A Google search of “state funeral association master trust” will return hyperlinks to dozens of state funeral director associations.  In the 1970’s, funeral associations began establishing master preneed trusts as an alternative to passbook savings accounts.  As preneed gained acceptance with funeral directors, the associations saw the opportunity to provide administration and create a revenue source that would help sustain the association.  The master trust also provided substantial benefits to member funeral homes.  These programs relieved funeral homes from most compliance requirements, reduced administrative expenses and provided ‘critical mass’ required to diversify investments.   Almost fifty years later, most of the country’s independently owned funeral homes have access to a master preneed trust.   However, the same is not true for cemeteries.

When that same Google search is edited by substituting “cemetery” for “funeral”, the result does not find any state cemetery associations.  We know of only one state association sponsoring a cemetery master care trust, and that association is a hybrid funeral/cemetery association in Illinois.  With most states now mandating cemetery care funds, why haven’t cemetery associations formed a master trust as a resource to offer members?   Until the bond market cratered twelve years ago, there wasn’t much demand to diversify endowed care trusts.  Most care funds were invested exclusively in bonds.  Bonds had been safe and reliable for care funds.  Trustees could purchase bonds and park them until maturity.  Income, comprised solely of interest, could be swept and paid to the cemetery.  Cemetery care funds were relatively simple to administer.

When the mortgage crisis drove interest rates to near zero rates in 2008, care fund trustees rode their bond portfolios to maturity in hopes that higher bond yields would eventually return.  Twelve years of low interest rates have forced care fund trustees to diversify care funds into dividend producing equity investments.  But such diversification can be difficult for small trust funds.  Volatility in equity markets requires active management and supervision by the trustee.  Diversification is further complicated by the fact that many equity funds require large minimum investments.  Many banks have responded to these asset management responsibilities by establishing minimum size requirements for care fund trusts.  It is common to see minimum requirements of $500,000, and even at $1 million.

Regulatory compliance for cemetery care funds has also changed dramatically over the past 12 years.  An Oklahoma oilman named Clayton Smart stole millions of dollars of care funds from cemeteries in Michigan, Tennessee and Indiana.  Several states have passed new cemetery laws that expanded state supervision of care fund trusts.  These changes are imposing greater reporting requirements on cemeteries and trustees.

Following the lead set by state funeral associations, cemetery associations can also utilize the master trust to overcome lagging interest rates and comply with increased state supervision.  With the master trust, the care fund trustee can consolidate asset management from dozens of accounts to two or three investment portfolios.  This provides a significant efficiency to asset management.  The pooling of care fund assets also allows the fund manager to access equity investment options that have minimum requirements.  The combination of efficiencies and access to additional investment options means higher returns for care funds that are otherwise too small to diversify.

Another major efficiency is the trustee’s ability to file a single Federal and state tax return in lieu of individual returns for each care fund trust.  When managed individually, small cemetery care funds can be eaten up by fees and expenses.  Tax returns are frequently outsourced to CPAs that charge hundreds of dollars.  Some banks also assess an additional fee for the tax reporting required by the CPA.  These individual trust expenses can be minimized or eliminated by the master trust structure.

State regulatory filings can often be consolidated, providing further efficiencies to the trustee and the cemeteries.  The master trust approach also enables the trustee to utilize standardized trust agreements, forms and procedures.  This type of standardization simplifies the trustee’s oversight of distribution requests.

For cemetery associations struggling to attract or retain cemetery members, the master trust provides a valuable resource to smaller cemeteries.