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. 

I saved this NYT article for a rainy day.  Finding Out Your Power of Attorney Is Powerless describes situations where families had a financial institution reject a power of attorney subsequent to the principal becoming incapacitated with dementia or Alzheimer’s.   My family had a similar experience recently when my mother-in-law had to be admitted to a rehab facility after a nasty fall.  The reality is that financial institutions and hospitals prepare power of attorney forms that build in extra protections for themselves.  If a person has a health care power of attorney and is incapacitated when brought to the hospital, the hospital is not going to reject the patient’s form.  But as the NYT article reports, financial institutions do not hesitate to reject a POA if the client is now incapacitated.  To avoid this situation, the POA principal should take his/her document to the financial institution when he or she still has capacity.  The POA principal can give the bank or brokerage firm a “take it or I leave” demand.  If the bank will not accept and acknowledge that acceptance of the POA in writing, the principal can take his business to a firm that will honor the POA.

In the context of death care, if the POA principal wants to give the agent the authority to direct his/her funeral, then the principal needs to take the POA form to the funeral home.  Not all power of attorney forms include the requisite language for controlling a final disposition.  Depending on the state where the principal resides, the applicable law may require the right of sepulcher language to be in a durable POA, and then either in a health care POA or a financial POA.   So, to avoid the situations described in the NYT article, the POA principal will need to take his/her document to banks, hospitals and funeral homes to ensure those entities will honor the document when it is truly needed.

In the new era of Zoom meetings, the Federal Trade Commission is holding a “public workshop” on September 7th to get further input on Funeral Rule changes that would require funeral homes to post their price lists on line.   The workshop will be televised, and interested parties can watch by using this hyperlink.   Several months ago, the FTC published notice about the workshop and invited industry members and consumer advocates to participate as panelists.  This hyperlink will take readers to the workshop agenda that lists the panelists and the topics to be addressed each hour.   We anticipate that the workshop will be recorded and available for viewing at a later date.  The FTC will accept comments until October 10th, but those comments should only be addressed to specific issues discussed during the workshop. 

A recent Guardian article offers excellent advice to caregivers for individuals with dementia.  The author, Cynthia Dearborn, shared her experiences about caring for a father with vascular dementia.  Cynthia described how her father’s short-term memory became severely impaired, along with his judgment and reasoning skills.  I am having a similar experience with a Transition Plans’ client, who for the purposes of this post I will refer to as Mary. 

I first met Mary thirty years ago when I prepared her first set of estate planning documents.  We kept in contact over the years, and Mary came back into my offices shortly before Covid to review her power of attorney forms.  Some relationships had changed in Mary’s life, and so we put new Transition Plans documents into place for her.   This past December, four years after execution of the most recent powers of attorney, Mary emailed to indicate she would need a new set of power of attorney forms.  When I questioned whether her relationships had changed again, Mary hesitated.  I then forwarded copies of her most recent forms and suggested we get together to discuss whether Mary actually needed new forms.  Mary did come in and we revised her health care power of attorney, but left her financial power of attorney in place.  Two months later, Mary fell down some stairs at a church and broke her arm and leg.  Mary’s attorney in fact then called me for help.  Mary had to be hospitalized and it was discovered that Mary had vascular dementia.  Mary has no family and was completely dependent upon her attorney-in-fact.  The attorney-in-fact was overwhelmed by all of the decisions that had to be made for Mary’s financial affairs and long term care.

As the Guardian article describes, Mary has serious short term memory issues.  She would raise an issue which we would discuss, and then after a few minutes, raise the same issue again.  Mary often became belligerent about changes required for her physical therapy.  The doctors concluded that Mary’s injuries would require months of therapy and would preclude Mary from returning to her home.  Mary aggravated the situation by refusing to follow the doctors’ orders about walking.  Certain issues triggered a foul mood for Mary, and we would have to change the subject when that mood threatened to shut down the discussion.   We quickly concluded that care decisions had to be made without Mary’s input.  As the article suggests, we had to alter our way of communicating with Mary.  

Dementia patients cannot often grasp the issues they face, and consequently, all responsibilities for finances and health care may be thrust upon the caregiver.   In Mary’s case, there were POA forms in force that allowed her attorney-in-fact to make critical decisions about the move to assisted living and the sale of Mary’s house in a timely manner.  Without powers of attorney, a caregiver must go to court for both a conservatorship and guardianship for the authority to make such decisions.

We find the AgingCare website to be a good source information for end of life planning.  The website includes a forum for readers to post questions and offer their experiences.  However, readers need to be careful when the forum is used to seek legal help on end of life issues.  One such topic thread began with a simple question about whether an elder law attorney is needed for a living will.   The first answer started with the appropriate advice, but then went way off course:

Consult an elder lawyer.
A living will may not be required if you have a trust (to avoid all probate). You also require to be her POA as well as MPOA (which you are).
It all depends on what state regulations are….
Don’t wait. If at some point, she requires Medicaid, then the way would be paved.

The advice regarding trusts and POAs is completely wrong.   Living wills, powers of attorney and trusts all have different purposes.  If a parent expresses a desire for a living will, and you’re not sure what its purpose is or how to put one in place, then you should consult an elder law attorney. 

