On August 30, 2021, the legal saga of National Prearranged Services came to a rather anticlimactic conclusion.  In a relatively short decision, the Eighth Circuit Court of Appeals affirmed Judge Richard Webber’s July 2019 judgment that awarded $102,135,393.07 damages against PNC Bank, a successor to the NPS preneed trusts.  The final damages award is a far cry from the original judgment of $490 million awarded by a jury in May 2015.  The hopes of funeral directors were quickly dashed when PNC Bank successfully appealed the 2015 judgment and was granted a new trial.  Confined to breach of trust claims against PNC Bank (and not tort claims), the trial court found Allegiant Bank guilty of several fiduciary breaches.  Without the tort claims, the trial court was limited as to what damages could be awarded, and the award was reduced by $390 million.    Funeral homes hoping to share in the original damages award will be disappointed.

For preneed fiduciaries, the Eighth Circuit’s decision affirmed all of the trial court’s findings regarding Allegiant’s breaches of trustee duties.  The trial court’s findings of facts covered 305 pages, and we summarized some of those fiduciary breaches in three posts made in August 2019.  Paramount among those duties was the due diligence required for “know your client”.   The trial court also faulted Allegiant for its failure to maintain or supervise consumer level deposit records.  The appeals decision affirms that the days of treating the preneed trust as custodian in nature are long gone

Since the onset of Covid, the death care industry has experienced an uptick in preneed sales.  As witnessed recently on the Bankrate website, the financial planning industry has taken notice.  Bankrate is a website that provides comparisons of various financial products, and recently posted an article titled “The pros and cons of funeral trusts”.  The article opens with a reference to the IRS code section defining a qualified funeral trust and discusses the advantages of a trust for final expenses.  Noting the risks of the conventional preneed contract, the article recommends a do it yourself approach to setting up a funeral trust.  We have long been a proponent of the financial industry offering a trust based product for final expense purposes.  This would be a preneed alternative that many small death care operators would welcome.   What mom and pop funeral home wouldn’t like to avoid the hassle of filing annual reports and monitoring state law compliance?  A final expense trust product could also be attractive to churches and hospices.  But the Bankrate article fails to grasp certain complexities of the preneed transaction that doom the DIY funeral trust.

Costs are the first hurdle to establishing a DIY funeral trust.  As the Bankrate article suggests, we agree that an independent trustee is needed.  Back in 2013 we explored the costs of individual funeral trusts.  We found a few boutique trust companies that offered up such types of trusts, but all charged minimum set up fees and/or minimum annual fees.   While most financial planners have trust templates for standard estate planning purposes, the funeral trust is a different animal.  As the Bankrate article hints at, an individual may have to seek the assistance of an attorney.  That means the trust instrument may cost several hundred dollars.  Between the trustee and a drafting attorney, the DIY funeral trust could cost more than $500 to set up.

The Bankrate article glosses over the challenge of investing a small trust account.  We addressed this same issue when posting in response to a 2018 New York Times article about funeral planning.  Like so many funeral home preneed trusts, fees will eat up small investment funds.  To be economically viable, financial institutions must embrace the funeral trust concept and offer it as one of their products.  As with the funeral master trusts we have written numerous times, the independent funeral trust will need economies of scale and diversification.

While the Bankrate article gave lip service to IRC Section 685, the DIY funeral trust can never satisfy the qualified funeral trust requirements.  Section 685 provides the death care fiduciary substantial tax reporting advantages that are key to administrative efficiencies.  The following hyperlink displays some of our posts on Section 685.  The DIY funeral trust is in essence a grantor trust under the tax code.

The Bankrate article includes comments from a financial advisor who acknowledges her industry is not geared to providing final expense products.  She suggests that accordingly, financial planners tend to build funeral expenses in as part of the overall estate plan (rather than set up a specific trust).  We saw similar advice in Lawyers.com article a few years ago and posted about frequent estate planning mistakes and the need for a final expense trust (When a Will will be too late.)

The DIY funeral trust may seem a safer alternative to the cons of the conventional preneed trust: the lack of portability, poor refund rights, and vulnerability to fraud.  An independent funeral trust program could provide individuals the means to preplan and prepay their funeral and burials without being obligated or committed to a particular funeral home or cemetery.  But such a program would have to provide consumers the documents, fiduciary and legal services and expertise to carry out their funeral and burial decisions. This is too much to ask of a DIY funeral trust.

