Missouri’s new State Board will have its first meeting this week, and one week after the State was sued by a former State Board employee.  The lawsuit alleges that the Division of Professional Registration usurped State Board authority to fire employees who had defied Division Director warnings to stand down.  What we now know through news reports is that the State Board and its staff were pursuing enforcement actions against funeral home establishments and at least one major preneed seller.  While the State Board did heed a Division directive about picture taking during funeral home inspections, the staff continued to investigate problem funeral homes and preneed sellers.   Obviously this displeased the Division Director who then manipulated the Governor’s  Office by seeking the appointment of four State Board members who had agreed to violate the State’s open meeting law and follow the Division’s instructions.   In the aftermath, State Board disciplinary proceedings were dismissed or modified without formal Board actions.   Those actions were contrary to promises the Legislature had made to preneed consumers with the passage of Senate Bill No.1.   Bowing to pressure from Missouri’s Senate, the Governor withdrew the four State Board appointments.

Missouri funeral directors are curious whether the Division will still be pulling State Board strings.   They are asking whether the new State Board will reinstate discipline proceedings against the Warrensburg funeral home with licensing issues and preneed problems.    What is the status of that preneed audit against a major preneed seller?   What has the Division been doing with inspections and audits during the past 7 months?

We are also curious about what the whistleblower lawsuit will turn up through its discovery efforts.   Immediately following the termination of the Board staff, the executive director of a major preneed seller suggested to us that the preneed audit supervisor had been included in the firings because he had made derogatory statements to a preneed seller that had been disciplined.  That executive director advised that the preneed seller had strong connections to the Governor and that’s how business works in Jeff City.   We can’t help but think that those suggestions were a red herring, and that the whistleblower lawsuit will uncover the identity of the troubled preneed seller.

The Missouri Preneed Trust: What were you thinking?

Investment markets are down, and preneed trusts are hurting.  But one Missouri preneed trust is probably hurting more than others.  When the Missouri Funeral Directors and Embalmers Association cheerfully announced the acquisition of the Missouri Preneed Trust program by its own MFT, we were shocked.  The Missouri Preneed Trust was an old, shrinking trust program that had fallen off the industry radar after Chapter 436 was re-written in 2009.  The program was established by a respected St. Louis attorney in the 1980’s.  But after 30 years, the attorney was no longer active in the industry and the program was described to this author as being on auto-pilot.   After the attorney’s death in 2021, his estate started looking for a buyer.  It took several months, but eventually they found one that paid a handsome amount.

What the attorney’s estate may have had going for it in 2021 were recent years of substantial long term capital gains. We administer Nebraska preneed trusts that experienced substantial gains in 2019, 2020 and 2021.  Nebraska authorizes income distributions in excess of a CPI accrual requirement.  Missouri’s old Chapter 436 was similar in that it permitted excess income withdrawals so long as the distribution of income did not lower the trust’s market value below aggregate deposits.  So it was possible that the Missouri Preneed Trust had been making some significant, and permissible, income distributions to the attorney prior to his death.

Jump forward to July 2022, my Nebraska clients know there will be no excess income distributions this year, and quite possibly next year.  We have to believe the same is true for the Missouri Preneed Trust.   What does that mean to the MFDEA and its Missouri Funeral Trust?

The Association video announcing the MPT acquisition attempted to offer assurances to MFT funeral home providers that no MFT trust funds were used for the acquisition.  It is doubtful that the association (a not for profit organization) would use any of its resources and jeopardize its tax status.  But with the Association’s attorney you never get a straight answer, and instead, one is forced to read between the lines.  The lines would seem to suggest that MFT, a company controlled by the attorney and a small number of funeral directors, obtained a loan to finance the acquisition of MPT’s stock from the attorney’s estate.   If this proves accurate, how will MFT repay the loan if market conditions preclude income distributions from MPT?  If MFT were to default on the loan, does that jeopardize the trust assets that belong to Missouri preneed consumers (and the funeral homes that have promised to perform those contracts)?

Another question is whether those individuals that approved this acquisition violated RSMo Section 436.35.6:

No seller, provider, or preneed agent shall procure or accept a loan against any investment or asset of or belonging to a preneed trust.  As of August 29, 2009, no preneed seller, provider, or agent shall use any existing preneed contract as collateral or security pledged for a loan or take preneed funds of any existing preneed contract as a loan or for any purpose other than as authorized by this chapter.

