Cemetery owners have two choices for their care fund trust: the local bank or the national bank that solicits death care trusts. 

When the local bank is used, the care fund is typically administered like an estate planning trust.  The bank’s compliance office may be unfamiliar with the applicable state cemetery law and its restrictions or authorities.  Those restrictions include whether capital gains are defined as income or whether fixed distributions are permitted.  The trustee will probably delegate the trust’s income reporting to a local CPA who uses generic tax reporting software that does not include a Section 642i option.  Investment management may also be delegated.  That asset management will be very conservative with a heavy emphasis on government bonds.  Equity allocations are kept to a minimum.  For trusts under $500,000, income may not exceed the trustee fees, fund management fees and tax prep fees.   

Some cemetery owners search the internet for banks that offer cemetery trust services.  When using Google, the search finds four banks that hold themselves out as providing fiduciary services for care fund trusts.  Click here to see that search result. The search result also suggests another list of “banks with trust services that may be suitable”.   When a bank holds itself out as having expertise with care fund trusts, the OCC has warned the bank that they are assuming risks that may require the use of pooled investment vehicles and third party administrators. (OCC Handbook: Personal Fiduciary Activities, see page 67)  Per the OCC guidelines, the national bank should have written policies regarding the acceptance criteria, specialized investment policies, and guidelines for fund managers and administrative vendors.

For cemetery care funds, the bank’s acceptance criteria should state when the trust can be administered as stand-alone trust vs being required to be administered as part of a master trust.  There are two major considerations: diversification of investments and the expenses of the stand-alone trust.  The days when a care fund could invest exclusively in bonds have long-since passed.  Care funds need to be diversified, and the degree of diversification depends on whether distributions are based on net income or based on a fixed percentage.  Or put another way, is the trust an income trust or a total return trust.  Some trusts are too small to adequately diversify the investments for a comfortable balance between risk and return.  One major bank client set the minimum diversification threshold at $1 million.   

The bank’s acceptance criteria should also consider when expenses become prohibitive to the care fund.  At least one of the big 4 banks charges a de minimis fee regardless of the trust’s size.  That bank also delegates tax reporting to a CPA firm that also charges a flat fee regardless of size.  For a $300,000 care fund trust that transferred in 2024, aggregate expenses exceeded the trust’s income.  Perhaps this bank no longer accepts small care funds, but it has not responded to inquiries about providing their remaining clients an alternative.

Trust expenses are one side of the ledger.  If the bank can’t control trust expenses, then the bank should be exploring investment solutions for cemetery care funds.  The OCC has advised that offering death care fiduciary services may render pooled investment structures a necessity.  What was once true for preneed trusts is now true for care funds.  If you are going to solicit care funds, you must have the means to pool assets for investment.  Otherwise, clarify your solicitations to disclose you can only accept care funds of $5 million and larger. 

Another investment solution that can benefit the care fund trust would be private credit.  Care funds have the same investment needs as foundations and large pension plans, who have been flocking to private credit markets.  But the private credit funds have entry points that are too high for all but the largest care funds.  This leads the bank back to using a pooled investment structure to overcome the high entry points.

With regard to the four banks found by Google, their websites do not reference master care fund trusts or pooled investment structures.  Consequently, the cemetery operator is forced to make a direct inquiry.  All of the banks will respond with an acknowledgement that they provide trust services for care fund trusts.  But the owner must persist and ask whether the bank currently sponsors a master care trust and/or pooled investments.  A promising answer would be “that depends”.  Starting a care fund program in a new state may require a de minimis amount of business that may be dependent upon the support of the state cemetery association.  Accordingly, we turn our attention to the state cemetery associations in our next post.

The care fund trust is a source of frustration for most cemetery operators.  Rather than offsetting maintenance expenses, the care fund is a state-mandated money pit.  A percentage of grave sales must be deposited to trust with little or no income being paid back to the cemetery by the trustee.  For the average-sized care fund, consumer deposits are being eaten away by expenses and taxes.

Five years ago, I posted “Cemetery Care Master Trusts: A Need for Economies of Scale” and only one bank client has since responded.  That bank client now has a blossoming master care trust that makes monthly care fund distributions without sacrificing the care fund growth.  What is personally frustrating is that recent care fund transfers have come from banks that are also a client.  These transfers have ranged in value from $100,000 to $900,000.  Only the very largest had received a distribution of any kind in recent years.  The smallest accounts had expenses that exceeded income and therefore the cemetery had gone a few years with a distribution. 

