This post will look at the first allegation made by the Missouri State Board of Embalmers and Funeral Directors against the Missouri Funeral Trust: MFT does not create or maintain any records of its activities as a preneed seller.   In subsequent paragraphs of the Complaint, the State Board will also challenge the adequacy of those records produced for the financial examination.  But, the “no records” allegation has been made to bolster a subsequent claim that MFT is failing to perform the duties required of a preneed seller by Chapter 436.

MFT  obviously has preneed records, but the Complaint asserts that those records are created and maintained by Eagle Bank as MFT’s trustee.  The Complaint suggests that there is no agreement between MFT and its trustee addressing whether the trustee has assumed the preneed seller’s recordkeeping obligations under Chapter 436.  In the absence of an administration agreement or an agency agreement, the Board seems to be suggesting that the MFT cannot offer the trustee’s records for seller’s compliance with Chapter 436.

We do not interpret Chapter 436 to prohibit a seller from delegating preneed recordkeeping functions to a trustee, or to an administrative firm.  It may also be fairly common for state association preneed programs to define funeral homes as agents for specific seller record keeping functions.  Accordingly, this allegation could probably be resolved with one or more agreements that specifically set out each party’s recordkeeping functions.

We have encountered funeral homes taking a similar record keeping approach towards insurance funded contracts.  Some funeral homes erroneously view the insurance company as the preneed seller, and as having the duty to provide all necessary reports.  The insurance carriers appreciate the need to assist funeral homes in creating records and preparing annual reports, but the funeral home, not the insurance company, is the seller of the preneed contract.  If the insurance reports are not adequate, it will be the funeral home, not the insurance company that will be disciplined.

We would not be surprised to see the State Board staff propose a record keeping provision that mandates the seller maintain all preneed records at its offices.   While such a requirement could prove burdensome to MFT, it may have minimal impact funeral homes that are licensed as both seller and provider.

We start our review of the case against the Missouri Funeral Trust with the procedural issues raised in the State Board’s Complaint and MFT’s Answer.   From the Answer, we learn that the preneed financial examination was initiated on January 20, 2011.  But, it was almost three years before an examination report was sent by the State Board to MFT.  The early financial examinations often involved an on-site visit that lasted several weeks.  For a seller the size of MFT, the on-site visit could have lasted a few months.  But, on several occasions, the MFT openly challenged the Board’s authority to request records and documents, and instructed funeral home providers that they were not required to respond to State Board inquiries.  So, the three year delay in the MFT examination report was probably due to MFT’s resistance to records and document requests.

For most preneed sellers, an examination report comes within a few weeks after the on-site review is completed.   The exception report identifies issues which the State Board seeks clarification or changes from the preneed seller.  According to the State Board complaint, the MFT examination report listed 17 exceptions.  Based on our experience, 17 exceptions is not that high of a number.  However, these may be categories of exceptions that involve multiple issues per exception.

According to the pleadings, the State Board and MFT met on May 29, 2014, to discuss the examination report, and thereafter traded a handful of correspondences until November 2014.  Then, two years passed before the State Board filed its Complaint with the Missouri Administrative Hearing Commission.   The delay in filing the Complaint is due in part to the MFT’s May 2015 lawsuit against the State Board for alleged breaches of confidentiality.  If the lawsuit was meant to head off a State Board disciplinary action, it worked.  And, the lawsuit also had a chilling effect on State Board efforts to establish audit procedures and preneed record keeping standards for future financial examinations.  Unaware of the MFT exception report, industry members wrangled with the State Board for more than a year over record keeping proposals and the scope of future audits.  When a consensus could not be reached at the State Board’s September 2016 meeting, the MFT Complaint was filed a few weeks later.

While the MFT had expressed a willingness to participate in discussions to re-work the record keeping proposal, it proved to be too little, too late.

With the support of the Missouri Funeral Directors and Embalmers Association, The Funeral Consumer Board Bill (HB 596) was voted out of committee last week with a crucial amendment.  As reported in our January 19th post, Rep. McGaugh wants a preneed regulator that is more responsive to the consumer.  The Representative’s constituents lost hundreds of thousands of dollars when the Polley Funeral Home operated years in violation of Chapter 436.  (Coincidently, Mr. Polley was sentenced to 9 years in prison last week.)