We will remind readers that the acquisition was finalized during the period when the Missouri Funeral Board lacked a quorum to take action.  From the get go, this transaction seems motivated by the opportunity to squeeze consumer preneed trust funds dry.   Now that the Funeral Board has new members, we will watch to see if it takes a look at the acquisition.

With this post we are returning to the misstatements made by the Missouri Funeral Directors and Embalmers Association in their May video explaining preneed portability.  At minute 10:18 of the MFDEA video, the association attorney advises that Chapter 436 only allows transfer of preneed contracts to funeral homes licensed by the Missouri State Board.  Employing a strained interpretation of “alternate provider”, the association suggests that state law precludes the transfer of a Missouri preneed contract to a funeral home licensed in another state.  There was a time that the Missouri State Board might have agreed with that statement.  However, the Federal Trade Commission warned the State Board in 2008 that such an interpretation of Missouri law would be an impermissible restraint of trade.

In 2006, this author represented a cemetery client that sought to register as a Chapter 436 preneed seller.  The State Board refused, taking the position that only Missouri licensed funeral establishments could agree to perform a Missouri preneed contract.  The State Board took that position at a time when a Federal Trade Commission complaint was already pending against it.  This author wrote to the FTC requesting that it expand its complaint to address preneed.  The FTC incorporated our inquiry into their discipline of the State Board, requiring the Board to post the Settlement and the FTC’s response to our letter on the Board website for 10 years.

Yes, Chapter 436 has been rewritten since the FTC’s 2008 Settlement with the Missouri State Board.  But the FTC will pierce through the smoke and mirrors argued by the association and look to see if the State Board interprets the law to restrain Missouri preneed contract holders from transferring to an out of state funeral home.   We anticipate that the new State Board will decline to back up the MFDEA’s efforts to discourage preneed portability.

Late in 2021, PNC Bank threw in the towel.  After years of litigation and two appeals, PNC Bank agreed to a settlement with the NPS special deputy receiver.  Last month, our Illinois clients began receiving POC notices from the SDR that a portion of their claims for inflation would be honored.  Payment of funeral home POCs signals the beginning of the end of the NPS receivership.  This got us to thinking about the impact of the NPS court decisions on preneed trust administration.  The watershed finding for PNC Bank’s liability was that provider funeral homes are beneficiaries of a third party seller preneed trust.  In states other than Missouri, the provider funeral home must be a party to the preneed trust and have always been owed duties by the trustee.  But because Missouri preneed law authorizes third party preneed sellers, those types of entities have excluded the provider funeral home from being a party to the trust.  So for Missouri’s remaining handful of third party sellers, the NPS appellate decisions are game changers.

Most states’ preneed laws define a preneed seller to be a licensed funeral home.  Common sense suggests that the entity with the obligation to perform the contract will be diligent in safeguarding the consumer’s funds.   While states allow the funeral home to employ an agency to market, sell and administer consumer funds, they will not allow an independent entity to step between the funeral home and the consumers’ funds.

Missouri was in that same boat until 1982.  That law change had been lobbied by National Prearranged Services and Funeral Security Plans, companies which acted as preneed sales agencies for funeral homes in various states.  The key change sought by NPS and FSP was the definition of a preneed seller.  If the seller was no longer required to be a licensed funeral home, an independent entity could control the entire preneed transaction.  In the 1980s’, the trust funded preneed was king, and these future third party sellers wanted control over the trustee.  It was described to this author as the golden rule: he who controls the gold will rule.  By controlling the funding arrangement, the third party seller would also control the funeral home provider.  Using a separate funeral home provider contract to set out the terms of preneed contract performance and payment, a seller could exclude the provider funeral home from trust management and investment oversight.

When sued for its role in the NPS collapse, PNC Bank argued that claims made by the SDR on behalf of provider funeral homes were inappropriate because they were not beneficiaries of the NPS trusts.  PNC Bank cited the court to Chapter 436, and argued the position that NPS had taken with funeral homes for decades: funeral directors have no rights under our trusts.  In the first civil trial, the court erroneously allowed tort claims to be asserted.  Those tort claims resulted in large damage awards against PNC Bank that were eventually overturned in the first appeal.   When the case was remanded to the trial court, the issues were narrowed to breaches of fiduciary duty, and the trial court ruled that NPS’ provider funeral homes were beneficiaries of the trusts.  PNC Bank appealed again.  In the decision filed in August 2017, the Eighth Circuit agreed with the trial court and turned the third party seller trust argument upside down.  By affirming provider funeral homes to be trust beneficiaries, the appeals court superimposed the Missouri uniform trust code on to Missouri preneed trusts and the seller/provider relationship.

