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

The Missouri Funeral Director and Embalmer Association provided crucial support to the passage of Senate Bill No. 1, but the heart of the association’s membership, the mom and pop operators, may now be second-guessing that decision.

SB1 provides regulators the authority to audit or examine preneed trusts and joint accounts, including those established prior to August 28, 2009. Missouri funeral directors are now hearing that the State Board will enforce provisions of the law against their old preneed business in such a way so to put their funeral establishment licenses at risk.

The State Board’s authority to audit preneed sellers under the old law was vague. During the 1980s and early 1990s, the State Board conducted ‘random’ audits. In reality, the audits were not random, but weighted by the number of contracts sold. Using independent CPA firms, audits were made of the same small group of sellers. The practice was challenged in the mid-1990s, and audits were discontinued.

While the vast majority of Missouri sellers have never been audited, their preneed contracts have been reviewed periodically by State Board inspectors. Funeral directors are now troubled by the prospect of those contracts failing to pass muster when reviewed by an independent CPA firm.

The licensees’ worries are well founded. Few funeral homes engaged legal counsel for the purpose of preparing preneed contracts or trust agreements. Instead, funeral homes shared or borrowed documents, often without regard to such specifics as how the contract was to be funded. Consequently, funeral homes have used trust-funded contracts for joint accounts.

Some funeral directors are bound to take a defiant position with the State Board’s enforcement of SB1 against their preneed paperwork. While it is predictable that the State Board may assert the licensee’s failure to engage legal counsel is no defense, licensees represented by counsel also have reason to be indignant with the Board.
 

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One criticism of Missouri’s prior preneed law was that the Attorney General’s office was dependent upon the State Board to refer complaints for legal enforcement. If the State Board didn’t refer a Chapter 436 violation, the AG’s only enforcement alternative was to pursue an action under Missouri’s Merchandising Practices Act (Chapter 407). During the 2008 hearings on Chapter 436 and National Prearranged Services, it was generally recognized that the Attorney General’s office needed independent authorities to pursue Chapter 436 violations. But, the Attorney General also expressed the desire for authority to hold fiduciaries more accountable for their funeral home client’s actions.

The AG’s fiduciary recommendations drew concerns from both funeral homes and the Missouri Division of Finance. The Division of Finance questioned whether the requested powers would make the AG a de facto bank regulator on par with the Division and the bank’s federal regulators. Consequently, the final recommendations for Chapter 436 legislation conditioned the AG’s authority to take action against a fiduciary on having received the consent of the fiduciary’s primary regulator.

However, the Chapter 436 Working Group recommendation regarding this limitation on the Missouri Attorney General did not survive the Senate Bill No. 1 revision process.

Section 436.470.12 of SB1 grants the Attorney General the authority to bring action against a preneed fiduciary whenever an “inspection, investigation, examination or audit” reveals a violation of Chapter 436. A prior subsection provides for information sharing among the relevant Missouri agencies, and arguably, the AG’s authority over preneed fiduciaries could be triggered by the AG’s own investigation or examination.

And, there seems little doubt that the AG may be inclined to apply this new authority with regard to preneed trusts that existed prior to August 28th. Accordingly, Missouri’s preneed fiduciaries should evaluate their accounts with the knowledge that Big Brother may be looking.
 

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Missouri’s Chapter 436 reform law goes into effect on August 28th, and the Missouri State Board of Embalmers and Funeral Directors will have the responsibility of implementing the new changes. However, the State Board is caught in a Catch 22 situation.

Many of the changes will have to be implemented through regulations, but the Board doesn’t have Chapter 436 rulemaking authority until August 28th. For example, preneed sellers and providers will have to be licensed on August 28th . Since this is a new requirement, every preneed seller in the state will have to file an application and fee to be licensed. There are hundreds of funeral homes that will seek a seller’s license, and not a one can sell a preneed contract until the license is in hand. But, the Board can’t begin passing regulations about the licenses until August 28th. To avoid a shutdown of the preneed industry, the State Board will have to improvise through the use of emergency regulations and temporary licenses.

