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

The funeral industry may grumble about the FTC’s Funeral Rule, but two disclosures required by that law play important roles in the preneed transaction. The general price list is often used by funeral homes as a tool for comparing prices with the competition. And when a prearranged funeral is performed, the statement of goods and services can be used to demonstrate the savings a family received by virtue of the preneed contract’s price protections.

Consumer advocates also utilize the general price list as a tool to educate the public on funeral costs. Periodic price surveys are facilitated by the Funeral Rule requirements. In an effort to expand its information base, the Kansas City chapter of the Funeral Consumer Alliance recently made a request of the metropolitan area’s cemeteries. However, a significant number of the cemeteries did not respond.

While some cemeteries may have been challenged to respond due to staffing issues or a lack of resources, there were non-respondents who were not comfortable making a public disclosure of what they charge. These types of disclosures are at The Bereaved Consumers Bill of Rights Act. Cemeteries are not subject to the Funeral Rule disclosure requirements, and the bill sponsored by Illinois Representative Bobby Rush would change that.

Representative Rush’s bill is a product of the Burr Oak cemetery tragedy, which had little to do with disclosures about the costs of cemetery property, merchandise and services. Regardless, the Burr Oak circumstances have been used to justify legislation for an expansion of the Funeral Rule to the cemetery industry. The cemetery industry has strongly opposed the legislation, citing that the penalties far outweigh the benefits to the consumers. Funeral trade groups have generally endorsed the bill. The funeral industry’s reasoning can be simply stated as what is good for the goose is good for the gander.

The cemetery industry’s objections to the expansion of the Funeral Rule have merit. Fines for technical violations are substantial, and could be devastating to smaller cemeteries. And, Federal enforcement of the Funeral Rule has been spotty at best.

But just as the KC branch of the Funeral Consumer Alliance has found out, gathering pricing information about cemeteries is difficult to do in the absence of the general price list requirement. The ICCFA posted model recommendations more than 13 years ago, but cemeteries have been slow to embrace them. Many cemeteries have also been slow to implement preneed sales programs. Economic survival dictates that cemeteries become more proactive regarding preneed. With that move will come the need for the disclosures required by the Funeral Rule.

The Kansas City chapter of the FCA will hold its annual Day of the Dead meeting to discuss the results of its cemetery price survey, and to press similar issues with this author. To download the KC FCA newsletter (and cemetery survey results) click here.
 

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Greed

Funeral directors who rejected NPS’ promises may feel justified in criticizing those who are asking for help. Generally, their criticism is that NPS exploited funeral directors’ greed. With regard to some trust rollovers, that may be true. But, what NPS best exploited was funeral directors’ desire to devote their time to the service of families rather than preneed.

NPS grasped that many funeral directors felt the need for a proactive preneed presence, but did not have the time, resources or inclination to establish their own program. NPS offered to take care of all the details, with at-need prices to boot. Hindsight is 20/20, but funeral directors should have asked questions and requested documents. But what questions?

Perhaps as an acknowledgement that competition is forcing members to use proactive preneed programs, the NFDA has issued guidelines for evaluating preneed insurers and preneed trusts. During the months that followed the Clayton Smart and Robert Nelms arrests, the NFDA drew criticism for its failure to provide leadership in addressing the growing preneed scandal. Some of the more stinging criticism came from the association’s smaller cousins.

These critics rarely address the elephant in the room: our fragmented, state-based approach to preneed regulation. The New York Funeral Directors Association has an excellent consumer protection statute to work with, but you can’t judge other trade associations without looking at their laws. And, the NFDA has to consider all fifty states when it issues policy guidelines.

If the NFDA’s Guidelines For Evaluating Preneed Trusts seems general and vague, it is because those 50 states’ laws differ substantially, many of which are poorly written. Preneed laws are often compromised efforts that include purposeful ambiguities. Those ambiguities can come back to haunt us years later when a new appointee fills the regulator’s chair.

The NFDA’s task is made even more difficult when suggesting questions that will be asked of member’s state association master trust.  But the times demand action.

Taking the NFDA Preneed Trust Evaluation a step further, funeral directors should also request certain documents regarding prospective program sponsors.

From state regulators, determine whether audits are performed of the program. If so, request the most recent audit report. Also inquire whether there have been any disciplinary proceedings during the past three years. Open investigations may be subject to confidentiality requirements, but closed proceedings may be subject to open records requests.

From preneed program sponsors, request the three cornerstone documents: the master trust agreement, the participation/provider agreement and the preneed contract. Determine from the program sponsor whether applicable state law authorizes collective trust investments, and if so, request the sponsor’s guidelines for unit pricing and income/expense allocations. Also request a breakdown of the trustee/administration expenses by: custodial services, fund management, sub-account administration, audit and tax return preparation and reporting. If the master trust utilizes insurance products, request a written explanation of the product’s taxation.

As IFDA members are learning, preneed due diligence is an ongoing obligation. Funeral directors must find the time to periodically review their preneed program by asking the right questions, and getting the answers in writing.

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