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

Fiduciary Partners, the corporate fiduciary for the Wisconsin and Illinois master trusts, broke its silence this week with a statement to the Funeral Service Insider. The statement was made in response to criticisms previously reported by FSI, and reflects the receiver and fiduciary working together to get their “message” out and avoid the kind of litigation that has hamstrung the IFDA, its membership and the Illinois funeral industry.

FSI commentators used Fiduciary Partners’ link to the two states to drive home with funeral directors various preneed problems* including the management and investment of preneed funds, and the state of the guaranteed preneed contract and its impact on funeral pricing practices. While the issues need to be incorporated into a national dialog, Fiduciary Partners interpreted the FSI report as encouraging Illinois and Wisconsin funeral directors to assign blame to Fiduciary Partners. Consequently, Fiduciary Partners and the receiver felt compelled to respond.

As reported in a prior post, the WFDA leadership had muzzled Fiduciary Partners with a very strict confidentiality provision through an amendment to the master trust. Accordingly, the statement given to FSI has been made with the receiver’s approval, and could be taken as having the WFDA’s endorsement.

To neutralize litigation over the trustee’s role in administering investments, Fiduciary Partners and the receiver sought to clarify that the company had a very limited role that never included the management of investments. The message goes on to reinforce the need for Fiduciary Partners to continue to provide administrative functions related to individual contract accounting and performance payments. The statement also conveys a tacit acknowledgement of the WFDA’s secrecy, with Fiduciary Partner’s commitment to a new transparency.

It is inevitable that comparisons will be made between Wisconsin and Illinois, and to conclude that litigation may also be inevitable. However, one stark difference exists between the two situations: Illinois funeral directors faced a recalcitrant board that refused to acknowledge and correct its mistakes. That leaves the question whether Wisconsin funeral directors will bring litigation to recover damages. As one FSI commentator points out, damages will be difficult to measure when the association reported inflated numbers (through the guaranteed rate of return). And as the other commentator points out, member funeral directors need to take responsibility for hiring executives and fund managers that are competent and professional. It was their hire of an inexperienced executive that ultimately directed the use of trust funds to establish an insurance company.

The multi-million dollar question to be asked is what if Fiduciary Partners had responsibility for investment oversight? Would the trustee have been able to check Mr. Peterson’s actions? In our next post, we will look at the hold harmless provisions so popular in the preneed trust agreement.

*Reprinted from the Funeral Service Insider – October 29, 2012
**Reprinted from the Funeral Service Insider – November 5, 2012

To obtain a full copy of the Funeral Service Insider, contact  www.funeralserviceinsider.com to subscribe.
 

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The U.S. Government Accountability Office (GAO) released its latest report on the state of state regulation of the death care industry.  As it did in 2003, the GAO selected a handful of states to review in depth, and Illinois was one of those states for 2011 report.  The Illinois review is set out as Appendix IV of the GAO report, and paints a bleak picture of preneed oversight in the Land of Lincoln. 

The Illinois review advises that the Office of the Comptroller has 10 staff positions and 10 field audit positions to provide supervision of preneed and crematories.  While it is the Comptroller’s intent to audit each preneed seller at least once every five years, budget constraints have limited audits to those businesses with the most preneed.  Otherwise, the Comptroller will target sellers based on annual reports that either reflects ‘abnormal fluctuations’ or the lack of a corporate trustee. 

And when the Comptroller does find problems, her staff complains that the law provides them little power to address the situation.  The GAO was advised that the disciplinary process is extremely slow and costly.  That latter comment should raise some eyebrows in Illinois.  It was the Comptroller’s office (albeit a prior officeholder) that pushed through amendments to the Funeral or Burial Funds Act just a short two years ago, and now the staff claims the law has no teeth.

The Illinois review ends with the Comptroller’s office on the defense.  Industry representatives challenged whether the Comptroller’s 2010 legislation provided any additional protections.  The Comptroller responds that “there is no way to be sure if the changes to the laws would have prevented these kinds of incidents, but that there may have been the ability them earlier”.  (Obviously someone left out a few words, but they also failed to confer across the hall with that other someone who was more honest about the law’s lack of teeth.)

The review concludes with the statement “[F]urther, state regulators in Illinois stress the importance of consumer education and whistleblower protections to help prevent and detect future problems.”  If the Comptroller lacks funding and enforcement powers under the current law, who is fooling who?  Can additional legislation be too far away?

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The need for better preneed oversight is obvious, but regulators often lack resources and expertise. The state of Connecticut made headlines recently for the decision to make budget cuts by de-regulating the death care industry*. Connecticut funeral directors challenged the decision, and the state issued a ‘clarification’ and withdrew the plan. (That’s correct, the funeral industry challenged a plan that would have reduced their regulatory oversight.)

Connecticut still faces the issue of funding for death care oversight, an issue that every state faces. In researching last week’s post about the Maryland Office of Cemetery Oversight, we reviewed the meeting minutes posted to the Office website. Budget issues have been an on going concern, and the Office and the Advisory Council had discussed the per contract fee approach in one meeting, and then the problems with this approach in another meeting. The per contract fee amounts to a tax on the preneed transaction.

