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

Mortuary Management recently ran a short editorial criticizing cemeteries, stating “we can only conclude that cemeteries will, in the long run, be the losers”, and “it may be time for a reevaluation of standards and staunch principles of the past”. The editorial is nothing more than a handful of comments from anonymous funeral directors about interment charges, and a vague criticism of cemeteries. However, the quotes are representative of the friction that frequently exists between the funeral home and the cemetery that maintain an adversarial relationship while seeking to serve the same families. All too often, families get caught in the middle of that competition, and in the long run, everyone loses.

The funeral home often has the initial contact with the family, and it is natural that the funeral director will attempt to provide as much of the final arrangement as possible. The family often leaves the funeral home believing that everything has been taken care of. But as the quotes from the editorial indicate, the cemetery will charge the family for opening and closing the burial space. There may also be cemetery charges for weekend interments, the rental of a tent, vault installation charges, second interment rights and memorial installation charges.

The editorial seems to suggest that cemeteries are solely to blame when families are surprised by such charges. In that cemeteries are not subject to the General Price List disclosure requirements of the FTC’s Funeral Rule, funeral directors may not have access to information about what the cemetery charges. The same may be true for monument dealers who need to know about marker restrictions, setting fees and care charges. Unfortunately, some cemeteries view lot owners as their customers, and do attempt to keep the funeral director and monument dealer “in the dark”. If the intent of the editorial was to call out this practice, then the criticism is appropriate.

However, many cemeteries do publish their services, restrictions and fee requirements. The funeral director has no duty to ensure that the family understands all of the cemetery’s services and charges, but he/she does a disservice to the family when omitting that information from the arrangement meeting, and then subsequently assigning blame to the cemetery.

As the editorial suggests, the funeral home and the cemetery are going to experience a decline in their traditional services. It is time for both to reevaluate the “standards and staunch principles” established by their competition. The funeral home and cemetery under common ownership has an economic advantage over its independent competitors. The ‘combo’ operator can package funeral and burial selections to provide the consumer a more competitive price, and better ensure the consumer understands the cemetery requirements.
 

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The funeral director’s decision about how to fund his preneed is influenced by the state’s trusting requirement, investment returns, administrative convenience and the volume of preneed business. Essentially, there are three methods of funding preneed: the depository account, the master trust and the insurance policy.

The funeral director’s use of the depository account predates all state preneed laws. The industry has been accommodating families for decades by accepting payment for a future funeral, and then placing those funds in an account at the local bank. The early preneed laws reflected this practice with language that sought to impose how the depository account was to be structured. Those early laws gave rise to the “joint account contract”.

By the 1970s, proactive preneed sales organizations were testing the limits of the depository account. Low returns and administrative hassles caused the proactive seller to abandon depository accounts in favor of insurance or master trusts. For states with high trusting requirements, the proactive seller turned to insurance funding because it provided the commissions required to pay salesmen and finance the preneed program. In states with a lower trusting percentage, the master trust provided the seller the economies of scale to achieve higher returns and lower administrative costs. But, the master trust’s popularity was stunted by Revenue Ruling 87-127.

With preneed insurance carriers now cutting policy benefits, some funeral directors will need to reexamine the master trust, and the use of finance charges.

Generally, the purchase price of a guaranteed preneed contract is set by the funeral home’s general price list (the prices it charges for a funeral that would be performed today). In today’s economy, fewer consumers can afford to pay for a preneed contract with a single payment. But when a family is permitted to pay for the preneed contract over a period of five to ten years, the cost of the funeral at the contract’s performance will often exceed the trust proceeds by thousands of dollars. Regulators assume that the trust’s income will offset or exceed the rise in the costs of the funeral, but that is seldom the case with contracts paid by installments. These contracts often representa loss to the funeral home.

Some funeral homes already include finance charges in their installment payments to offset the loss of trust earnings. However, funeral homes have not been consistent in their disclosure of the finance charges. In fact, NPS was notorious for incorporating a 12% administration charge into an installment schedule that also included a mortality charge. None of which was disclosed to the consumer.

As reflected by a Kansas Attorney General’s opinion, regulators often perceive that finance charges are an exploitation of the consumer. Instead, regulators should ensure that finance charges (or administrative charges) are adequately disclosed to the consumer, and reasonable to both the consumer and the seller.
 

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Federal and state regulators can not quite agree on how to define the preneed transaction.  Federal regulators tend to view the preneed transaction as a current sale of goods and services (where the delivery is deferred until a future date).  In contrast, state regulators are increasingly defining the transaction in terms that defer consummation of the sale until the beneficiary's death.   This is reflected in a bill (SB1682) passed recently by the Illinois Legislature.

Through a deletion to 225 ILCS 45/1b (b), the preneed seller will no longer be allowed to retain a finance charge from the purchaser payments.  While not all preneed sellers include a finance charge on their installment sales, some do in order to offset the earnings lost when the purchase is paid over time.   

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