So if the local cemetery’s grass does not get cut this summer, who is to blame?  The cemetery operator, the state regulator, the care fund trustee, the outside fund manager, or a cemetery association?  In the next posts, we will examine the accountability of these various parties for the inefficiencies of care fund administration.   

Sources from several states recently contacted this office about a new policy implemented by a national cemetery corporation.  That cemetery corporation began requiring a “Memorial Survey, Layout, Inspection, and Assessment Fee” for monuments that are to be purchased from third party monument companies.  The cemetery corporation advised that they were blending the administrative, staffing, and service costs into the retail price for monuments.  In other words, the monument company would be required to use the cemetery’s staff for all essential functions related to the delivery and setting of a grave monument.  The problem with this policy is that a Federal court found such practices to be a restraint of trade and issued rules to protect consumers against such practices. 

Almost 40 years ago, the Eighth Circuit Federal Court of Appeals established a set of rules for cemeteries in Rosebrough Monument Co. V Memorial Park Cemetery Association (736 F.2d 441).  Within the cemetery industry these are referred to as the Rosebrough Monument Rules.  The Rosebrough Monument Rules do not permit a fee to be charged for the inspection, survey or flagging of the consumer’s grave site.  Further, the Rules state that a cemetery may not require that its employees layout the foundation or supervise the monument installation without appropriate cause.  Appropriate cause would be multiple errors by a specific monument company.  One company’s errors cannot be used to impose a requirement on all third party monument companies.

Cremation trends are resulting in fewer burials at cemeteries, and as a consequence, cemeteries are looking for ways to counter competition.  Imposing packaging requirements is not a valid strategy for keeping the competition out of the cemetery’s gates.   

A Missouri funeral director recently called for advice.  He received a first call for an individual that died without a spouse or children.  The deceased had a surviving parent and several siblings, but a distant relative was asserting the right of sepulcher by virtue of a durable power of attorney.  The funeral director had reviewed the power of attorney form and found separate provisions giving authority to consent to an autopsy and to make an anatomical gift.  But the form did not include a provision for exercising the right of sepulcher.   After reviewing the power of attorney form, we found the funeral director to be correct.  The form had been prepared by an attorney, and that attorney did not include the necessary language for exercising the right of sepulcher. 

Under Missouri law, as it is with most states, the right of sepulcher is a special power that must be set out in the power of attorney form.  Consenting to an autopsy or making an anatomical gift of all or a part of the principal’s body are also special powers that must be expressly set out by the power of attorney form.  These special powers cannot be implied from similar types of powers.

With the POA form that was presented to the funeral director, the drafting attorney had used language from the statute to address an autopsy and/or anatomical gifts, but stopped short of including the right of sepulcher language.  As a result, the distant relative did not have authority to direct the funeral.  Instead, the funeral director was required to seek instructions from the parent.  If the parent declined or deferred to the siblings, then those siblings had the right of sepulcher.   

The Memorial Business Journal (the NFDA’s weekly newsletter) has been drilling down into the NFDA’s 2024 Consumer Awareness and Preferences Survey.  With the FTC’s Funeral Rule amendment looming, the July 4th MBJ edition was of particular interest to us.  The Survey found that 92% of the survey respondents use Facebook, with most of those respondents using it daily.  Almost 48% of the respondents have visited a funeral home’s Facebook page.  Apparently, consumers are using the funeral home’s Facebook page to familiarize themselves with the staff and the satisfaction of other consumers with the establishment.  About a third of the respondents indicate they used the services of a funeral home they found through Facebook. 

MBJ also reported that the percentage of respondents that attended an end-of-life planning event doubled from the prior year.  It is probably due to COVID, but more consumers are receptive to end-of-life planning and funeral prearrangements. However, consumers are more likely to attend an event sponsored by a third party (such as a church or community center).  This should suggest to funeral homes that there is an advantage to working with a church or hospice center when offering end-of-life planning events.

When the FTC’s issues the Funeral Rule amendment, it is widely expected that funeral homes will be required to make GPLs online in some format.  As a result, consumer trends towards Facebook surfing will only accelerate. 

To receive a copy of the Memorial Business Journal, contact the National Funeral Directors Association.   

