As alluded to in our prior post, the cemetery’s ability to deliver burial rights and merchandise prior to death complicates the preneed transaction. In a post, we labeled this the ‘bucket factor’ (Cemetery Preneed Oversight: the bucket factor). In addition to burial spaces, cemeteries can deliver markers, monuments, vases, urns, outer containers and vaults prior to the purchaser’s death. While not the norm, cash flow needs and rising granite and bronze costs may dictate that more cemeteries accelerate deliveries of merchandise. In some situations, services (opening and closing, and inscriptions or engravings) could be the only ‘items’ left to be delivered after death.
Few (if any) state laws require the trusting of grave payments, and accordingly, cemeteries have never viewed these sales as preneed. Payments made on a grave space went directly into a cemetery’s operating account. If the purchaser paid for the grave in installments, a deed was issued when the purchase price was paid. While there may be a risk that the cemetery operator could fail before the deed is issued, there is little out of pocket expense for a successor when completing the transaction. Otherwise, the cemetery would tend to defer merchandise and services sales to the time of need. But, competition over burial merchandise sales resulted in a fragmented approach to cemetery preneed.
Some cemeteries face competition from monument dealers, while others competed with funeral homes for vault sales. Cemeteries approached these sales in a piecemeal fashion, using separate contracts, and adding merchandise sales after the grave purchase was completed. This typically resulted in single item preneed contracts with a funding requirement based on a wholesale cost.
With the emergence of the national death companies came the preneed packaging of cemetery property, merchandise and services, and later, the preneed packaging of funeral and cemetery selections. Not wanting to leave the future sale of cemetery merchandise to chance, the national companies introduced contract forms that allowed burial rights, merchandise and services to be sold together. These contact forms also allowed the consumer to write a single monthly check, with that payment being applied to the various items purchased.
The national companies also utilized the common ownership of the funeral home and cemetery to offer ‘packaging’ of funeral arrangements and cemetery arrangements. As cremation rates increased, this packaging evolved into economy arrangements where a grave space is combined with select merchandise sales and/or funeral services. The grave sale is often discounted to make the traditional funeral and burial more affordable.
These forms of preneed packaging provide convenience to the consumer and pricing flexibility to the cemetery. But, the bucket factor requires the cemetery to apply the purchaser payment to the various subcategories of merchandise and service. With deliveries prior to death, the cemetery cannot to turn to insurance as a source for that accounting. Consequently, trusts are essentially the only form of preneed funding available to cemeteries.
Preneed fiduciaries will always be dependent upon the death care company for contract data and administration, but that dependence is more acute between the cemetery and the bank. With the funeral contract, the trustee has but a single funding liability and a single distribution. As competition heats up, cemeteries will divide and sub-divide the merchandise and services offered to consumers. Each division represents a bucket if offered on a preneed basis. As cemetery regulators require greater distribution oversight from the fiduciary, the cemetery will be required to produce some very detailed reports. This will be a tall task for an industry that remains at-need oriented.