Missouri has one of the nation’s highest preneed taxes ($36, thanks to National Prearranged Services). But, as the Maryland regulators have experienced, it is not clear whether the preneed tax will be sufficient. Oversight has to be provided to even the smallest seller, and ten sales a year won’t pay the time required to make an on-site exam.

Missouri’s preneed oversight is provided by an industry board that is made up primarily of licensed funeral directors. You’ve heard the criticism of this arrangement before (the fox has been put in charge of the chicken coop), but service on the State Board of Embalmers and Funeral Directors is a time consuming obligation. These board members are looking for ways to improve the image of the industry, and credit is due to them when they come up with ideas that have merit. One such idea is the posting of disciplinary matters on the Board website so that consumers can perform their own due diligence on an operator before purchasing a preneed contract.

This is not a new concept. The Mississippi Secretary of State posts disciplinary orders on its website. For the most part, the postings are fully adjudicated matters that involve an agreed upon procedure for future conduct. But, the postings also provide some of the facts that gave rise to the disciplinary proceeding. Such postings help to inform not only consumers, but also funeral homes and cemeteries. 

*Reprinted with permission from the August 11, 2011 issue of the Memorial Business Journal. To subscribe please call 609-815-8145.

 

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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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Recent cemetery failures are causing regulators from Illinois, Missouri and Kansas to take a closer look at the oversight provided for preneed sales of vaults, markers, urns and burial services.

Cemetery preneed is a different animal for that offered by funeral homes. As Mr. Newcomer suggested to a reporter, the big difference between the two industries revolves around the grave. The interment represents a perpetual obligation on the part of the cemetery.

For the cemetery, the preneed sale typically begins with the grave sale. For the larger cemetery, the preneed sale seldom ends there. The cemetery may sell a variety of merchandise and services to lot owners. Many of the items can be delivered in advance of death, but often the lot owner will want to defer delivery of some of the items.

In contrast to a funeral, cemetery preneed can not be tied to a death, and as a consequence, life insurance is not a viable funding vehicle. Trusts or constructive delivery are the main methods of safeguarding the consumer.

When trust funded preneed is used by the cemetery, the preneed accounting involves a ‘bucket’ for each category of merchandise or service offered to the consumer. Cemetery preneed sales are often made in stages, with the consumer adding items as his/her budget allows. Consequently, buckets are added or emptied as the consumer adds purchases or consents to the delivery of merchandise (like a marker).

As regulators look to provide more oversight to the cemetery preneed transaction, they need to understand the bucket factor.
 

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One of our first blog posts was about Delaware’s legislative effort to tackle the state’s growing problems with cemetery oversight. After a recent public hearing before the legislative study committee, it doesn’t sound like the committee is any closer to a consensus on what the state’s solution should be. Sen. Margaret Rose Henry may be getting a feel for the competing interests at play. To her credit, she promises to persevere by having the committee members bring their respective bills to the full committee so that the attorneys can help. It is reassuring to see democracy at work.

A Capital University Law Review article by C. Allen Shaffer provides one explanation of the competing interests that surface over an abandoned cemetery. This article may not be accurate for some abandoned cemeteries, but it does accurately depict the 3 opposing interests that frequently arise in these circumstances (see page 493): a developer, a group adverse to additional taxation required for the maintenance and a group that favors historic preservation of the cemetery.

I would agree with Mr. Shaffer that abandoned cemeteries often exist in jurisdictions that lack the tax base to support the funding required for basic maintenance of the graves. Accordingly when state legislatures resort to granting municipalities the authority to levy taxes for cemetery maintenance, few local politicians are willing to take responsibility and levy such taxes. But this is exactly what the Missouri legislature did. 

Mr. Shaffer advocates that legislatures authorize court appointed receivers that can pursue adversarial proceedings to determine which interests should prevail. But one has to question whether such an approach can work if the cemetery’s location does not provide an economic interest that would ensure the resources necessary to litigate the issues.     

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For the second time in 7 years, the Delaware legislature is taking up the issue of cemetery oversight. As with most death care legislation, Delaware’s Cemetery Study Committee faces two hurdles: finding answers for aging cemeteries that lack revenues for maintenance, and reconciling the conflicting goals of cemeterians, funeral homes, monument vendors, local governments and the public.  

Neglect is already a problem for cemeteries established before perpetual care was a requirement, and it will become an issue for cemeteries that are not proactive in enforcing existing PC requirements.  In a sense, there are two different problems and finding a way to provide care for the older, "public" cemetery will be the greatest challenge.  Frequently the answer to this situation is more taxes and county/municipality control over the cemetery.   

With regard to cemeteries that have 'inventory' to sell, enforcement of perpetual care requirements is the priority.  However, with the costs of funeral and burials on the rise, the death care industry will be reluctant to accept requirements that drive up the cost of a grave space. 

While many cemetery operators have embraced the need to properly fund and administer perpetual care trusts, laws need to better enforce PC funding requirements and afford fiduciaries more flexibility in how PC funds are invested. 

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