We had hoped that the Trial Court’s Finding of Facts would shed some light on how a Missouri preneed trust holding life insurance would have income to distribute. Despite being invested primarily in life insurance policies, Allegiant Bank made monthly income distributions to NPS. The Trial Court made several findings on how Allegiant Bank failed to comply with R.S.Mo. Section 436.031.3, but there is no mention whether Allegiant Bank complied with the realized income requirement.
There are three elements of the Section 436.031 income distribution: the trust’s market value, aggregate deposit balance and realized income. When responding to a Section 436.031 income distribution, the preneed trustee should maintain documentation reflecting the then current deposit balance, market value and accrued income. (This feature of Missouri’s old preneed law remains relevant because it continues to govern preneed contracts sold prior to September 2009. Consequently, some Missouri funeral homes continue to seek income distributions from their preneed trusts.) The Trial Court found that when Allegiant Bank made income distributions to NPS, they breached its fiduciary duties to consumers by neither confirming the trust’s aggregate deposit balance or the value of the trust’s assets.
One common mistake made by Missouri trustees was to use the trust’s principal amount in lieu of aggregate deposit balance. But, the Trial Court found that Allegiant didn’t even bother to use the trust’s principal in a test for compliance with the law. The Trial Court acknowledges that the trustee is dependent upon the preneed seller for the trust’s aggregate deposit balance. While NPS provided monthly packets of reports, Allegiant made no record of any effort to reconcile the trust’s deposits and market value.
The NPS trusts were invested primarily in life insurance and debentures. Allegiant relied upon the face amount of the life insurance, without confirming whether the policies were paid up. Nor did Allegiant make any efforts to confirm the value of the debentures.
With regard to ‘realized income requirement’, we find a single finding related to that issue. Finding No. 684 indicates that Missouri bank examiners concluded that “since September 23, 1998, approximately $47M has been distributed from income cash to the Seller.” What! Didn’t anyone challenge how the trust earned $47,000,000 of income?
Click here to view excerpts from the Finding of Facts that relate to income distributions.