The clock is on for the second round of Missouri preneed audits financial examinations, and the Missouri Division of Professional Registration wants to avoid the slow start that plagued the process 5 years ago. Although the State Board has yet to approve the Division’s proposals for seller recordkeeping and the scope of the exams, exam notices were sent out to the first group of lucky sellers. The notice includes a document request that begins with the following item:
A current statement from your state of federally chartered financial institution/s authorized to exercise trust powers in Missouri of any preneed trust account/s that you have indentifying the payments, earnings and distributions for each active preneed contract.
What the Board seems to be requesting is a trust record that reflects what each preneed account has received in consumer payments, total trust income and total expense distributions. In essence, the request anticipates the trustee maintains a running total of income and distributions made from each preneed account. While fiduciary accounting systems track the tax cost basis (or book value) of the trust as a whole, a trust’s tax cost basis represents the netting of income and expenses. Federal fiduciary accounting rules do not contemplate a record of the aggregate income and expense incurred over the lifetime of the trust account. If such a record is not required by the bank’s fiduciary regulator for the trust as a whole, fiduciaries would not perceive the need to maintain such a record for each individual preneed trust account.
Sellers are already complaining that the financial examination process is creating too much of a burden on funeral homes. This document request would require banks and trust companies to expand their recordkeeping, and perhaps cause some to withdraw from the business. Instead of expanding the record requirements of preneed fiduciaries, the Division could seek existing records that would document individual account expenditures. Most, if not all, preneed trusts file a Federal Form 1041QFT, which requires an individual account listing of income and expenses. It may not constitute the single record that an examiner would prefer, but a trustee should be able to produce tax returns for the seller’s five open audit years.