Search the internet for “cemetery” and “friends of” and you will find a number of independent maintenance associations.  We’re not referring to Facebook groups that organize volunteer events for an abandoned cemetery, but rather we want to highlight those formal organizations established to provide continuing financial assistance to an active cemetery.

As a cemetery nears its capacity, revenues from lot sales and interment services will decline.  Most cemeteries are already experiencing revenue declines because of the public’s embrace of cremation.  Declining revenues require cuts to the cemetery’s maintenance budget.  This situation has led some of our cemetery clients to convert to tax exempt status so they may seek donations from prominent individuals with family buried in the cemetery.   However, caring families are frequently taking an independent route by forming their own maintenance association.

Established by descendants of cemetery lot owners, an independent maintenance association may have an agenda that differs from that of the cemetery board.  While the cemetery board may be focused on keeping the grass cut and the roads in repair, the independent maintenance association may want the chapel renovated, the mausoleum roof repaired or historic markers replaced.  Not wanting their donations diverted to general cemetery needs, the independent maintenance association retains control over its own budget or trust.  The association can also steer clear of trust distribution constraints that may be imposed by state law on the cemetery endowed care trust.

To achieve its own tax exempt status (so that donations are deductible), the independent maintenance association must qualify with the IRS as either a Section 501(c)(3) charity or a Section 501(c)(13) cemetery company.  Implicit in this approval is that association also be formed under state law as a company or association.   Costs will be incurred with both the formation of the company and the IRS filing.

The following hyperlink will take you to the Perservation and Enhancement Fund page of Mount Olivet Cemetery in Frederick, Maryland.  This page provides history of their ‘friends/preservation’ association and the challenges of preserving their garden cemetery.  The page provides a valuable marketing tool in seeking donations.

The independent maintenance association is not a friend that is available to the for-profit cemetery.  The tax exempt status precludes the association from providing maintenance assistance that is otherwise required from a for profit company.  For cemeteries with a mausoleum in need of repairs, we have seen the mausoleum being transferred to a new 501(c)(13) company.  Future crypt sales provide revenue for mausoleum repairs, and the independent maintenance association is then formed to help subsidize repairs and future upkeep.

A festering dispute between Missouri’s State Funeral Board and funeral directors association came to a head in a public conference call today.    The State Board scheduled the meeting in response to  its parent agency (the Division of Professional Registration) blocking the Board’s hiring of an investigator.  The Board held the meeting to discuss what actions should be taken to clarify its authority to hire and retain inspectors and investigators.  When the Board discussed the possibility of requesting an Attorney General opinion, the MFDEA raised the spectre of a 2015 Supreme Court decision and warned the Board to be careful about ‘what it asks for’.   The association went on to declare that it  had warned the Board against having inspectors taking pictures during funeral home inspections.

This dispute began in the fall of 2020 when Division of Professional Registration sought to require the State Board to use investigators from its central investigation unit.  The State Board acquiesced to that request but instructed those investigators to take pictures of inspection sites so that the Board and staff could instruct the investigators what to look for.  That practice led the association to make accusations of a ‘gottcha practice’ where funeral homes would be cited for infractions based on the photographs.   The Board and association went back and forth on whether funeral homes were actually complaining about the practice.  It was our understanding that no funeral home had actually been threatened with discipline for an infraction discovered through a photograph.

But, this controversy is a blunder of the Division’s making.  More than 40 years ago, the Missouri Attorney General’s office opined that the Division of Professional Registration does not have the authority to employ, or prohibit the employment of, investigators or inspectors of certain state boards.  (MO 55-80) That opinion involved a challenge from the Missouri Dental Board, which relies on the same enabling statute that authorizes the Missouri State Funeral Board’s  employment of investigators.  (Section 324.001.11(4))  Doesn’t the Division have a legal staff to vet these types of issues?  Granted, association members may have egged the Division on about gottcha practices, but ultimately, the State Board should have been given proper latitude to fulfill its responsibilities to the funeral consumers.  If the State Board wants to hire its own investigators, Missouri law gives that authority to the Board, not the Division.