The amendment sought by the MFDEA was the transfer of the preneed audit function from the State Board of Embalmers and Funeral Directors to the Division of Finance.  The MFDEA used this issue sheet as an explanation of its “support” of the Funeral Consumer Board.   The common ground that the MFDEA and Rep. McGaugh have found is that Missouri’s preneed audit program is broken.

Granted, the discipline sought by the State Board against The Missouri Funeral Trust has provided the Association its motivation for taking the unusual step of supporting a piece of legislation that would fill half of the State Board chairs with consumers.  But after five years, the State Board still lacks an audit manual that would help guide the industry towards compliance with Chapter 436.

No one expects the passage of HB 596.  Rather, the bill should be taken as a wakeup call to the industry to take charge of the preneed audit process.

After five months of trading Complaints and Answers, the Missouri State Board of Embalmers and Funeral Directors and the Missouri Funeral Trust have been assigned an October hearing date before the Administrative Hearing Commission.   The dispute between the State Board and the MFDEA’s master trust program has been waging for years over issues such as the Board jurisdiction, and whether the Board possesses the requisite authorities to inspect records and require the creation of new types of preneed records.   This saga had prompted the Board staff to make several recordkeeping rule proposals, each of which stalled before the State Board.   Even though the Board could not agree on recordkeeping proposal made in September 2016, the staff was authorized to proceed with a disciplinary complaint against the MFT in November.

In the weeks to come, we will discuss how the claims made against the MFT could impact funeral homes that act as their own preneed seller.   Click the following hyperlinks to down load the State Board’s First Amended Complaint or the MFT’s Answer and Affirmative Defenses.

The financial examination records sought by the Missouri State Board of Embalmers and Funeral Directors two bullet points directed at insurance funded arrangements:

  • A current statement from any/all applicable insurance companies with which you have insurance-funded preneed contracts for each active preneed contract
  • A current listing of any other insurance assignments which require insurance funded preneed contracts that are not included in the above bullet

The first bullet point seeks the statements provided by such companies as Homesteaders, Forethought and National Guardian Life, where the preneed seller has a contractual relationship with the insurance company.

The second bullet point seeks a listing of the insurance policies where the consumer has made the funeral home the beneficiary of a pre-existing policy, often is a spend-down situation.  To comply with this request, the seller could update and provide the Excel worksheet used for the annual report.  (Contact us for an Excel template for this purpose.)

In a prior post, we listed the records sought by the Missouri State Board of Embalmers and Funeral Directors when an examination is scheduled against a preneed seller.  In this post we will look at the five bullet points that involve the preneed trustee:

  • A current statement from your state or federally chartered financial institution/s authorized to exercise trust powers in Missouri of any preneed trust account/s that you have identifying the payments, earnings, and distributions for each active preneed contract
  • A copy of a ledger or computerized report showing all outstanding preneed contracts, including consumer addresses, if available
  • Total payments and applicable payment dates on preneed contracts, if available (not necessary for payments on insurance funded preneed contracts)
  • A copy of the trust agreement with the financial institution for any preneed trusts
  • A blank preneed contract currently used by you as a seller

To an extent, these record requests are overlapping, and some of the wording is pulled directly from the statute.  Therefore, the request may be confusing to some funeral homes.

The first bullet point is almost a trick question.  The State Board is not only requesting a trustee statement that reflects trust payments, earnings and distributions, but also some form of documentation of the trustee’s authority to provide fiduciary services in Missouri.  Sellers can comply with the main part of this bullet point by providing a purchaser report produced by the trustee that lists the individual purchasers, their address, contract sales price, total payments, deposit balance, ‘account value’ and distributions for sales expense and origination fees.  If the purchaser report summarizes the trust information, it will also help cover the second and third bullet points.   We italicize account value because trust “earnings” is ambiguous term.   What the Board has sought in the past is the trust’s market value.  The main purpose of Senate Bill No.1 is to ensure a trust if properly funded, and an audit cannot assess a trust without knowing its value.

The first bullet point is also tricky in that it seeks the distributions made from an active contract.  The only distributions that a trustee would make with regard to an active contract are any 10% sales expense or 5% origination fees reimbursed back to the seller.  Consequently, the purchaser report should reflect any sales expense or origination fees paid the seller.

The State Board also requests payment dates on the individual accounts, if available.  This can be difficult information to provide for preneed contracts that are paid for installments.  Our office generally offers to provide payment reports on a sampling of contracts if such a request is made by the Board.