Accordingly, the State Board will be meeting every week during the month of August to establish its priorities for Chapter 436 regulations. The Board’s agenda for those meetings are set out on its website.

The State Board is seeking input from funeral directors in the form of written questions or comments regarding the agenda issues. By seeking comments in advance of publishing proposed rules, the State Board is hoping to expedite the regulation approval process.

Historically, some Chapter 333 rules have taken up a year or more to pass. The rulemaking process requires a Board meeting to discuss the issue and direct the legal staff to draft a proposal. Then a few months later at the next meeting, the Board will consider the proposal, and if acceptable, submit the proposal to the Secretary of State’s office for the publication process. With the publication, there is a comment period. Then, the comments are discussed at the next scheduled Board meeting. Depending upon the comments, the proposal may be revised, and if so, there will be another publication and comment period. All in all, the rulemaking process can be lengthy.

In the meantime, the Missouri preneed industry is waiting on the Board for directions on such issues as contract disclosures and trust administration requirements.

Missouri is in for a long, painstaking period of change.
 

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My kids hate August because it means its time to head back to school.  This year's student population in Missouri will be a little larger than last year's.  The Missouri State Board of Embalmers and Funeral Directors has released its meeting agenda, and the state's preneed industry will be given four crash courses beginning July 30th. 

Generally, freshman orientation is optional, but these classes may start defining a new business model for Missouri's preneed industry.

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The New York Department of Motor Vehicles warns its citizens to plan ahead when it comes to obtaining or renewing their driver’s license. The busiest days of the month are the first and last days of the month. The first day of the month is busy from those who want to beat the rush or who just realized their license expired during the prior month. Then there are the procrastinators who put off the renewal until the very last day.

The New York DMV also warns its licensed drivers to reconsider any plan of completing the renewal process over their lunch hour. The message to drivers (and hopeful 16 year-olds) is to plan ahead because the process will take as long as required to ensure the license is properly issued. It is easier for a licensing authority to say ‘no’ than it is to take the license away once it has been issued.

Missouri funeral homes will face a licensing bottleneck of their own when Senate Bill No. 1 becomes effective August 28th. For the first time, the State Board of Embalmers and Funeral Directors will be licensing hundreds of preneed sellers and providers.

Although Missouri funeral homes may be registered as preneed sellers or providers, the ground rules have changed drastically under Senate Bill No.1. Accordingly, an early decision the State Board will have to make under the new law will regard how to screen seller and provider license applications.

To avoid disruptions to operators’ preneed programs, the State Board may need to consider issuing provisional licenses that assure compliance with the fundamental requirements of Senate Bill No. 1.
 

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For twenty-five years, Missouri funeral directors have had it easy with regard to accounting for consumers’ preneed payments. Chapter 436 required the preneed seller to maintain 80% of the preneed contract sales price in trust. The Missouri law also allowed the preneed seller to withdraw income so long as the 80% threshold was maintained. Consequently, the seller’s trust accounting was fairly simple. However, Senate Bill No.1 has rewritten Chapter 436, and in doing so, will impose a substantial change of accounting upon the Missouri preneed industry.

To establish an audit trail, SB1 requires every payment made on a trust-funded contract to be deposited with the fiduciary institution. The law will also require the preneed trust to accrue income, which the consumer may transfer to an alternative funeral provider. Consumers can also request account information. All of this will require the preneed fiduciary to make monthly allocations to the trust’s individual preneed accounts.

To an extent, the new accounting requirements will also be incorporated into annual regulatory reports required of preneed sellers.

A new era of accountability begins in Missouri.
 

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A little more than a month has lapsed since the Missouri legislature passed a reform preneed bill, but the death care industry remains stuck in neutral until Governor Nixon signs SB1 into law. 