We recently found this post on funeral matters explaining the authorities of executors, guardians and power of attorney agents to control funeral arrangements.  The post is limiting its advice to New Jersey laws, but a casual reader could lose sight of that limitation.  With regard to executors, the post suggests that an executor will be limited to financial matters of the estate, which may include paying the funeral bill.  But the post advises than an executor cannot control the decedent’s final disposition.  As a practical matter, a court’s appointment of an executor may take weeks (and long after the funeral must be provided).  So, the post is somewhat accurate, but that is not case in New Jersey where the law was revised in 2019.  Under that amendment, the person appointed as executor under a will may control the funeral arrangements before the estate is opened by a court.  The post’s explanation about power of attorneys also misses the mark.  In almost all states, right of sepulcher language can be included in a power of attorney form to provide the POA agent the authority to control the principal’s disposition.  When the New Jersey law was amended, it too recognizes the authority to control a funeral arrangement. 

One of the most difficult challenges for a financial POA agent is the parent’s empty house.  Dementia has robbed the parent of the life skills needed to continue living at home and the health care POA agent has already made the decision to move Mom to an assisted living facility.   As time passes, it becomes apparent to family members that Mom cannot be allowed to move back home.   As this AgingCare blog thread suggests, the family discussion about what to do with the house can be extremely emotional and stressful.  When Mom is included in the discussion, she may become very adamant against a sale of the house.  But as many of the contributors to the blog thread explain, the financial POA agent needs to consider factors such as insurance requirements and how an empty house will deteriorate more quickly.  While Mom and other family members may oppose a sale of the house on sentimental reasons, the financial POA agent has duty to act in the best interests of the principal. Selling the house is often the best action to take.   

After almost 16 years, the NPS receivership is coming to a close.  But the final chapter will mark a messy end for funeral homes that have consumers with an orphaned NPS contract and those funeral homes that did not heed the SDR’s 2020 notice about lost earnings. 

One of the receivership’s final steps will be to return consumer funds held in escrow for orphan NPS contracts.  Orphan NPS contracts were those that did not have a related Lincoln Memorial life insurance policy.  Without a LML policy, or the indicia of the intent to purchase a policy, the various insurance guaranty associations were not obligated to provide coverage for the NPS preneed contract.  NPS had very bad recordkeeping and the receivership needed time to review LML records for documentation that supported coverage.  In 2010, a court order was issued with regard to the orphan NPS contracts.  Consumers who were making installment payments on an orphaned contract were instructed to continue making payments or face having the contract terminated. 

This created a dilemma for funeral homes that had to advise their consumers:  continue making payments to the receivership or start over with a new preneed contract.  Our advice to funeral homes was to look at each contract to determine how much had already been paid, and then discuss the risks with the consumer.  For consumers with a few hundred dollars paid to NPS, the better course may be to start over.  With more substantial payments to NPS, the consumer would be advised to continue paying in hopes that coverage would be eventually approved.

And over the years, coverage was eventually extended to some orphaned contracts.  Today, it is not clear how many orphan contracts remain, but the payments made during those receivership years are being returned.  At least in Missouri, questions are being raised whether special protections should be extended to the consumers.  With the exception of rollover contracts, our conclusion would be that this is a matter for the consumer and funeral home to work out. 

For the most part, Missouri funeral homes have attempted to do right by the NPS contract holder by providing credits or discounts.  It would be an overreach for regulators to take the position that funeral homes must honor an NPS contract without regard to what will be received for the service.  The consumer had an option in 2010 to start over.  Many consumers took that option.  Those that did not, will now receive a refund and will need to start over.   Funeral homes will likely work with consumers by making the refund go as far as possible. 

The rollover contracts are the exception to this approach.  Rollover contracts are those that were sold by a funeral home as the preneed seller, and then subsequently transferred to NPS for additional compensation.  In the rollover, the funeral home made a bad decision and has an obligation to perform the contract regardless of payment at the time of need.

The other closing spoiler is lost earnings for funeral homes.  In 2020, the receivership sent out this notice to NPS providers.  Many funeral homes did not take the notice seriously.  Missouri funeral homes were advised by industry representatives that there would not be any receivership assets left to split among funeral home providers.  Those statements proved false, and word leaked in 2023 that some funeral home providers would receive significant lost earnings distributions.  This resulted in dozens of objections be filed with the receivership.  Those that we reviewed have been rejected for failure to heed the 2020 notice.  That is leaving a bitter taste for many funeral homes. 

