Attorneys are currently arguing this issue before a Federal court in St. Louis. While the NPS civil trial does not begin for another six weeks, both the SDR and the defendant trustees want to resolve the question of who is a beneficiary of a preneed trust under Missouri law. The SDR is arguing that all parties to a preneed contract are beneficiaries to a preneed trust. The defendant trustees are arguing that the preneed seller is the sole beneficiary of the preneed trust.
The SDR’s brief puts forward several arguments that including the position that the preneed seller is a contingent beneficiary of the trust until performance of the contract. Until performance of the contract, the contract purchaser has a beneficial interest in the trust. In support of that position, the brief cites tax rulings and other state laws. This logic will ring true with many Missouri funeral directors who have expressed a similar view: It’s the family’s money until I perform the contract.
But by the time the Missouri Funeral Directors Association sponsored the bill that rewrote Chapter 436 in 1982, the Securities Exchange Commission had issued No Action Letters to several state funeral director associations defining the preneed contract purchaser as a consumer, not an investor. The 1982 Missouri law was also unique in that it distinguished preneed sellers and preneed providers, and authorized the preneed seller to become the primary obligor of the preneed contract even though it did not own a funeral home. As primary obligor, the seller could then control the trust relationship. That legal structure could better isolate the funeral homes from preneed liabilities. It also isolated the trustee from the demands of the funeral homes.
The arguments being made in opposition of the SDR position are reminiscent of those made by the industry to the IRS in the 1980’s. The IRS brushed aside state preneed laws in promulgating Revenue Ruling 87-127, and its conclusion that the preneed contract purchaser is a beneficiary of the trust. If the Federal court accepts the SDR’s argument, preneed trustees face a dilemma similar to that resulting from Rev. Rule 87-127: how to discharge a duty to individuals with whom you have no direct contact.