusion for the Illinois regulators. The cemeteries have turned into a hot potato.

Concerns over the Forever Missouri cemeteries had to have influenced Missouri regulators' efforts to seek new enforcement authorities in Chapter 214. Unlike their Illinois counterparts, Missouri regulators lack clear authority to involve either the attorney general's office or local prosecutors.

Texas Preneed Reform

wastal@swbell.net (Bill Stalter) — Tue, 28 Oct 2008 08:06:15 -0600

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.

Illinois Funeral Directors: whipsawed

wastal@swbell.net (Bill Stalter) — Thu, 23 Oct 2008 20:26:55 -0600

The IFDA master trust turned a new page today, and for participating funeral homes, the first step in a long recovery process. With the appointment of Merrill Lynch Bank & Trust as a temporary trustee, the association begins the process of looking for a permanent trustee. The appointment also coincides with the trust's accounts being put on a mark-to-market basis.

The mark-to-market approach taken by the IFDA master trust will mean that the trust's value will be allocated among the preneed contracts each month. Until the benefits of key man insurance purchased by the master trust are realized, funeral directors will be servicing contracts for far less than they were promised. It was not clear from the Q&A circulated to funeral directors whether insurance proceeds will be allocated to preneed contracts serviced while the actuary study is being performed.

Funeral directors who left the IFDA master trust for NPS must feel whipsawed by these circumstances.

Missouri funeral directors questioning reporting requirements being considered by the legislature should note that the IFDA reports its preneed contract values to consumers annually.

The cost of custodial services: the Grandview settlement

wastal@swbell.net (Bill Stalter) — Wed, 15 Oct 2008 17:51:26 -0600

Two class action lawsuits were filed last year over the mismanagement of Grandview Memorial Gardens (Madison, Indiana), and a settlement has been reached in the suit involving the cemetery’s preneed trust funds. Over the course of about 14 years, the cemetery went through three changes of ownership, four trustee changes and sold several million dollars of preneed contracts. When Indiana regulators examined the Grandview preneed trust in 2006, they found $144,000 of assets. Then the regulators began to tally the cemetery’s preneed liabilities, but found those obligations exceeded the trust’s balance before they got to the purchasers whose names began with “B”.

With regard to the fiduciaries that administered the Grandview trust, the plaintiffs’ attorneys included one basic discovery request that may have proved damaging to the banks: show us your policies and procedures for administering a preneed account. The Office of the Comptroller of the Currency has issued written guidance to national banks advising of the need for internal controls, and policies and procedures for the preneed account. Taking a page from the OCC memorandum, the Grandview attorneys focused their discovery on the banks' oversight of Grandview's preneed trust.

Specifically, the discovery sought to confirm that each fiduciary had accounting procedures to determine whether: (1) distributions exceeded an account’s deposits and income, and (2) deposits could be identified by a particular preneed purchaser.

While the settlement does not represent an admission by the defendants, the fiduciaries agreed to pay $216,000 to the plaintiffs.

Consumer Advocacy: Pulling Punches

wastal@swbell.net (Bill Stalter) — Sat, 11 Oct 2008 12:58:37 -0600

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.

Who is responsible for the rogue agent?

wastal@swbell.net (Bill Stalter) — Mon, 06 Oct 2008 14:45:08 -0600

Part of the bad rap against preneed stems from the salesman who is prepared to say anything to close the sale. While, reputable companies build safeguards into their programs to check this behavior, there will be individuals who are prepared to bend the rules. Who should be held accountable when the agent intentionally violates the company’s safeguards? That question was raised, but not answered, during Missouri’s Chapter 436 Review Committee hearings. For some Missouri funeral directors, the issue is being presented in a context that they do not yet appreciate.

NPS’ sudden demise left an aggressive sales force scrambling to find new jobs. Some of the NPS salesmen joined established insurance companies, and others established their own insurance agencies. While some of the former NPS employees were also victims of the company’s misrepresentations, funeral directors need to appreciate that NPS did not think enough of compliance to teach it to its employees. Consequently, funeral directors should be asking whether these salesmen are receiving proper oversight from their new insurance companies.