Two consumer groups recently issued failing grades to funeral regulators from 33 states.  Taking the position that state funeral regulators have a duty to serve both professionals and consumers, The Funeral Consumer Alliance and the Consumer Federation of America worked together in evaluating each regulator’s website on the following criteria:

  1. The inclusion of a prominent link to consumer-focused information.
  2. An explanation of a consumer’s basic rights under the Federal Trade Commission’s “Funeral Rule.”
  3. An explanation of a consumer’s rights when buying a prepaid funeral.
  4. Other information about how consumers can optimize their purchase of funeral services, including links to the FTC website or publications on “Shopping for Funeral Services”.
  5. A prominent link for consumers wanting to file a complaint.
  6. The ability to see whether a funeral home has been subject to disciplinary action by the regulatory body.

In a report titled “An Evaluation of Consumer Information Provided by State Funeral Regulators”, these consumer groups found that most regulatory websites focus exclusively on educating funeral licensees.  The report includes recommendations to those state funeral regulators who need to do a better job educating the public.  These consumer groups also offer this brochure for funeral consumers.

We believe three fiduciary powers are crucial to reviving cemetery care funds: investment diversification, unitrust elections and the power to adjust.  It has been more than 12 years since we first posted about the need to repair cemetery care funds (Cemetery Endowed Care Funds and the Fixed Income Investment).  That post touched on all three of the aforementioned powers.  We made that post when Missouri was considering legislation that would authorize diversification and unitrust elections for a very small subset of Missouri cemeteries.  The legislation only benefited Missouri cemeteries that were licensed as endowed care cemeteries.  Cemeteries operated by cities, counties, churches and associations were left out.  (As explained in a May 2020 post, less than 10% of Missouri cemeteries are licensed.)  The legislation also gave the unitrust election to cemetery operators rather than care fund fiduciaries.  Perhaps out a fear that fiduciaries would override the operator’s unitrust election, the bill took away the fiduciary’s power to adjust.  Oddly, the legislation did not include safeguards for the care fund principal or corpus when the operator takes the unitrust election.  After 12 years, it’s time for Missouri to fix its cemetery care funds.

First up, all care fund fiduciaries should be granted the authority to diversify trust assets.  Missouri’s 2009 Chapter 214 legislation did not address investment restrictions imposed on county and municipal care funds.  Eight years later, legislation finally authorized care fund diversification for counties, but did not address city owned cemeteries.  Today, Missouri cities still face very restrictive investment guidelines for their cemetery care funds.  Missouri is not the only state to impose antiquated investment restrictions on government operated cemeteries.  Without productive care funds, cities are forced to spend scarce tax revenues on cemetery maintenance.

We made numerous posts over the past dozen years about the historic dependency of cemetery care funds on interest income, and the need for those trusts to pivot to total return trusts and the prudent investor rule.  The unitrust election is essential to converting the care fund trust from an income trust to a total return trust.  In prior posts we’ve discussed how exempt cemeteries (or states without a cemetery unitrust provision) can explore their state trust code for a unitrust provision (or power to adjust provision) for authority to make fixed distributions.  By including express authority in their cemetery laws, states would assure care fund fiduciaries in making fixed distributions when trust assets can be adequately diversified.  But we believe the unitrust election should be the fiduciary’s to make, not the operator.   We understand the regulators’ concern about fixed distributions made from small care funds.  Without a master trust, small care funds may be challenged to adequately diversify.  Accordingly, cemetery laws need to guard against corpus invasion.

Finally, care fund fiduciaries need the power to adjust principal and income.  Unitrust laws generally allow for a fixed distribution range of 3 to 5% of the fund’s fair market value.  Our clients are generally conservative by opting for a 3% distribution.  When the care fund consistently exceeds its 3% distribution rate, cemeteries and trustees need the flexibility to make additional distributions from accrued value increases.   If the care fund performance does not consistently match the fixed distribution rate, the trustee needs the power to adjust the distribution rate to below 3%.   This power would also equip the fiduciary to make extraordinary distributions when the cemetery needs major repairs.

Without these three powers, care fund fiduciaries are deprived the tools to efficiently administer care funds.  When the care fund is underutilized, cemeteries are more likely to fall into disrepair, and eventually, require taxpayer support.

In a recent Washington Post article, supporters of a Lost Cause monument unsuccessfully argued to have a Confederate statue moved from a county courthouse steps to a local cemetery.  The article sets out some of the counter-challenge arguments we described in our prior post.  But eventually the small community of Isle of Wright rejected a recommendation that the Lost Cause monument be relocated to their city cemetery.  Although a cemetery lot owner had offered to donate spaces for the relocation of the statue, the county Board of Supervisors did not feel the monument should remain on property supported by tax dollars.

