We believe three fiduciary powers are crucial to reviving cemetery care funds: investment diversification, unitrust elections and the power to adjust. It has been more than 12 years since we first posted about the need to repair cemetery care funds (Cemetery Endowed Care Funds and the Fixed Income Investment). That post touched on all three of the aforementioned powers. We made that post when Missouri was considering legislation that would authorize diversification and unitrust elections for a very small subset of Missouri cemeteries. The legislation only benefited Missouri cemeteries that were licensed as endowed care cemeteries. Cemeteries operated by cities, counties, churches and associations were left out. (As explained in a May 2020 post, less than 10% of Missouri cemeteries are licensed.) The legislation also gave the unitrust election to cemetery operators rather than care fund fiduciaries. Perhaps out a fear that fiduciaries would override the operator’s unitrust election, the bill took away the fiduciary’s power to adjust. Oddly, the legislation did not include safeguards for the care fund principal or corpus when the operator takes the unitrust election. After 12 years, it’s time for Missouri to fix its cemetery care funds.
First up, all care fund fiduciaries should be granted the authority to diversify trust assets. Missouri’s 2009 Chapter 214 legislation did not address investment restrictions imposed on county and municipal care funds. Eight years later, legislation finally authorized care fund diversification for counties, but did not address city owned cemeteries. Today, Missouri cities still face very restrictive investment guidelines for their cemetery care funds. Missouri is not the only state to impose antiquated investment restrictions on government operated cemeteries. Without productive care funds, cities are forced to spend scarce tax revenues on cemetery maintenance.
We made numerous posts over the past dozen years about the historic dependency of cemetery care funds on interest income, and the need for those trusts to pivot to total return trusts and the prudent investor rule. The unitrust election is essential to converting the care fund trust from an income trust to a total return trust. In prior posts we’ve discussed how exempt cemeteries (or states without a cemetery unitrust provision) can explore their state trust code for a unitrust provision (or power to adjust provision) for authority to make fixed distributions. By including express authority in their cemetery laws, states would assure care fund fiduciaries in making fixed distributions when trust assets can be adequately diversified. But we believe the unitrust election should be the fiduciary’s to make, not the operator. We understand the regulators’ concern about fixed distributions made from small care funds. Without a master trust, small care funds may be challenged to adequately diversify. Accordingly, cemetery laws need to guard against corpus invasion.
Finally, care fund fiduciaries need the power to adjust principal and income. Unitrust laws generally allow for a fixed distribution range of 3 to 5% of the fund’s fair market value. Our clients are generally conservative by opting for a 3% distribution. When the care fund consistently exceeds its 3% distribution rate, cemeteries and trustees need the flexibility to make additional distributions from accrued value increases. If the care fund performance does not consistently match the fixed distribution rate, the trustee needs the power to adjust the distribution rate to below 3%. This power would also equip the fiduciary to make extraordinary distributions when the cemetery needs major repairs.
Without these three powers, care fund fiduciaries are deprived the tools to efficiently administer care funds. When the care fund is underutilized, cemeteries are more likely to fall into disrepair, and eventually, require taxpayer support.