Most of the “Answers” posted to this question were inappropriate and misleading.  One answer recommended a guardianship.  Others recommended a power of attorney.  A health care power of attorney is important to have in place but a living will serve a related, but different purpose.  The living will serves as a written instruction to health care providers if you should become terminally ill, are seriously injured or near the end of life.  The living will is filed with your health care providers so they have instructions when your health care agent is not available.   

One of the weaknesses of Chapter 436, Missouri’s preneed law, is that it provides the State Board few enforcement powers beyond disciplining the preneed seller’s license.  There are plenty of examples of preneed sellers obstructing the State Board’s efforts to obtain preneed records.  At least one resorted to litigation as a delay tactic.  The prospect of having their license put on probation has not been much of a deterrent to some sellers.  Sellers were prepared to play a waiting game with the State Board for a settlement agreement offering a few years of probation.  SB 32 looks to remedy that by providing the State Board the teeth to impose financial penalties on the seller with serious financial deficiencies.

For the seller that obstructs the State Board audit functions, the bill would authorize the Board to require the seller to reimburse the Board’s audit expenses to the Preneed Audit Fund. 

The State Board may also require a seller to pay missing preneed funds back into their trust. 

And third, the State Board may fine a seller up to $10,000, which would be contributed to the Preneed Audit Fund.

With this post we will examine the new “Preneed Audit Fund” that SB32 proposes to create.  Missouri funeral homes are already quite familiar with the state contract fee that was authorized in 2009 by Senate Bill No. 1.  Per that law, the State Board began charging a fee on each preneed contract sold.  That contract fee was created for the sole purpose of funding the State Board’s preneed examination functions.  The fee amount was set by regulation and the State Board initially set the fee at $36.  There were some who thought that NPS had killed off preneed and sales would crater.  But that did not prove to be the case.  The contract fee generated substantial revenues for the State Board, and after a few years the Board lowered the fees charged on licenses issued to funeral directors, embalmers and establishments.  The contract fees were eventually reduced to $25, with more reductions in license fees.  Thirteen years later, the contract fee accounts for most of the State Board’s revenue, but there is very little in preneed protection being provided to the Missouri consumer.

So, SB32 will require the contract fee be deposited to the new “Preneed Audit Fund”, over which the state treasurer controls the purse strings.  The Fund can only be used to reimburse the State Board or the Department of Commerce and Insurance for expenses incurred in a preneed audit, examination or inspection.  The Fund could not be used for expenses such as establishment inspections or discipline proceedings on licenses other than seller, provider or preneed agent.

With our next few posts we will dive deeper into SB32, the Missouri preneed legislation intended to provide the State Board a new audit direction and some new enforcement tools.  Our first issue will be the change in course on preneed audits. 

The bill would amend section 436.470 by adding the following new section:

3.  The board’s financial examination guidelines shall include processes and procedures for determining adequacy of funding of sellers’ preneed obligations, compliance of seller’s handling of consumer funds with this chapter, and compliance of trustees’ administration of preneed trusts with this chapter.

The preneed seller shall provide the following items for each financial examination:

(1)        A listing of all preneed contracts sold during the requested period;

(2)        A listing of all outstanding preneed contracts;

(3)        A listing of all preneed contracts cancelled or transferred during the requested period;

(4)        A report from each financial institution and insurance company utilized by the seller that shows as of the examination date each active consumer name, account number, start date, contract purchase price, amount received, amount on deposit, the account fair market value or insurance death benefit;

(5)        Copies of preneed contract forms currently being used;

(6)        A copy of the trust agreement(s) with the trustee(s); 

(7)        A copy of all agreements with providers or preneed agents;

(8)        Trustee transaction statements for periods designated by the board’s financial examiners or department of commerce and insurance designee; and

(9)        Any other report or document related to the administration of the seller’s preneed trust that may be requested

The introductory paragraph establishes that State Board audit procedures are to focus on three things: 1) the adequacy of the seller’s preneed funding, 2) the seller’s handling of consumer funds, and 3) the trustee’s administration of seller trusts. 

With regard to the adequacy of the seller’s preneed funding, the State Board will need either trust statements or insurance in force statements.  This will involve a comparison of the trust assets’ fair market value to the cost to perform the seller’s outstanding preneed contracts.  None of that argument about comparing trust cost basis to the refund obligation if all contracts canceled on the same day. 

With regard to the seller’s handling of consumer funds, the State Board needs either trust transaction statements or insurance company reports that reflect when the seller deposited consumer funds.  The State Board needs to confirm sellers are depositing all consumer funds within 60 days of their receipt.

Third, the State Board will need trustee statements to determine fiduciary compliance with the distribution of origination fees, sales expense fees, trust expenses, cancellation distributions, performance distributions and any other seller distributions.  When trustees make excess income distributions under the prior law, is there documentation to confirm the compliance of that distribution?  Are trust expense distributions for administrative services provided by a firm independent of the seller?  How are performance and cancellation distributions computed?  How are sales expense and origination fees computed?

We already know the objections that will be raised against this pivot in direction because they were raised in 2017 when the State Board’s exam committee made recommendations to begin tracking the consumers’ funds.  No, requiring supporting documentation from banks and insurance companies will not be burdensome when the State Board employs sampling when testing for compliance by sellers and trustees.  What we wrote in November 2017 remains true today (Missouri’s Preneed Examination Process: A New Focus)