For four decades, third party preneed sellers have told disgruntled provider funeral homes to go pound sand.  A seller like NPS could cite the seller/provider agreement to deflect the funeral home’s demands for information.  The Eighth Circuit changed all of that.  Because preneed trusts make distributions to the provider funeral home, the Missouri uniform trust code deems it to be a “qualified beneficiary”.   As a qualified beneficiary, a provider funeral home can side-step the seller’s stonewall and request an accounting from the trust’s fiduciary.  If NPS provider funeral homes had made accounting demands on Allegiant Bank, their top management may have looked closer at NPS’ actions.

If a third party seller can no longer isolate a trustee from the disgruntled funeral director, will a bank or trust company accept a Missouri third party seller trust?

We are continuing with our posts to correct the misstatements made by the MFDEA in its May 24th video on Missouri law and preneed portability.  At minute 28:50 of the video, the association’s general counsel states that with regard to the transfer of preneed contracts, a successor seller must execute a State Board affidavit and assume all obligations of the preneed contract.   The video states that when funding has not kept up with price guarantees the successor seller may not be willing to assume all of the obligations of the contract (honoring the price guarantees).    The video suggests that the simple option is to cancel the contract and get a refund.

The problem with this explanation is that it ignores that Section 436.500.2(2) allows an assuming seller to file a plan in lieu of the State Board’s affidavit.  We have represented numerous Missouri successor sellers and used a “plan” called an assignment and assumption agreement.  Depending upon the available funding to be transferred with the preneed contract, the seller may or may not honor the original price guarantees.  In situations where the original seller has impaired or depleted the contract funding through misconduct, the successor seller may offer to enter into new arrangements with the preneed consumer.   The State Board may always reject a Section 436.500.2.(2) plan, but this office has never had that happen.

If a successor seller were to accept the video’s recommendation for cancellation, the original seller stands to reap a windfall.  For pre-SB1 contract where 100% of the consumer payments were trusted, the seller could keep that 20% and all trust growth.  For post SB1 contracts, the seller could keep the 5% origination fee and all trust growth.

This section of the video seems intended to discourage funeral homes from even inquiring about an assumption of their preneed contracts being administered by MFT.

A few weeks ago the Missouri Embalmers and Funeral Directors Association posted a YouTube video explaining their take on preneed portability under Missouri law.  The MFDEA frequently posts videos in response to industry queries, and for the association to spend 37 minutes on portability suggests that it is fielding numerous requests from MFT providers.  The video is full of double talk and misinformation that we will address in future posts.   However the video contains a glaring legal misstatement that must be corrected.

At minute 24.48 of the video, the MFDEA general counsel suggests that Chapter 436 allows a preneed seller to get a percentage of preneed trust income for their expenses, and when the seller has been taking that expense from the trust, those funds won’t be available for transfer to an alternate provider.   Excuse me, but Chapter 436 does not allow a preneed seller to recover expenses from preneed trust income.   Missouri preneed sellers may only look to the origination fee (5% of the contract purchase price) and the sales expense (10% of the sales price of guaranteed items) to offset the expense of a preneed contract.   Sellers cannot look to preneed trust income until the contract is serviced or canceled.  If preneed sellers were allowed to tap their trust income for company operating expenses, consumer trust accounts would see little if any growth.   We can’t help but wonder if this was an issue the State Board’s financial examiner had identified with the Missouri Funeral Trust, and which led to the MFDEA supporting the Division of Professional Registration when it sacked the Board and its staff last October.

When we pointed out prior misstatements in their YouTube videos, the association removed the video.  To retain the smoking gun, we have downloaded the MFDEA’s Portability video.   Here is the video in its entirety, but you may want to fast forward to minute 24:48 to hear the statement regarding seller expenses and trust income.  If the video disappears, contact us if you want a copy.

