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

Regulators in Missouri and Kansas will be pursuing legislation this spring for more authority in providing oversight to cemeteries. With its Burr Oak problems, Illinois can’t be too far behind.

Whether it is the economy or the unscrupulous owner, regulators are finding they lack both the expertise and authority to properly protect the cemetery consumer.

The media loves a story like the one that broke on Friday about the Maryland cemetery owner that was arrested in Texas. In 2008, Mr. Deffenbaugh was charged with felony theft, and allowed to avoid prison time with an arrangement that was to provide restitution of $1,000,000. When it came time to pay the piper in 2009, the owner staged his own death by “falling off his boat” in the Chesapeake Bay.

In contrast, brief news reports were offered about a Barrett, Missouri cemetery that faces bankruptcy after its owner died, leaving no one to continue its operation.

When regulators seek reform legislation, they have both situations in mind, but it is the “Deffenbaugh card” that wins legislative votes. Cemetery owners rail when the card is played, but it is the troubled cemetery operator that consumes the regulators’ time and resources. With regard to the ‘other’ situation, there are few solutions for failing cemeteries, other than passing the responsibility for upkeep to cities or counties (and their taxpayers).

Finding effective answers to both situations will require greater interaction between the regulator and the cemetery industry. If they are to become more effective at providing oversight, cemetery regulators must gain crucial experience that can only be derived from reputable operators. And until the regulator has a firmer grip on the industry’s better business practices, legislation will often represent a give and take exchange that may span years until a workable solution is reached.

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1. Losing 20 pounds
2. Quit smoking
3. Spend more time with the family
4. Find an independent trustee

And so goes the list of New Year resolutions for the Illinois funeral director, with the last being forced on the industry by SB 1682.

Funeral directors and consumers can learn more about the new independent trustee requirements by visiting the Comptroller's website for SB 1682 information and  SB1682 FAQ issues .

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With the upcoming new year, Illinois smaller funeral homes will begin searching for a corporate trustee for their preneed funds.  With the Legislature's approval of the Governor's Amendatory Veto of SB1682, funeral directors lose the authority to serve as fiduciary of their own preneed funds. 

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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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Governor Quinn's Cemetery Oversight Task Force worked overtime to get their report done early, and Illinois' death care industry now faces new questions about reform legislation.  It would appear that SB1682 will not be the last shot fired in the battle for death care reform for Illinois.

The full report is available on the Governor's website. 

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Reform in Illinois inched closer to reality with Governor Quinn's "amendatory veto" of SB1682.  If accepted by the Illinois legislature, the reform bill will become law on January 31, 2010.

However, the Governor is seeking a 30 day window between the deadline for the report due from the Funeral Burial Task Force and SB1682's effective date.  It is doubtful much could be done to change SB1682 during that 30 day period.  Accordingly, the Governor's action adds confusion for the Illinois death care industry.  

If the amendatory veto is approved, Illinois funeral homes and cemeteries should plan for the January 31, 2010 effective date.    

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

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

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

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

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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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Like the Swine Flu, a preneed virus has been spreading across the Midwest.   Looking for a cure, state legislators and regulators have been forming research teams.  It all started last summer, with Missouri’s Chapter 436 (funeral) working group and Chapter 214 (cemetery) working group.  Now, Illinois is establishing a preneed task force, and Kansas is forming a cemetery committee.  But, in contrast to the Missouri Chapter 436 working group, the forthcoming preneed research teams are limiting the industry’s involvement in the proceedings.  It’s not that the patient has a terminal condition that is contagious, but rather a reflection that organizing industry participation can be akin to herding cats.

Take the May edition of the American Funeral Director as an example. There are no less than six articles addressing preneed. As Mr. Creedy points out, everyone in the industry has an opinion and some can’t help but apply a general prescription for the preneed transaction. But, preneed is governed by more than 50 different state laws, making the transaction impervious to such generalizations. Boiling the issues down for the sake of an editor’s guidelines only contributes to the confusion of our industry members. While these types of articles often quote experts with opposing (and often, valid) opinions, death care operators tend to remember only the opinions that support their preneed program (or, supports their opposition to another form of preneed).

The preneed problem involves complex issues that require an in-depth analysis by our respective state legislators and regulators. For the sake of our consumers, we need to provide legislators and regulators objective and unbiased information about all aspects of preneed.

This patient is very ill, but not terminal. There are no easy cures or solutions.

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Illinois and Missouri have more in common than they may realize. Consumers and funeral directors are blaming state regulators for their current preneed problems. Looking to avoid that hot seat, regulators have been stating their excuses/defenses. If legislators are to correct the flaws in their state’s preneed oversight, they need to put partisan politics aside and objectively assess those excuses.

In response to criticism about the IFDA master trust, the Illinois Comptroller’s office states: we don’t regulate trusts. With regard to preneed audits, the Comptroller follows the money from the consumer to the funeral home and into the IFDA trust. Once there, the Comptroller did not provide an extensive review of the trust’s activities. (Summary, it’s not my job to provide oversight once the funds make it to trust.)

The chink in the Comptroller’s IFDA armor is that the consumer funds never made it into a corporate trustee’s hands. The Comptroller’s excuse (we thought they had a corporate fiduciary) has funeral directors boiling. Rightfully so. While news reports and funeral homes have garbled the legal issues, the Comptroller’s function was to license preneed sellers, and for the IFDA, that meant the responsibility to ensure the organization had an appropriate fiduciary.

Missouri’s Division of Professional Registration and State Board of Embalmers and Funeral Directors have received the same type of criticism with regard to the NPS collapse. Those regulators have appropriately countered with explanations about how Chapter 436 tied their hands. Legislators and state agencies sponsored meetings last summer to obtain recommendations for improving Missouri’s preneed oversight. Those recommendations included the decision to continue the State Board’s jurisdiction over the preneed and to provide that entity greater licensing and oversight authorities.

Preneed regulation should begin with the licensing/registration of who may sell preneed. (I beg to differ with Ill. State Rep. Dan Brady, and those who assert preneed should only be sold by licensed funeral directors.) But that issue aside, who should provide oversight once the consumer’s funds are deposited to trust? I tend to agree with the Comptroller’s office that a state’s financial regulator is better suited for this job. However, there are ‘gaps’ to that recommendation. (State banking regulators do not have express jurisdiction over fiduciary institutions that derive their powers from a charter granted by the Office of Thrift Supervision or the Office of Comptroller of the Currency.)

While preneed licensing and payment administration oversight should be placed with a state’s agency charged with establishing minimum competency standards, oversight of the preneed trust should be with the state’s banking regulator. Federal preemption issues could be eliminated by statutory provisions that require the seller’s trustee to consent to limited jurisdiction as a condition to accepting the account. Preneed is too complex, too big, for a single state agency.

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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. 

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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. 

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