With an effective date of August 28th looming two months away, regulators and funeral homes (and cemeteries) face licensing and document deadlines.  The State Board of Embalmers and Funeral Directors will have the task of licensing hundreds of preneed sellers and providers.  Preneed sellers will have the task of establishing new trusts and preneed contracts. 

This should make for a busy Show Me summer.

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The Missouri Legislature has reform of Chapter 436, the preneed funeral law, on the fast track. With the speed that Senate Bill 1 has been amended and perfected, it may be more appropriate to label this reform as being in the express lane. However, Missouri legislators must not lose track of the cemetery industry’s efforts to effect its own reforms for Chapter 214.

As with most states, Missouri regulates cemeteries under a separate law and a separate regulator. For the most part, Missouri’s cemeteries have been spared from the NPS abuses. Regardless, the state’s cemetery industry has been pursuing needed changes to Chapter 214. Appropriately, Senate Substitute for the SCS SB1, attempts to carve out cemetery exemptions from preneed funeral regulation, but misses the mark.

Chapter 333 vests regulation of funeral directors and funeral establishments in the State Board of Embalmers and Funeral Directors. SB1 will expand the State Board’s authorities to regulate the preneed transaction, and the revisions to Chapter 333 include new definitions of “funeral merchandise” and “preneed contract”. Those definitions overlap with the property, merchandise and services sold by cemeteries. To exclude cemeteries from the State Board’s jurisdiction, SB1 includes a new Section 333.310:

333.310. The provisions of sections 333.300 to 333.340 shall not apply to a cemetery operator who sells contracts or arrangements for services for which payments received by, or on behalf of, the purchaser are required to be placed in an endowed care fund or for which a deposit into a segregated account is required under chapter 214, RSMo, provided that a cemetery operator shall comply with sections 333.300 to 333.340 if the contract or arrangement sold by the operator includes services that may only be provided by a licensed funeral director or embalmer.

With Chapter 333 now defining funeral merchandise to include grave spaces, markers and vaults, cemeteries that sell these items on a preneed basis will be subject to the State Board’s licensing jurisdiction. Section 333.310 exempts cemeteries from the State Board’s jurisdiction to the extent that the cemetery sells only preneed burial services such as opening and closings (and then one has to question the exemption’s reference to endowed care fund or segregated account). If the cemetery sells property or merchandise, the State Board would have jurisdiction for requiring preneed licensing.

In contrast, the cemetery exemption from Chapter 436 does not reference services (and consequently, has a broader affect):

436.410. The provisions of sections 436.400 to 436.520 shall not apply to any contract or other arrangement sold by a cemetery operator for which payments received by or on behalf of the purchaser are required to be placed in an endowed care fund or for which a deposit into a segregated account is required under chapter 214, RSMo, provided that a cemetery operator shall comply with sections 436.400 to 436.520 if the contract or arrangement sold by the operator includes services that may only be provided by a licensed funeral director or embalmer.

However, the Chapter 436 exemption is also problematic for cemeteries. This provision would exempt contracts sold by cemeteries where the purchaser payments are deposited to an endowed care fund or to a segregated account required under Chapter 214. This provision is rather confusing because endowed care trusts cannot be used for preneed payments, but rather for the care and maintenance of the cemetery. The reference to “segregated accounts” contemplates Section 214.387, a provision that authorizes cemetery operators a procedure for deferring the delivery of markers pursuant to a purchaser’s instructions. The segregated account does not provide adequate consumer protections, and should not be the basis for an exemption from Chapter 436.

If would be preferable to address Chapter 436 and Chapter 214 at the same time so that the exemptions can be dovetailed, but if Chapter 436 continues on its current pace, the cemetery exemption must contemplate future trusting/escrow arrangements under Chapter 214, or provide the Director of the Division of Professional Registration the authority to exempt cemeteries based on their individual preneed programs.

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