A historian quoted by the article suggested that the relocation of Lost Cause monuments from public property to cemeteries “seems to only kick the can down the road”.   We agree.   A cemetery is to be a place of tranquility where relatives and friends of the deceased may come to visit for emotional comfort.   Cemetery visitors should not have to shield their eyes from a section of the cemetery as part of a compromise to a false narrative of history.

While the greater public sentiment has turned against statues honoring the Confederacy, cemetery operators should anticipate a counter-challenge to the removal of a Lost Cause monument.  Support for the Lost Cause monument can be just as fervent as the calls for its removal.  With emotions running high in both directions, the removal of the Lost Cause monument should be anchored firmly to cemetery governing documents.  If those documents are ambiguous, the cemetery should first address those weaknesses.

As noted in our prior post, it is universally accepted that a cemetery may amend its rules and regulations to apply retrospectively to existing burial lot owners.  If the rules and regulations do not include an offensive monument provision, one should be added.   The offensive monument provision should include notice procedures where the burial lot owner is not known or uncertain.  Please recall that Lost Cause monuments were often erected on lots purchased by, or gifted to, Confederate memorial societies that no longer exist.  When the lot owner is known, he/she should be given the opportunity to remove the monument.   The rules should authorize the cemetery to proceed with removal when the lot owner does not comply.  When the lot owner is not known or is uncertain, the removal provisions could call for publication notice that allows for interested third parties to accept removal of the Lost Cause monument.  Under those circumstances, the cemetery may want to consider an indemnity provision from any party seeking to assume possession of the monument.   If there are no takers for the Lost Cause monument, the rules should authorize the destruction of the monument without liability to the burial lot owner or anyone claiming an interest in either the lot or the monument.

When rules and regulations need to be amended to include an offensive monument provision, the cemetery should also address ambiguities concerning the limited rights acquired with the purchase of a burial lot.  The rules and regulations (and burial contract and IR assignment form if necessary) should clearly state that ownership of a burial lot conveys only the right to inter human remains and to memorialize that individual.  The rules should also set out the procedures and requirements for transfers of burial lots.

Lost Cause monument supporters will likely argue that the statue’s removal amounts to a violation of private property rights and free speech.  That is an argument erroneously based on fee simple property rights.  Cemetery governing documents should clearly refute that misconception.  Burial lot owners have limited rights.

Lost Cause supporters may also assert that a Confederate monument should be retained to honor history and valiant soldiers.  That ignores that the Lost Cause is a false narrative and Lost Cause monuments were typically erected without specific reference to a fallen soldier.  The reality is that such monuments are a violation of a cemetery’s purpose, and it was a mistake to allow them in the first place.   It is time to correct that mistake.

If a racial justice challenge is made against a Lost Cause monument, the cemetery’s regulations typically vest authority in the cemetery to remove monuments deemed offensive.   Through their rules and regulations, cemeteries reserve the authority to deem what is, or is not, offensive.  The following were taken from cemetery websites found through a Google search (cemetery regulations monument offensive):

  •  Removal of offensive structures, etc.  If any monument, effigy, or other structure placed upon any burial unit shall be determined to be improper or offensive by the cemetery, it shall be the right and duty of the cemetery to remove such structures in accord with the terms of notice given by the cemetery.
  • If any Memorial, structure, or any inscription to be placed on same, or any embellishment whatsoever, shall be determined by the Cemetery, upon inspection, to be offensive or improper, the Cemetery reserves and shall have the right to (a) refuse to authorize the placement of such Memorial or object; or (b) if already in place, the Cemetery shall have the right, at the Owner’s expense, to remove, change or correct any such offensive or improper Memorial, object or inscription.
  • Items judged by management to be unsightly, offensive, weathered, out of compliance with regulations, hazardous, a hindrance to maintenance or inappropriate for a sacred place.
  • Section 8.05  Offensive Objects   If any marker, effigy, structure, improvement of the object whatsoever, or any inscription be placed in or upon any lot which may be determined by the Director of Cemeteries to be offensive or injurious to the appearance of the surrounding lots or grounds, the Director or his authorized representatives shall have the right to enter upon such lot and to conceal such offensive object. The Department of Cemeteries will attempt to notify lot owners when an offensive object has been placed on their lot with or without their knowledge to provide them with the opportunity to correct the offensive condition. If lot owners have been notified of offensive conditions but fail to correct those conditions in the time specified by the notification, any charges for removal of offensive objects will be billed against the lot.