Some of the former NPS salesmen signed on with a national insurance company that offers a ‘funeral expense trust’. That trust represents a product the insurance company can offer to consumers who cannot purchase the company’s insurance product directly through a licensed agent.

Some preneed sales entities have taken the concept a step further, and are marketing the trust in states where the insurance can be purchased as a preneed product that is independent of the funeral home. Innovative NPS salesmen now seem to have taken the concept even further, marketing the concept as a vehicle available to funeral directors who are not licensed insurance agents. It is not clear whether the sponsoring insurance company has approved of either of these modifications to the funeral expense trust.

One of the persistent rumors regarding NPS’ business practices in 100% trust states, was that the company circumvented insurance licensing requirements by effecting insurance purchases through a trust. The rumors also suggested that NPS found ways to split commissions with the funeral directors even though they are not licensed insurance agents. Funeral directors are beginning to relay similar stories, but with new insurance company names.

So, if these salesmen have formed preneed marketing programs that violate applicable preneed laws, is the insurance company responsible to the funeral director if disciplinary actions are brought against the funeral establishment license? Most state regulators will likely find the funeral director has a duty to understand the licensing requirements and commission restrictions imposed by applicable state insurance laws. Funeral directors are putting their livelihood at stake when they do not question a salesman’s explanation about how ‘we have a way around that problem’.

A victory for the little guy

wastal@swbell.net (Bill Stalter) — Wed, 01 Oct 2008 17:13:49 -0600

While the Wall Street bail out plan has many flaws, one of its proposals has wide-based support: the concept of increasing the limit on insured deposits to $250,000. According to the New York Times, the driving force behind this proposal wasn't the mega-banks, but rather our local banks.

The Independent Community Bankers of America represents approximately 8,000 local banks, and employed a grassroots approach to prevail over the proposals of the larger financial institutions. The organization's president stated that "we might be small, but we're pretty nimble." Words funeral directors may want to keep in mind when they attempt to respond to legislative efforts this winter.

If the Wall Street bail out passes with the $250,000 FDIC limit, small funeral operators will have more flexibility in using deposit accounts as preneed funding.

NPS, AIG, WaMu and those preneed funds

wastal@swbell.net (Bill Stalter) — Wed, 24 Sep 2008 11:38:25 -0600

During the long and tedious Chapter 436 hearings, some Missouri funeral directors joined consumer advocates in using the NPS failure as reason for recommending that legislators impose 100% trusting on the preneed transaction. Those funeral directors generally advocated the use of insurance or joint accounts as safer methods of preneed funding. During regulatory meetings, comments were also made about how the insurance policies or joint accounts were 'guaranteed'. The realities are that each of these forms of funding has its advantages and disadvantages, and that there are no absolute guarantees.

The AIG failure underscores that even the largest of insurers may be vulnerable to the current financial crisis. While most life insurers are safe, the only guarantees offered by insurance are the rates of return promised by the policy terms. As witnessed by the Texas insolvency proceedings for Lincoln Memorial life, the insurer's promises are only as good as the assets held in its reserve accounts. After that, the policyholder must look to guaranty funds for assistance. Consequently, funeral directors should periodically review the financial statements of the insurance companies they use for preneed funding.

With regard to keeping those preneed funds at the local bank, the funeral director is assuming risk (and liability?) when he exceeds the FDIC insurance coverage. By holding the consumer's payments in a joint capacity, the funeral director is also exposing the funds to the claims of the funeral home's creditors. Losing a lawsuit for damages that exceed the firm's casualty insurance put the consumers at risk.

In contrast, the funds placed in a preneed trust are not the assets of the bank or the funeral home. By virtue of the terms of the preneed contract, the funeral director usually has the risk of investment performance (and under the current circumstances, that's more risk than what some funeral directors want). But in contrast to insurance and joint account contracts, the trust provides the death care operator some say in how investment risk should be handled.

