The Missouri Preneed Trust: What were you thinking?

Investment markets are down, and preneed trusts are hurting.  But one Missouri preneed trust is probably hurting more than others.  When the Missouri Funeral Directors and Embalmers Association cheerfully announced the acquisition of the Missouri Preneed Trust program by its own MFT, we were shocked.  The Missouri Preneed Trust was an old, shrinking trust program that had fallen off the industry radar after Chapter 436 was re-written in 2009.  The program was established by a respected St. Louis attorney in the 1980’s.  But after 30 years, the attorney was no longer active in the industry and the program was described to this author as being on auto-pilot.   After the attorney’s death in 2021, his estate started looking for a buyer.  It took several months, but eventually they found one that paid a handsome amount.

What the attorney’s estate may have had going for it in 2021 were recent years of substantial long term capital gains. We administer Nebraska preneed trusts that experienced substantial gains in 2019, 2020 and 2021.  Nebraska authorizes income distributions in excess of a CPI accrual requirement.  Missouri’s old Chapter 436 was similar in that it permitted excess income withdrawals so long as the distribution of income did not lower the trust’s market value below aggregate deposits.  So it was possible that the Missouri Preneed Trust had been making some significant, and permissible, income distributions to the attorney prior to his death.

Jump forward to July 2022, my Nebraska clients know there will be no excess income distributions this year, and quite possibly next year.  We have to believe the same is true for the Missouri Preneed Trust.   What does that mean to the MFDEA and its Missouri Funeral Trust?

The Association video announcing the MPT acquisition attempted to offer assurances to MFT funeral home providers that no MFT trust funds were used for the acquisition.  It is doubtful that the association (a not for profit organization) would use any of its resources and jeopardize its tax status.  But with the Association’s attorney you never get a straight answer, and instead, one is forced to read between the lines.  The lines would seem to suggest that MFT, a company controlled by the attorney and a small number of funeral directors, obtained a loan to finance the acquisition of MPT’s stock from the attorney’s estate.   If this proves accurate, how will MFT repay the loan if market conditions preclude income distributions from MPT?  If MFT were to default on the loan, does that jeopardize the trust assets that belong to Missouri preneed consumers (and the funeral homes that have promised to perform those contracts)?

Another question is whether those individuals that approved this acquisition violated RSMo Section 436.35.6:

No seller, provider, or preneed agent shall procure or accept a loan against any investment or asset of or belonging to a preneed trust.  As of August 29, 2009, no preneed seller, provider, or agent shall use any existing preneed contract as collateral or security pledged for a loan or take preneed funds of any existing preneed contract as a loan or for any purpose other than as authorized by this chapter.

We will remind readers that the acquisition was finalized during the period when the Missouri Funeral Board lacked a quorum to take action.  From the get go, this transaction seems motivated by the opportunity to squeeze consumer preneed trust funds dry.   Now that the Funeral Board has new members, we will watch to see if it takes a look at the acquisition.