A bank client recently asked that I provide some standard of accountability for administration provided to a master preneed trust. As I struggle to provide the client a concise answer, I can’t help but to think that the issue will also become a crucial concern to consumers and funeral directors alike. As news reports reach consumers about the regulatory actions taken against the preneed programs maintained by NPS and by the Illinois Funeral Directors Association, families will begin to contact their funeral directors for reassurances about their preneed payments. Unfortunately, many state associations have not made accountability a priority, and their members may be ill prepared to respond to consumers’ concerns.
For the independent funeral home, the state association can be a valuable resource to understanding the requirements imposed upon the profession by federal and state laws. As the preneed transaction grew in acceptance, most state associations formed master trusts to serve their member funeral homes. These master trusts came to reflect not only the respective state’s preneed law, but also the attitudes and values of the association leadership.
Consumers need to appreciate that master preneed trusts are an important source of income to the sponsoring association. Because there are costs to providing contracts, administration, compliance, and asset management, the master trust provides the smaller funeral home the economies of scale necessary to reducing costs that would otherwise be prohibitive. However, the Illinois situation suggests that former association leadership may have exploited both members and consumers. While the association’s website is finally acknowledging the issue, the response lacks in terms of accountability.
Getting back to my client’s question, how should accountability be measured for preneed administration from state to state? The diversity in the approaches taken by the state legislatures in regulating the preneed transaction is the single greatest hurdle to a comprehensive, national evaluation of preneed accountability. But perhaps transparency in terms of disclosures to both members and consumers would be one measure of accountability. On this standard, I would give kudos to the New Jersey Funeral Directors Association. It may be a sad reflection on the industry, but many funeral directors do not know what they are being charged for preneed services. The NJFDA provides this information for all to see.
If consumers do call for reassurances, funeral directors should have some basic information available to provide:
- How the preneed contract is funded (insurance vs. trust).
- The name of the insurance company or trustee.
- If the contract is trust funded, whether the trust holds deposit accounts, investments dictated by statute, diversified investments or insurance.
- Contact information for the person who can provide more information about the account.
When funeral directors begin to call for reassurances, association leadership should be prepared to provide the following information:
- The name and address of the trustee.
- The costs and expenses of the master trust.
- The master trust’s written investment policy.
- The fees paid to the trustee and account administrator.
- The taxes paid by the trust.
- A summary report of the trust’s performance and asset description.
- A disclosure of related party transactions (loans, discounts, service agreements, etc.)
- A summary of all trust expenses (excluding distributions for preneed contract performances and cancellations).
- The sponsorship fee paid the association.