Cemetery Associations: Where's the manual?

wastal@swbell.net (Bill Stalter) — Wed, 24 Sep 2008 08:14:34 -0600

Who do you turn to when grass isn’t being cut, or the grave marker falls over? Or, who can approve the transfer of the ownership of my mother’s grave space?

Ultimately, the answer depends on who owns the cemetery. But, determining who owns the cemetery can often prove confusing to both the public and the cemetery regulator.

A recent Manteca Bulletin article about the ‘friends’ of the East Union Cemetery would seem to be just another story about a pioneer cemetery that has no funds for care and maintenance. But a closer examination suggests a situation where concerned citizens signed on to serve on a cemetery association board without understanding the accompanying responsibilities.

East Union Cemetery is located in Manteca, California, a community of 50,000 that is located 80 miles east of San Francisco. As with most “public” cemeteries, East Union Cemetery is required by state law to file reports for authority to continue operations. But apparently, East Union Cemetery failed to file those reports a few years ago and the California Cemetery and Funeral Bureau began to send out notices. When no one responded, the state began to investigate, and issues of ownership, missing funds and accountability began to surface.

News reports indicate the cemetery had an endowment fund of $800,000 as recently as ten years ago. But then, one member was accused of embezzling funds and the cemetery association board membership dwindled down to two members.

With the state still conducting its investigation, Manteka’s citizens responded to the situation by forming a new and expanded cemetery association board. However, reports and regulator press releases suggest that the new board may have exceeded its authorities in the zeal to address the cemetery’s needs. Subsequent to the appointment of the new board, the state seized the cemetery’s remaining funds and submitted a proposed agreement to the cemetery association. Shocked by this turn of events, the new board resigned, and pointed a finger at the cemetery regulators.

The facts suggest the cemetery association board did not appreciate the laws governing cemetery care funds. It may be that the new board followed a course of action that had transpired over the past ten years. Endowment care (or perpetual care) funds are intended to provide income to subsidize the cemetery’s maintenance expenses. Most states’ cemetery laws prohibit the fund fiduciary from invading principal to meet the cemetery’s needs.

The California Cemetery and Funeral Bureau is caught between a rock and a hard spot. Well-intended citizens stepped up to a situation that demanded attention, but acted without knowing the rules. The Bureau’s press release and Q&A posting help tell its side of the situation.

Individuals who have an interest in serving on a cemetery association board need to appreciate the responsibilities that accompany that service. Those responsibilities will be defined in part by the association articles and bylaws, applicable state cemetery laws and the agreements and documents that bind the association. As witnessed by a lawsuit filed recently in Brooklyn, New York, those legal documents have life beyond the grave.

NPS' Missouri Installment Contracts

wastal@swbell.net (Bill Stalter) — Fri, 19 Sep 2008 08:21:16 -0600

Dear Donna,

Once the liquidation plan is finalized, and the procedures for paying claims are implemented, could we please revisit the issue of the Missouri installment contracts?

Yes, you have been patient and polite regarding my inquiries. But, until this past Monday, I did not know how significant an issue these contracts were. If I am interpreting Note 3 from the Statement of Assets - Explanatory Notes correctly, Missouri consumers owe $23 million on outstanding NPS preneed contracts. As I explained in my May letter, these consumers are paying too much.

Thanks, again.

Bill

Chapter 436 Recommendations: First the trust, then...

wastal@swbell.net (Bill Stalter) — Thu, 18 Sep 2008 08:00:07 -0600

Why did you agree to that?

That's the question I have been getting to the Chapter 436 Working Group recommendations regarding i) the deposit of all purchaser payments to trust, and ii) some form of periodic statement to the consumer. One answer would be that we see too many news reports like this one.

