In paragraphs 39 through 52, and paragraphs 79 through 95, of the Complaint filed against the Missouri Funeral Trust, the State Board of Embalmers and Funeral Directors raises issues with regard to the preneed trusts that were transferred by funeral homes to MFT.  The re-write of Missouri’s preneed law in 2009 provided the MFT an opportunity to invite funeral homes to rollover their existing preneed trusts into the MFT program.  But in paragraphs 39 through 52, the State Board alleges that MFT cannot accept other funeral homes’ preneed trusts without assuming the seller responsibilities under Missouri law.  The Complaint alleges that MFT has denied being the ‘seller’ of rollover contracts, and that Chapters 333 and 436 prohibit the commingling of sellers’ trusts within the MFT trust.  To recharacterize the Complaint’s allegation, the State Board is asserting that Missouri law prohibits a common trust fund where the assets of contracts from multiple sellers are commingled in the same trust.

In making this argument, the State Board must anticipate the MFT countering with language from the old law that was omitted from SB1:

Payments regarding two or more preneed contracts may be deposited into and commingled in the same preneed trust, so long as the trust’s grantor is the seller of all such preneed contracts and the trustee maintains adequate records of all payments received.

Section 436.021 authorized a trustee to pool a single seller’s preneed contracts for investment purposes, but precluded the trustee from pooling the assets from other sellers’ preneed contract assets in the same trust.  The probable reasoning for this restriction was that while common trust fund accounting is relatively complicated, a seller would need to pool consumer payments for investment efficiency and diversification.  When limited to a single seller, who probably had the same rule with regard to income distributions, accounting for multiple consumer accounts could be relatively easy.  But, when multiple sellers were added to the equation, the common trust fund requirements would make preneed contract accounting too difficult.

Initially, Senate Bill No. 1 included language that eliminated the single seller restriction:

  1. Payments regarding two or more preneed contracts may be deposited into and commingled in the same preneed trust, so long as the trustee maintains adequate records that individually and separately identify the payments, earnings, and distributions for each preneed contract.

However, that language was omitted from the bill that eventually re-wrote Chapter 436.  Consequently, Chapter 436 does not have language which either prohibits or authorizes the commingling of multiple sellers’ contracts within a single trust.  In the absence of an express prohibition, the MFT can argue the pooling of multiple sellers’ contracts is contemplated by Section 362.580, Missouri’s Common Trust Fund statute.  This is a fairly typical CTF statute, and without much commentary because state chartered fiduciaries that offer common trust fund services fall under the jurisdiction of the Federal Deposit Insurance Corporation.  Federally chartered fiduciaries’ CTF activities are supervised by the Office of the Comptroller of the Currency.  Both Federal agencies apply 12 CFR 9.18.  If the MFT trustee can show compliance to the FDIC, the program could prevail on this issue.  The following hyperlink will open the FDIC’s Trust Examination Manual.

However, it does leave open the question whether the transferring funeral homes are still on the hook for maintaining the seller licenses.