In a recent article, Bruce Ruston provides a detailed account of the drama behind the IFDA master trust and its divesture of the key man insurance policies. It is a long, costly story about an organization that pushed the legal envelop in several directions with disastrous results: a master trust without a corporate trustee, insurance investments to avoid Rev. Rul. 87-127, fixed returns, high administration fees, and the stubborn defense of a twenty year mistake. The Rushton article is appropriately critical of the IFDA’s legal counsel. But, to better evaluate that criticism, consideration should be given to those facts reported in the various lawsuits and the Secretary of State’s Consent Order that reflect an organization ran by an iron-fisted executive.

That evaluation should start with Robert Ninker’s 1985 decision to reach out to a young, newly licensed insurance salesman. By 1985, there were ample signs that the IRS was building its case for the taxation of preneed trusts. Mr. Ninker cannot be faulted for making life insurance the preferred alternative because it eliminated income reporting to consumers. Many trusts did not have the consumers’ social security numbers and couldn’t report income if they wanted to. So, insurance was proved a means to avoid the reporting problem. But, Mr. Ninker’s decision to turn to Ed Schainker, an insurance salesman with two year’s experience should have caused the association’s attorneys to raise questions.

Mr. Schainker did what salesmen do, he looked through available products, picked one with a high commission and put together the proposal. The proposal not only skirted the Illinois preneed law requiring preneed purchaser approval, it failed to satisfy the requirements of an insurance policy (ie that the master trust have an insurable interest in the ‘insured’ funeral directors). With such obvious problems, why didn’t the IFDA attorneys apply the brakes to the proposal?

Fast forward ten years, and the IFDA lawyers had cause to remind the client in writing of the firm’s concerns about the authority to act as trustee, and to suggest that the association resign. At that point in time, Mr. Ninker was still the boss. Okay, clients do, from time to time, reject their attorney’s advice.

Fast forward another twelve years, and, Mr. Ninker has retired and the Comptroller has finally forced the association’s hand on the trustee issue. With the IFDA attorney in Mr. Ninker’s chair, the association went to Regions Bank, a leading name among death care fiduciaries, for a proposal. That proposal put the key man insurance issue squarely in the attorney’s lap, and rather than acknowledge a twenty-year mistake, the attorney challenged Regions. In the end, there was no client to hide behind.

The decision to defend the investment “to the end” suggests the law firm may have been ‘in over its head’ from the start.