COVID is forcing American families to confront end-of-life planning.  There are numerous articles on the subject, but NPR published one during the summer of 2020 that made a recommendation that is often overlooked: creating an inventory.  My wife, the list maker, established our first inventory 30 years ago when our first child was born.  Over the years, that inventory was converted to an Excel spreadsheet so that it could be easily updated and shared.  The need for a comprehensive inventory was driven home with us when my mother-in-law’s health began declining last year.

Genelle, my mother-in-law, is also a list maker.  Unlike her daughter, Genelle has a disdain for computers, and prefers paper lists that are safeguarded in one of two safes.  During a visit to discuss her estate plans, Genelle opened both safes to retrieve her various lists.  My spouse has four siblings, and Genelle had broken matters down by the sibling who she thought was most familiar with that matter.  When we went to discuss a matter with the assigned sibling, the most common response was ignorance.  Genelle’s children were in the dark about the matters that constituted her estate.   The various lists were difficult to read and, after further investigation, incomplete.  Working as a group, my wife and her siblings began to work with their mother to put together the pieces of Genelle’s estate puzzle and create a comprehensive inventory.

My wife’s family is fortunate in that Genelle can still answer questions and provide information.   She can also execute documents necessary to clarify title in her estate assets or to sell property that has become difficult to manage.  As the NPR article suggests, it’s never too early to start work on an inventory.  Be comprehensive in creating the inventory, providing hyperlinks to accounts.  (User names and passwords should be kept on a separate document, to be provided to your financial power of attorney and estate executor.)

A former Kentucky funeral director has been charged with multiple felony preneed thefts, some of which occurred 25 years ago.   Various news sources report that Donald Creech began pocketing consumer preneed payments as early as 1996. The consumer preneed payments were to have been forwarded to the Kentucky Funeral Directors Association’s master trust.   Until he was forced out of the business in 2016, Mr. Creech is believed to have kept approximately $250,000 of consumer funds.

Preneed fraud is difficult to detect when a funeral director files the contract in a ‘special drawer’.  So long as the funeral director continues to own and operate the business, he will service the contract when there’s a death and no one is the wiser.  But if there is a change of ownership or control of the funeral home, the unfunded contract will come to the surface upon the contract beneficiary’s death.   That can be many years after the contract was sold, or as in Mr. Creech’s case, years after he was forced out of the business.

The statute of limitations for preneed theft does not begin to run until the fraud is discovered.  Although the theft may not be discovered until the family requests the prearranged funeral, prosecutors need not wait until there is a death to prosecute.  A key element for preneed fraud prosecution is the state law requiring the consumer funds be deposited to trust or remitted to an insurance company.  Local prosecutors may perceive that a fraud is dependent upon the consumer being denied their prearranged funeral.  However, the fraud is complete when the preneed seller fails to deposit or remit the funds pursuant to the state preneed law.

CNN underscored recently posted a good article about final expense life insurance.  Death care clients have been contacting us more frequently about this type of policy, and we will share some of their issues.

Funeral homes are backing away from the conventional life insurance policy for some of the same reasons.  Large life insurance companies are often slow to pay policy proceeds, leaving the funeral home waiting for months.   Some insurers would prefer to deal with individuals rather than funeral directors, and require additional documentation.   These additional requirements are frequently made known weeks after the funeral, forcing the funeral director to chase down family members for the requirements.  These issues have led to some funeral directors rejecting insurance policies or charging administrative fees for insurance assignments.

If the consumer intends to purchase a final expense policy for funeral and burial expenses, the following questions should be asked when shopping for a policy:

  1. What are your requirements for proceeds assignments to a funeral home or cemetery?
  2. What is the average waiting period for payment of the policy proceeds?

If you have picked out a funeral home and/or cemetery for your funeral and burial, share the insurer’s responses with them to ensure your family will be able to use the policy without one of the problems discussed above.

Dear Senator Schatz,

We appreciate that your Senate Appointment Committee has a packed hearing date for April 20th.  So, the Missouri funeral industry not represented by the Missouri Funeral Directors and Embalmers Association requests a single question be asked of Ms. Solon:

If confirmed as executive director of the Division of Professional Registration, will you honor the autonomy that we the Legislature gave the State Board of Embalmers and Funeral Directors with RSMo Section 324.001.11?

If clarification is needed why the question, please feel free to share my January 6th letter.  If the appointee and the industry can come to an understanding about the authorities that the Legislature gave the State Board, then signal to the Governor that it’s time to make independent and qualified appointments to the Board.