In our prior post, we recommended that the Evergreen Cemetery Association explore the Minnesota trust code provisions regarding the trustee’s power to adjust (501C.1112). This is something other “excluded” cemeteries should also consider. By excluded, we mean cemeteries owned by associations, churches, cities or counties that are typically excluded from regulation of for-profit cemeteries. Some states define their exclusions very broadly and some very narrowly. Some states even make important distinctions between the different classes of excluded cemeteries. So entities looking for larger care fund distributions have to start by determining their applicable state laws.
An excluded cemetery must first determine if their state has a cemetery law that restricts trust investments. As discussed in the Evergreen post, Minnesota appears to have a law that authorizes association care funds to diversify their care fund assets (Minn. Stat. 306.38). But some states have restrictive investment laws for excluded cemeteries. For example, Missouri has different cemetery investment standards for municipal cemeteries versus county cemeteries. Missouri municipalities are restricted to investing their care funds in government bonds and depository accounts. (RSMo §214.020) As we reported in prior care fund posts, although the fixed income investments were once the staple of cemetery care fund, bond rates are low and are projected to be so for years to come. In contrast, Missouri counties are allowed to place their cemetery care funds with fund managers that follow the prudent investor rule. (RSMo §214.160) That has not always been the case. The associations that represent Missouri counties and county commissioners successfully lobbied for legislation to allow diversification. (HB 51) We wrote on this issue a few years ago. (Missouri County Cemeteries: Legislation to Allow Trust Diversification). If an exclude cemetery is prohibited from diversifying its care fund trust, no trustee is going to consider a unitrust option.
The excluded cemetery next needs to determine what unitrust option is available under its state trust code. The laws enabling trustees to redefine income for trust distributions generally fall into one of two camps: the power to adjust or the power to convert to a unitrust. Some states have passed both types of laws. These laws are not uniform, so therefore the state law must be reviewed closely. We did find the attached chart comparing the states’ trust codes, but it is a bit dated. The Minnesota reference has since been revised.
In our next posts, we will look at some of the procedural issues required by these unitrust laws.