The primary objective for these two recommendations is the establishment of an audit trail. Require all payments to go through the fiduciary's hands, and require the fiduciary to give the consumer some form of notice. If the regulator does not have the resources to monitor the transaction, give the consumer the opportunity to do so. The recommendation does not deny the seller the right to recover sales expenses.

Yes, the procedure is burdensome, will add cost to the transaction, and will require change. What are the alternatives?

The two faces of NPS: insurance vs. trust

wastal@swbell.net (Bill Stalter) — Tue, 16 Sep 2008 11:08:53 -0600

Concurrent with the hearing held on her Liquidation Plan, the Special Deputy Receiver posted a financial report to the Lincoln Memorial Life/NPS website. As with most financial statements, explanatory notes at the end of the report provide some insights to the failed NPS empire. While prior documents have disclosed that the companies have a deficient of nearly one billion dollars, the SDR report breaks that number down in terms of trust funded contracts and insurance funded contracts.

Insurance funded preneed contracts account for almost $600 million of the unfunded deficit, twice the number of that for trust-funded contracts ($289 million). The explanatory notes identify six trusts maintained by NPS. The notes identify Trust VI as that of Iowa, and the size of Trust IV would suggest that it was for Missouri. One of the other trusts may be a special account, and if one were to assume the other three are other ‘state trusts’, that would leave the other 15 NPS states as exclusive insurance funded states. There is no doubt that NPS exploited Missouri’s laws regarding trust funded contracts, but a greater harm was done to consumers through NPS' exploitation of state laws governing insurance funded contracts.

Of the NPS trusts, the Missouri deficit is the largest by far ($248 million). This number has been isolated to Missouri regulators as justification for raising the state’s trusting requirement to 100%. That argument ignores the fact that Iowa also has an 80% trusting requirement, yet only has a deficit of $23.5 million (a tenth of Missouri’s). The difference can be attributed to the difference in oversight and regulatory requirements. The argument also ignores the fact that Kansas, a state with a 100% trusting requirement, has a deficit of approximately $22 million (all of which is based on insurance-funded contracts).

Another explanatory note that may suggest that Missouri’s oversight is lacking is a note payable of $10 million owed by NPS to the Missouri preneed trust.

Missouri’s Chapter 436 problems will not be fixed by going to a 100% trusting requirement. Oversight should be the state legislature’s top priority, and Missouri preneed sellers need to begin providing ideas and answers.

Missouri Preneed Reform: work in progress

wastal@swbell.net (Bill Stalter) — Tue, 09 Sep 2008 10:44:40 -0600

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.

The Archdiocese of Louisville Lawsuit: attorney error

wastal@swbell.net (Bill Stalter) — Wed, 03 Sep 2008 12:19:38 -0600

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).

Missouri's Personal Preference Law: End of Life Planning

wastal@swbell.net (Bill Stalter) — Wed, 27 Aug 2008 08:37:24 -0600

An important revision to Missouri's personal preference law goes into effect on August 28th. The original law (R.S.Mo. Section 194.119) was confusing to funeral directors about whether an individual could override the preferences of his/her next-of-kin. With the revision, funeral directors can more comfortably rely upon the individual's durable power of attorney when following the instructions of someone other than the individual's next-of-kin. A recent article cited the law change as an important victory for gay rights, and the rights of those who have end of life preferences that are not shared by their family members. While the law is an important development to elders and gays, they must take steps subsequent to the execution of a durable power of attorney to ensure the performance of their end of life plans.

With the durable power of attorney, an individual (the principal) authorizes his/her partner (attorney-in-fact) to act on the principal's behalf with regard to legal or business matters. Depending upon how the durable power of attorney is drafted, businesses can then rely upon the document for their protection. While most businesses will accept the durable power of attorney, they are not required to, and may decline the transaction.

As evidenced by a recent trade journal article, funeral homes and cemeteries are often counseled against taking sides in family disputes. As reported in a prior post (Who's Funeral is it), some funeral directors are reluctant to accept a written disposition instruction that contradicts what other family members prefer.

