The earliest form of preneed consisted of a depository account at the local bank. Often, the paperwork included a statement of goods and services describing the individual’s preferences. The account was set up so that the funeral director could access the account upon the consumer’s death. The statement of goods and services would then be followed for the funeral. This arrangement was convenient to both the consumer and the funeral director. But, a recent news report out of Louisiana serves as a reminder of how the depository account has been too convenient, forcing states to take it away.

As preneed proliferated, state legislatures imposed safeguards to protect the funds paid by consumers. With the exception of New Mexico, all states now have trusting requirements. When those trusting requirements were initially imposed, a few states made exceptions to allow small funeral homes to continue to use the depository account. Abuses now threaten to eliminate the depository account as a form of preneed funding.

Illinois was the most recent to eliminate the depository account. In response to IFDA abuses, SB1682 now requires Illinois funeral homes to move their depository accounts to a corporate fiduciary and to revise their preneed contracts. Some Illinois funeral directors are painfully learning that the new law precludes them from using their local bank and familiar contract forms.

Missouri’s 2009 law preserved the depository account, but with substantial reporting requirements. Funeral homes dependent upon the depository account were required to report those contracts this past October 31st. Those reports will be used for on-site exams to begin in 2011. The future of depository accounts in Missouri will depend on how well funeral directors have complied with both the old and new requirements.

As discussed in a prior post, funeral directors who have been forced from depository accounts, or who must meet new requirements, need to seek legal assistance when revising their preneed contract form. The old practice of preparing a statement of goods and services is not enough for compliance with the new (and most old) preneed laws.