In a prior post, we listed the records sought by the Missouri State Board of Embalmers and Funeral Directors when an examination is scheduled against a preneed seller. In this post we will look at the five bullet points that involve the preneed trustee:
- A current statement from your state or federally chartered financial institution/s authorized to exercise trust powers in Missouri of any preneed trust account/s that you have identifying the payments, earnings, and distributions for each active preneed contract
- A copy of a ledger or computerized report showing all outstanding preneed contracts, including consumer addresses, if available
- Total payments and applicable payment dates on preneed contracts, if available (not necessary for payments on insurance funded preneed contracts)
- A copy of the trust agreement with the financial institution for any preneed trusts
- A blank preneed contract currently used by you as a seller
To an extent, these record requests are overlapping, and some of the wording is pulled directly from the statute. Therefore, the request may be confusing to some funeral homes.
The first bullet point is almost a trick question. The State Board is not only requesting a trustee statement that reflects trust payments, earnings and distributions, but also some form of documentation of the trustee’s authority to provide fiduciary services in Missouri. Sellers can comply with the main part of this bullet point by providing a purchaser report produced by the trustee that lists the individual purchasers, their address, contract sales price, total payments, deposit balance, ‘account value’ and distributions for sales expense and origination fees. If the purchaser report summarizes the trust information, it will also help cover the second and third bullet points. We italicize account value because trust “earnings” is ambiguous term. What the Board has sought in the past is the trust’s market value. The main purpose of Senate Bill No.1 is to ensure a trust if properly funded, and an audit cannot assess a trust without knowing its value.
The first bullet point is also tricky in that it seeks the distributions made from an active contract. The only distributions that a trustee would make with regard to an active contract are any 10% sales expense or 5% origination fees reimbursed back to the seller. Consequently, the purchaser report should reflect any sales expense or origination fees paid the seller.
The State Board also requests payment dates on the individual accounts, if available. This can be difficult information to provide for preneed contracts that are paid for installments. Our office generally offers to provide payment reports on a sampling of contracts if such a request is made by the Board.
The State Board is also seeking the trustee’s legal documents: trust agreement, preneed contract form and a document reflecting the trustee’s authority to serve in Missouri. With regard to the latter item, banks and trust companies must obtain authority to provide fiduciary services. For state chartered trustees that are not based in Missouri, that may mean two sets of documents. For preneed trusts that have independent fund managers or third party administrators, the trustee may also be required to provide related agreements.