The traditional funeral and burial remains the preference of many individuals.  Understanding that this type of arrangement will be more expensive, many of those individuals purchase a preneed contract to spare their survivors a financial burden.  But what happens when a child does not respect their parent’s preference for a traditional funeral and burial?  Upon the last parent’s death, the right of sepulcher passes to the children.  The children must enter into an at-need arrangement with the funeral home.  But rather than use the preneed contract’s guaranteed prices, some children downgrade the arrangement to a cremation and request a refund of the preneed contract’s excess funds.  

 When the traditional funeral and burial is important to the consumer, the funeral director can discuss how the right of sepulcher can be delegated to a person that the consumer trusts to carry out their funeral preferences.  Each state has a next of kin statute that recognizes an individual’s right to bypass the next of kin priorities by assigning the right of sepulcher to someone else.   The durable power of attorney is most widely used form for assigning the right of sepulcher. 

Most funeral directors are aware that a durable power of attorney form can be used for the right of sepulcher.  However, many funeral directors refer consumers to the power of attorney form offered by their state’s Bar Association for attorneys.   The problem with these Bar Association forms is that they frequently include springing powers or require the consumer to make a specific election for the right of sepulcher.  We previously posted on the problems with springing powers in Last Rites Denied, and would encourage you to read that post. 

The Bar Association forms may also include revocation language.  It is typical for all power of attorney forms to include a provision that revokes all prior powers of attorney.    If the funeral consumer already has other power of attorney forms in place, the execution of the Bar Association form for sepulcher purposes will revoke those other POA forms, and throw the consumer’s estate plan into chaos. 

It would be best for the funeral home to develop and use a power of attorney form that touches four bases:

  1. Includes language to make it durable
  2. Includes the appropriate right of sepulcher language
  3. Becomes effective immediately (avoiding the springing provision)
  4. Acknowledges that other powers of attorney may exist, and are to be given priority in areas other than the right of sepulcher

A funeral director recently remarked to me that she referred her families to the internet when they inquired about power of attorney forms.  Yes, free (or cheap) power of attorney forms are plentiful on the internet.  In reality, there are too many POA forms for a family to choose from, and the odds are that they will select one that does not meet their needs or comply with their home state requirements.

 Each state has its own POA law, and those laws differ in some significant ways.  If a family does not specify their home state in the Google search, the results will pull POA forms from all 50 states. 

Search results will be narrowed somewhat when the home state is identified, but the family will still face a long list of websites to review.  Here is an example of a search for “Missouri power of attorney forms”.   Sponsored websites are at the top of the list, and the first hit describes 9 types of POA forms.  Which is right for your family?  As you scroll down the results, notice that some forms are for health care and some for undisclosed purposes.  Each state’s attorney bar can be a good source for POA forms, but when you follow the MO Bar link a health care POA is described.

When a family makes an inquiry to the funeral director, one power they probably want covered is the right of sepulcher.   By this I mean, the prospective principal may want the POA agent to have power to control the type of funeral the principal wants.  In Missouri, this requires a specific type of POA form: the durable power of attorney for finances.  And then, the POA form must include specific language for controlling the disposition of the body.   So, there are three required elements: Durable, Finances and Power over Disposition.   When I reviewed samples of the Missouri forms, none met these requirements. 

The funeral director I mentioned at the beginning of this post recommends the Illinois short form for property.  If you were to Google for that term, this is the result you will get.  The first result isn’t what the family is looking for, but the second result is.  Here is the form if you were to click the link.  The Illinois form will require the family to make some decisions they may not understand.  But even if they make the correct decisions and execute the document pursuant to Illinois law requirements, it will be the wrong form for the right of sepulcher.   Illinois is one of those states that view the disposition of the body as a health care issue.  Consequently, the family would instead need a durable health care POA that includes control over the disposition of the body.  Free forms offered by health care facilities may not think to include powers to control the disposition of the body. 

A funeral director is courting a lawsuit when recommending the wrong type of POA to customers. If there should be a family dispute over a funeral arrangement, and the funeral director chooses the person with the POA over the next of kin, the funeral director could come to regret her advice. And so in some situations, a free POA form is worse than nothing.