Setting Up Small Funeral Homes To Fail: Joint Accounts

Posted on October 19, 2009 by Bill Stalter

Like most states’ preneed laws, Missouri’s Chapter 436 has always contemplated a depository accounts for the small funeral operator who provides preneed as an accommodation. Many funeral homes do not sell enough preneed to warrant the expense and hassle of either a trust or an insurance license. Chapter 436 allows the funeral director to place 100% of the consumer’s funds into a joint depository account at a bank.

Despite certain glaring problems with the joint account contract, the Missouri legislature preserved the structure when it passed SB1, and re-wrote Chapter 436.

The small operator often accepts the consumer’s funds for purposes of a ‘spend down’ that will allow the consumer to exclude the funds from his/her resources for public assistance. Technically, the joint account requirements are not sufficient for excluding the funds, and funeral director is required to set up the account as “for the benefit of”. In doing so, the funeral director has not complied with Chapter 436 (old or new).

Because the transaction is an accommodation, the funeral director has little incentive to incur expense. Consequently, Missouri funeral directors ‘tend’ to borrow from each other with regard to documentation. While Chapter 436 has always required a contract form specific to joint account funding, antidotal evidence suggests many funeral directors borrowed a trust funded contract form for their joint account contracts.

SB1 requires the State Board to examine or audit all preneed sellers, including funeral homes that have joint accounts but decline to become licensed as sellers. This puts Missouri’s regulators in the difficult situation of citing small operators for Chapter 436 violations despite having all of the consumer’s funds in a depository account at the bank. For the integrity of preneed reform, the State Board cannot look the other way with regard to the joint account requirements.

Rather than force the small operator into either of the remaining SB1 options, Missouri should explore a new option for small operator.
 

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Joint Accounts and the Patriot Act

Posted on July 13, 2008 by Bill Stalter

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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