The State Board is also seeking the trustee’s legal documents: trust agreement, preneed contract form and a document reflecting the trustee’s authority to serve in Missouri.  With regard to the latter item, banks and trust companies must obtain authority to provide fiduciary services.  For state chartered trustees that are not based in Missouri, that may mean two sets of documents.  For preneed trusts that have independent fund managers or third party administrators, the trustee may also be required to provide related agreements.

It has been more than a year since the Missouri State Board of Embalmers and Funeral Directors approved the expansion of the scope of financial examinations.  Consequently, preneed sellers up for their second preneed audit are receiving notices that request the following reports and documents:

  • A current statement from your state or federally chartered financial institution/s authorized to exercise trust powers in Missouri of any preneed trust account/s that you have identifying the payments, earnings, and distributions for each active preneed contract
  • A current statement from any/all applicable insurance companies with which you have insurance-funded preneed contracts for each active preneed contract
  • A current listing of any other insurance assignments which require insurance funded preneed contracts that are not included in the above bullet
  • A current statement from your financial institution/s of preneed joint account/s for each active preneed contract
  • A current statement from any other sellers reflecting contracts listing you as provider
  • For any joint accounts, an attestation from each bank that the accounts are under joint control of the seller and consumer
  • A copy of a ledger or computerized report showing all outstanding preneed contracts, including consumer addresses, if available
  • Total payments and applicable payment dates on preneed contracts, if available (not necessary for payments on insurance funded preneed contracts)
  • Copies of agreement(s) with providers, if any
  • A copy of the trust agreement with the financial institution for any preneed trusts
  • A blank preneed contract currently used by you as a seller
  • Written policy regarding retention of records, if available
  • Written policy regarding cancelled and transferred contracts, if available
  • Explanation of sequential numbering system for preneed contracts
  • A report showing all contracts that have been canceled transferred or fulfilled since your previous exam.

We will address some of the requests in greater detail in future posts.

It has been almost 2 years to the date when a $391 million dollar judgment was entered against PNC Bank, as the successor to Allegiant Bank.   Allegiant Bank was one of the last trustees to administer National Prearranged Services’ preneed trusts in Missouri.  PNC Bank appealed that judgment, and a decision is expected any day from the Federal Court of Appeals.  Anticipating that PNC Bank will lose its appeal, a bill has been filed in the Missouri Legislature that would establish a super trust for the administration of the damages to be paid by PNC Bank.

Click the following hyperlink to access HB 1062.

The Kansas City Star recently devoted a column to Marty Schottenheimer, and his family’s support as he adjusts to life with Alzheimer’s.   Coach Schottenheimer was diagnosed with the disease in his late 60’s, but continues an active life, with the assistance of his wife, son, and daughter-in-law.  The column is a reminder that multiple family members often play a supportive role as health and cognitive abilities start to become an issue.  We like to believe that estate planning needs have been addressed when we execute powers of attorneys in favor of our spouse.  But, as Marty’s story suggests, children often serve a supporting role as well.  Consequently, multiple powers of attorney documents may be needed, and frequently, with children serving different roles.  One child may be better suited for assisting with financial issues, and another for health care issues.

Funeral and burial preplanning should be a part of every estate plan, but some web pages promoting estate planning can be misleading or impractical.   The estate planning page sponsored by Lawyers.com suggests that funeral arrangement preferences can be incorporated into a will or health care power of attorney to alleviate the financial and emotional burdens suffered by survivors.   That advice, though, does not reflect the realities faced by the surviving family members.   Funeral arrangement decisions must be made within days, or even hours of the death.   A will may not be accessible for days, and then opening the probate estate to authorize the executor to care out the funeral arrangement, may take weeks.   The funeral home may also seek immediate payment, or be unwilling to file with the probate estate without additional compensation.

Our preferences about funerals and burials change, and it can become expensive to visit an attorney to amend the will when preference changes.

A power of attorney is a more practical estate planning approach, but the document would need to be coupled with a right of sepulcher that sets out the funeral and burial instructions.  The power of attorney form authorizes the agent to direct the principal’s funeral, but would not set out the funeral and burial arrangements.  Also, the power of attorney does not authorize the agent to pay the funeral bill out of the deceased’s assets.  As we have explained in a prior post, the agent’s authority to spend the principal’s funds terminates on death.  So, the estate plan will have to consider a funding vehicle such as a final expense trust.