While it would be advisable to bring family members into the plan, that is not always possible. If a couple anticipates familes will contest their end of life plans, it would be prudent to find a death care facility that will honor the durable power of attorney with knowledge of the potential for a family dispute. I have been using the durable power of attorney for my gay clients for several years, and have always recommended that they coordinate with clergy and a death care company.

Trade Association Membership: weighing the costs vs. the benefits

wastal@swbell.net (Bill Stalter) — Fri, 22 Aug 2008 11:38:28 -0600

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.

NPS Installment Contracts and the Liquidation Plan

wastal@swbell.net (Bill Stalter) — Tue, 19 Aug 2008 15:27:12 -0600

While approval of the SDR’s Liquidation Plan is imperative to providing funds for NPS contracts that are being serviced, and will be serviced during the next few years, funeral directors and consumers are raising valid questions about the Plan. For the consumer who purchased a trust-funded contract from NPS on installments, the Plan fails to adequately address their situation.

Plan Paragraph 10.4 addresses the consumers who are making periodic payments on an NPS contract. The paragraph states in part:

(ii) all payments must continue to be paid to the applicable Participating Association or else the coverage provided under the Policy will lapse; and

(iii) the amount of the payment due to NPS (and, after assignment, to the Participating Association) may be prorated and reduced to the extent that the face amount of the Preneed Funeral Contract exceeds the death benefit face amount of the Covered Obligation.

The problem for consumers with installment contracts is that NPS charged fees that are not reflected in the “face amount of the Preneed Funeral Contract”. NPS employed an installment plan that incorporated finance charges and a mortality expense, for terms of up to 10 years. Depending upon the age of the consumer and the term of payment, he or she may end up paying thousands of dollars in excess of the contract’s face amount. There is no justification for the additional mortality expense if the NPS trust was purchasing life insurance.

If a consumer purchased a NPS trust-funded contract on installments within the past few years, he/she may want to review the contract with their funeral director to determine whether to continue making payments. For those who have paid in more than the contract’s face amount, consumers may want to seek further guidance from the SDR about the proration language of Paragraph 10.4.

Un-parking those death care trusts: diversification

wastal@swbell.net (Bill Stalter) — Wed, 13 Aug 2008 17:43:16 -0600

The American Funeral Director recently published Curtis Rostad’s rebuttal letter to a prior story titled “Debunking the Trust Myth”. That same story earned a post on this blog site. While I agree with Mr. Rostad’s views, the sad truth is that many death care trusts do not perform as well as the Indiana Master Trust. It speaks volumes when many Missouri funeral directors prefer insurance funding despite a state law that permits a 20% sales expense to be retained from trust funded contracts. While several reasons exist for the Missouri situation, expense, time demands, poor trust performance, and risk aversion are key factors.

Until a critical mass is reached, death care trusts can be too expensive. Funeral directors are an independent lot, and most want to retain control of their preneed funds. (NPS will serve to reinforce this.) While pooling of preneed trusts would help address this hurdle, some state laws discourage the commingling of accounts because of the industry’s history of poor recordkeeping.

Trusts require a commitment in time that many death care operators are often unwilling to provide. Fiduciaries need input from their death care clients about investment and compliance issues. Funeral directors and cemeterians are care-givers by nature, and many would rather delegate these responsibilities. In the absence of clear instructions, fiduciaries will default to more conservative investments.

It is difficult to provide quality asset management to small trusts. As a consequence, the small trust is often relegated to mutual funds or cash equivalents. Even when the trust has sufficient assets to warrant a diversified portfolio, some operators are risk adverse and park the trust in conservative, but low yielding investments.

Diversification is an important ingredient to improving trust performance. Today’s asset managers use diversification to guard against market risks, and to seek out growth and new sources of income such as dividend producing stocks. To obtain the benefits of diversification, regulators and death care operators need to consider the economies of scale that pooled administration can provide.