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

When a cemetery operator and the regulator get crossways with each other, the threat to close the cemetery is often countered with the question of whether the regulator is going to step in and perform the burials. And when the regulator sticks to his/her guns, the results are often similar to that seen in Dunkirk, Maryland.

One family has waited more than a month to bury a loved one. From the quote given a local news station, their wrath is clearly aimed at the court and the regulator:

We’re going to remember the amount of days that she sat decomposing in the funeral home because of the judge here and the cemetery oversight committee.

The story also provided the cemetery owner’s comments, which suggest the cemetery’s license was revoked over a petty paperwork dispute, and that the regulator’s actions have driven the cemetery into foreclosure.

Most cemetery operators will lend a sympathetic ear to this owner’s complaints. Many operators tend to regard regulators as intrusive, and incompetent with regard to the death care business. But, when you look beyond the news reports that would not seem to be the case in this dispute.

The Maryland Office of Cemetery Oversight works in tandem with an Advisory Council of Cemetery Operations. The agency’s website explains:
 

The Advisory Council on Cemetery Operations is composed of 11 members selected by the Secretary of the Department of Labor, Licensing and Regulation. Of the 11 members:

• Three shall be registered cemeterians representing the for-profit cemetery industry;
• One shall be a registered cemeterian representing a non-profit cemetery;
• One shall be a registered seller from a monument company;
• One shall be a representative from a religious cemetery; and
• Five shall be consumer members. 

The Advisory Council is required by Code to meet at least once per year to provide advice to the Secretary and the Director. However, the Council typically meets monthly to discuss various issues facing the death care industry. These meetings are open to the public and are held at the DLLR Offices located at 500 North Calvert Street, in Baltimore. You are invited and encouraged to attend and participate in discussions that affect the cemetery and burial goods professions.

Missouri once had an advisory committee for cemetery regulation, but operators lost interest. Prior to recent reform, the law had no teeth, and the industry had little incentive to participate. Kansas also toyed with the concept a few years ago, but also failed to get much input from the industry. But, the minutes posted to the website for the Maryland Office of Cemetery Oversight reflect active participation by industry representatives.

So, if the Maryland Office of Cemetery Oversight has some clue of what it’s doing, did it act in an intrusive manner?

The operator’s comments indicate disciplinary actions were taken in 2010, and the cemetery’s license was revoked a year ago. While the Office had brought suit in 2010, the matter was closed until 2011. When the court proceedings were reopened, the parties entered into a consent order which allowed the cemetery some room to continue operations. But within a few weeks, the Office went back to court seeking an order to close the operator down.

Other than this dispute, the Maryland court records reflect the Office of Cemetery Oversight having resorted to court action twice before. So, there are no court records to suggest the OCO has been intrusive on Maryland’s cemeteries.

Consequently, the family’s reaction to the situation seems misplaced. The foreclosure filings indicate the cemetery had significant debts. The OCO had sought at-need and preneed records from the cemetery, and cemetery was not responding. A compromise may have been offered, but failed. The regulator had few options but to pull the license, which precluded lot sales and interment services, and that proved the death blow to the company.

Unfortunately, the industry may see this scenario playing out more frequently than we care to acknowledge.

 

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It must be spring: preneed reform bills are sprouting like crocus. 

The direction taken by the Maryland and Tennessee legislatures in proposing protection funds drew recent criticism from the Funeral Consumers Alliance. While consumer advocates have some valid points regarding these legislative efforts, the obstacles facing states are far more complex than what most outsiders understand. For purposes of this blog entry, lets focus on Maryland and put Tennessee off to another day.

First, a distinction needs to be made between a state’s industry board and a state trade association. Some times the two cooperate to get legislation introduced and passed, and then sometimes the two are on very different pages. Most state industry boards are understaffed and under funded. A casual survey of the website for the Maryland State Board of Morticians & Funeral Directors reflects the Board has one inspector, excuse me, had one inspector, for all of the state’s funeral homes.   While the Board’s principal purpose is the “protection of the public's health and welfare through proper credentialing, examination, licensure, and discipline of morticians, funeral directors, surviving spouses, apprentices and funeral establishments in Maryland”, its newsletter suggests preneed has become its pressing problem.