Recall from our first post (The Confederate Dilemma) that the Forest Hill spokesman state their Lost Cause monument was protected as “an expression of free speech of a private party”.  Cemetery regulations such as the above preclude the argument that the burial lot owner has freedom of speech to erect any form of monument or memorial on his/her burial lot.  Regardless of whether the monument is meant to memorialize an individual or a cause, the cemetery may remove the monument if it deems the monument offensive to the families of other lot owners or inappropriate for the decorum sought by the cemetery.

A cemetery’s governing documents generally reserve the right to amend the rules and regulations and bind existing lot owners to those changes.  The following is an excerpt from The Cemetery Lot: Rights and Restrictions:

If a cemetery is to be a place of tranquility suitable for relatives of the deceased to visit in their desire to ease the emotional shock of death and to show respect for the dead, it seems necessary that the governing body of the cemetery have the power to promulgate and enforce rules regulating monuments, decoration of graves, and other aspects of the cemetery’s operations.  … In other areas of the law, courts have generally refused to permit one party to make changes in a contract or to reserve the right to do so.  But in recognition of the unique character of a cemetery lot, courts have modified the usual law of contracts and permitted the governing body to promulgate and enforce reasonable new or changed rules against prior purchasers.  (See pages 383 and 384 for omitted citation)

If necessary, cemeteries should update their rules and regulations to clarify their authority to address offensive monuments.

In our next post about the Lost Cause monument, we’ll look at the possibility of a counter-challenge.

Cemeteries that contain a Lost Cause monument are the most susceptible to a racial justice challenge.  For purposes of our posts, a Lost Cause monument is a Confederate statue or obelisk erected between 1890 and 1920.  As discussed in this attached article, Confederate memorial societies actively erected Lost Cause monuments during that period, with obelisks and statues being the favorite forms of monument.

Frequently, a memorial society such as the United Daughters of the Confederacy would purchase a lot without intent to make a burial.   The Lost Cause monument would be erected on the empty lot for the purpose of serving as the focal point of future Confederate memorial day services.   These monuments often refer generally to the Confederate dead or the Confederacy.   When erected on an empty burial lot, the monument is memorializing a cause.  For the cemetery, this most likely is a violation of its governing documents.  From recorded garden plats to the rules and regulations, cemetery governing documents restrict the use of a burial lot to the interment of human remains and the memorialization of that person.  The October 2020 Kansas City Star article referenced in our prior post describes three such Lost Cause monuments.

Fairview Cemetery in Liberty has a 20 foot obelisk and statue erected in 1904 by the United Confederate Veterans.  The monument did not reference a specific soldier, but rather the “honor of the confederate soldiers of Clay County”.  We would assume the cemetery’s lot book is silent on any burial to the lot because the city has initiated a legal proceeding to revest ownership of the lot.  Missouri law permits the revesting of a lot’s ownership when no burial has been made to the lot within 50 years of its sale.

Forest Hill Cemetery’s Lost Cause monument is a 40+ foot tall obelisk and statute erected by the United Daughters of the Confederacy in 1902.  That monument’s history is provided in this attached article.   As the article explains, the cemetery donated lots for the remains of Confederate soldiers to be relocated to Forest Hill.  So, the cemetery probably also donated the lot(s) used for the Lost Cause monument.

The Lost Cause monument in Woodlawn Cemetery (Independence) is a 20 foot obelisk erected in 1924 by the United Daughters of the Confederacy.  It too has a generic reference to “The Memory of the Soldiers of the Confederacy”.  The following hyperlink is to a webpage about that monument.

While there could be push back to any memorial referencing the Confederacy, a memorial to a soldier buried in the lot at least complies with governing cemetery documents’ burial requirement.  A challenge must then be based on whether the memorial complies with the cemetery’s monument regulations.  But for a Lost Cause monument, the cemetery could face a legal challenge that by allowing the monument to be maintained the cemetery is violating its own governing documents.

In our next post we will look at the role a cemetery’s rules and regulations may play in a racial justice challenge.