In a motion for rulings of law, the NPS Special Deputy Receiver seeks a judicial determination of two legal issues that could impact preneed trustees subject to the jurisdiction of the Eighth Circuit of Federal Court of Appeals: the beneficiary status of preneed purchasers (and funeral homes) and the required independence of investment advisors. These two issues have direct consequences upon the investment oversight duties of the preneed fiduciary when investment decisions are delegated to a fund manager outside the institution. Rather than summarize our prior posts on these issues, search our website with the term “hold harmless”.
How could the ruling affect preneed trustees in states other than Missouri? First, the ruling, whichever way it goes, will likely be appealed. The issues are central to all parties’ arguments, and the damage claims are too large to not challenge. Second, the court could find the Missouri preneed law to be ambiguous, and then look to the principals of the Uniform Trust Code (as adopted by Missouri). On page 13 of the Memorandum, SDR quotes from a Federal decision that held the Illinois Trusts and Trustee Act (not the Illinois Funeral or Burial Funds Act) defined the beneficiary of a preneed trust. (See page 13 of the SDR’s Memorandum.) While Illinois is not in the Eighth Circuit, the outcome of the NPS case should cause the IFDA Master Trust to pause. That program’s hold harmless provision contemplates the funeral home sellers as the sole beneficiary.
The NPS Trustees have taken a position similar to that relied upon by master trust programs that utilize outside fund managers. The seller has assumed investment risk and should have the authority to direct investments. The Missouri law codified what many state association master trusts attempted to do through their trust instrument. This law, a product of the lobbying efforts of the Missouri Funeral Directors Association, sought to clarify a grantor’s ability to overcome the rule against the delegation of investment functions, and define a custodial relationship for its program trustee.
The Uniform Trust Code has since been modified to allow such delegation of investment functions.