At its June meeting, the Missouri State Board of Embalmers and Funeral Directors gave instructions to their staff to draft legislation that would provide the Board powers to force preneed sellers to contribute funds to their trusts to cover ‘shortages’. The instruction was not without some controversy as one Board member questioned why he was required by his preneed examination to fund shortages from preneed contracts that he had assumed through a funeral establishment acquisition. The explanation of “it depends on the acquisition document” provoked some confusion. Through the discussion by the Board, the staff and the public, it was generally agreed that the seller is not a guarantor of investment performance, and therefore should not be responsible to fund market value drops. But, as witnessed by other states’ master trust problems, there are a score of other sources for trust ‘shortages’. Consequently, the staff’s attempt to define those ‘shortages’ that a seller will be held liable for funding will come under close industry scrutiny. And based on comments offered by its executive director at the state convention, the Missouri association’s master trust may be at the front of the line to voice objections.
Intended as demonstrations of strength, a convention audience was advised that if all Missouri master trust contract holders were to die that day, the program would be left with a surplus of about $3 million dollars. And, if all contracts were to cancel that same day, the program would be left with a surplus of about $7 million dollars. Any statement that suggests a common trust fund would have a ‘surplus’ warrants regulators’ questions, but we will explore those issues another day. However, if the cancellation ‘surplus’ and representations made about the size of the trust’s assets ($63 million) are accurate, then the program likely has a significant number of individual preneed contracts with a fair market value near their deposit balance. But, the association master trust will not be the only Missouri seller with preneed contracts that are on the cusp of a “shortage”.
The first round of Missouri preneed financial examinations is now being completed and our experience with seller clients has been their examination reports seek an explanation for each contract that has a market value below the required deposit balance. This can be particularly frustrating when the ‘shortages’ are on small number of contracts that amount to a few dollars each. These inquiries may reflect either a lack of understanding by the examiners, or a lack of adequate trust information. Consequently, it may be time to look at the different sources of trust shortages and the information provided by sellers and trustees, and then to establish guidelines for the next round of preneed financial examinations.