Preneed accounts for most of the Board’s complaints, and the number of funeral homes that are late in filing their reports to the Board are substantial. Yet any thoughts the Board may have regarding enforcement actions must be tempered with the realities of its budget. As a self-supported entity, the Board’s resources are those fees it charges the state’s funeral homes and morticians, and there lies the first rub with the state’s trade association. What businessman doesn’t complain about the fees charged for licenses? Those complaints are invariably directed to the trade association, which in turn applies pressure on the board. 

But the fact something is broken with regard to preneed is not lost on either the Board or Maryland’s funeral director association. The association position for scrapping the CPA certification in favor of a protection fund probably signals the industry’s acknowledgment that this oversight approach is ineffective and a waste of resources. I have experienced the same frustration working with CPAs and auditors who held themselves as having experience with the death care industry. If each funeral home has to find a CPA to certify compliance with a state law like Maryland’s, HB 1090 may well represent a better application of the funeral home’s funds. However, the real problem with Maryland preneed is its preneed law and the lack of effective oversight. 

The dynamics of preneed reform are complicated, but there certain generalities that apply from state to state. No matter how bad your state law is, no one wants to open the law for the donnybrook that is sure to follow if all bars are removed. It doesn’t matter if the trusting is 100% or 80%. If you work in a 100% state, there will be a strident element that argues a lower percentage will open the floodgate to the unsavory characters of preneed (and the criticism of FCA). If you work in state such as Missouri, there is the position that opening the preneed law will invite restrictions that cut into the revenue streams that funeral homes have become dependent upon. However, these arguments are beginning to pale in the face of growing frauds and abuse. Most funeral directors understand that oversight is needed, but the challenge is how to achieve it efficiently on the limited resources available. Shifting the responsibility, as Indiana’s legislature is considering, to the fiduciary will not work. 

With regard to Maryland’s preneed law, I would offer the following recommendations:

1. Require an independent, corporate trustee that can invest pursuant to the Prudent Investor Rule. Scrap the concept of letting a funeral home serve as a trustee (or escrow agent).   (And what is a trust that is insured by the FDIC?)
2. Require a combination of flat fees and per preneed contract fees that are divided between a protection fund and the Board’s costs to monitor annual reports and to take enforcement actions. The per contract fees should be assessed equally from the funeral home and the consumer (perhaps $10 each). 
3. Each preneed seller should be required to file an annual report that sets out new contract information, deposits to trust, distributions from trust, the trust’s market value and the trust liability. 
4. Each preneed seller should be subject to a tri-annual inspection that may last between 1 to 3 days. The inspection reviews the funeral home’s records, accounting controls, a sampling of transactions (deposits, distributions) and the annual reports filed with the Board. The inspection should be conducted by a CPA firm pursuant to agreed upon procedures developed by the Board, with the cost of the inspection being assessed against the funeral home. The better the funeral home’s records and procedures, the more likely the inspection can be completed in a day (and the lower the fee). With a fixed number of inspections per year, the Board should be able to negotiate a fee that is substantially less than the CPA certification required by the current law.
5. Inspections that reflect violations or deficiencies can be the basis for full audits (which are assessed against the funeral home).
6. Final inspection reports should be a matter of public record so that consumers can investigate funeral homes before making a preneed contract purchase.
7. Preneed sellers should have to obtain trustee certifications of new contract deposits, and then provide documentation to the new contract holders of the deposit of their funds to trust.
8. Preneed trustees should provide annual summary statements (transactions and asset listings) directly to the Board. 
9. Trust transfers should be documented to the Board.

Protection funds have merit, and should not be discounted as a ploy. However, preneed oversight is becoming a national issue. Documentation and disclosure will be fundamental to providing an adequate audit trail for regulators. Maryland funeral directors may have legitimate complaints for dropping their current oversight, but they should not opt for a protection fund in lieu of oversight. 

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