The examination of a Missouri preneed seller begins with a request that certain documents be submitted to the State Board within 3 weeks. The purpose for the document production is to allow the examiner to perform a desk audit of the seller’s operable documents before an on-site visit is made. From those documents the examiner will determine the funding methods used, the compliance of the preneed contract form (and other documents) with Chapter 436, possible funding deficiencies, and possible administration issues.
An important distinction that Missouri funeral homes must make is that the request is aimed at its preneed business written as a seller. The document request does not include preneed written on a third party seller’s preneed contract such as Missouri Funeral Trust, American Prearranged Services, National Prearranged Services and Funeral Security Plans.
The Board’s document requests are as follows:
- A current statement from your state or federally chartered financial institution/s authorized to exercise trust powers in Missouri of any preneed trust account/s that you have identifying the payments, earnings, and distributions for each active preneed contract.
If the seller has trust funded preneed, the State Board is requesting a statement from the trustee that sets out aggregate payments, earnings and distributions for each active (outstanding) preneed contract. This requirement will prove problematic for most preneed sellers, particularly for their trusts established under the prior law. While many preneed trusts report income for purposes of Internal Revenue Section 685, they do not maintain records of the aggregate income and expense per consumer account. It is also unlikely the income distributions have been tracked by account.
With this request, the State Board is also putting the seller on notice that the trustee must be authorized to exercise trust powers within Missouri. Foreign chartered institutions have special requirements to satisfy this requirement.
- A current statement from any/all applicable insurance companies with which you have insurance- funded preneed contracts for each active preneed contract.
This seems fairly self explanatory. But, the funeral home needs to distinguish insurance assigned for a spend down for that insurance written concurrently with a prearrangement. Some insurance companies have taken an aggressive position on what constitutes a spend down, and the examiners will have the right to review both types of transactions.
- A current statement from your financial institution/s of preneed joint account/s for each active preneed contract.
If the funeral home used joint accounts, the State Board wants a copy of the current bank statements for the certificates of deposits and depository accounts. If funeral home receives individual statements, this production could require some work. Some banks provide a composite statement (that shows all the CDs). The funeral home may need to cross reference the account numbers to specific contracts.
- A copy of a ledger or computerized report showing all outstanding preneed contracts.
The State Board is looking for a comprehensive list of all outstanding preneed contracts. The current annual report only reflects those contracts sold during the last reporting period. It would probably be sufficient if the outstanding contracts were reported by funding (one report for trusts, one for insurance and one for joint accounts).
- Copies of agreements(s) with providers, agents, funeral director agents and if any contracts are funded by trust a copy of the trust agreement with the trustee.
The State Board is looking for all relevant agreements to the preneed seller program. SB1 was passed in response to National Prearranged Services, and its practice of representing a funeral home without an agreement. While SB1 does not require an agreement between a funeral home and funeral director agent, not all funeral director agents are employees of a funeral home. If a funeral home allows an independent agent to sell preneed on its behalf, an agreement exists. If that agreement has not been put in writing, and the agent violates Chapter 436, a swearing contest will ensue.
If the seller uses trust funding, the State Board is looking for the trust agreement and all contracts or agreements related to the administration of the trust. Many of the preneed programs offered to Missouri funeral homes involved the outsourcing of administration, and the examiners will need to know where to direct questions that may stem from that administration.
- A copy of the trust agreement with the financial institutions for any preneed trust.
Yes, this is a redundant request, and no, the seller doesn’t have to provide the trust agreement twice.
- A blank preneed contract currently used by you as a seller.
The examination will eventually review old contracts (and their compliance with the prior law), but the Board is concerned primarily with the current contract form’s compliance with SB1.