Death Care Compliance Law

Death Care Compliance Law

Preneed: A Pandora's Box of Problems

William Stalter is the founder of Stalter Legal Services and the Preneed Resource Company. Bill focuses his law practice on preneed and death care compliance, serving banks, funeral homes, crematories, and cemeteries. He has written multiple published articles

Missouri Preneed Examinations: An Important Pivot

Posted in Exams/audits, Missouri - SB1, Uncategorized

In their last meeting, the members of the Missouri State Board of Embalmers and Funeral Directors took a small, but important pivot in the preneed examination process.  The State Board approved a recommendation made by the Financial Examination Committee that the Committee review each examination report and prepare the letter that accompanies the report to the preneed seller.   The Board will use this new procedure to assess the seriousness of the exceptions and to use the letter as an education opportunity.

Since the examination process was initiated more than six years ago, the staff conducted the examination and forwarded an exceptions report to the preneed seller.  Those exception reports included all issues found by the examiner, regardless of severity.  For some, the exception reports dinged the seller for ‘missing’ files that the examiner failed to locate before leaving the funeral home.   The exception report also included issues on contracts for which the funeral home was not the seller.   The inclusion of such issues on the exception report led many funeral homes to complain that the State Board staff was ‘out of control’,  and resulted in funeral homes going on the defensive when responding to the State Board.

The State Board also signaled that this is only the first change to be made to the preneed examination process.  But, getting the Board’s industry members more engaged in the examination process is critical to resolving the long standing disputes over record keeping requirements and the future scope of preneed examinations.   As witnessed by the recent news story out of Perryville, Missouri has its share of problem preneed sellers.  The State Board needs to assume a proactive role protecting consumer funds and that starts with more involvement in the exam process.

Death Care Trade Associations: Will New Blood Be Enough?

Posted in Associations

With the Dead Beat’s permission, we are sharing at a column they ran earlier this summer.  An anonymous contributor suggested that Death Care associations are headed for obsolescence. The author noted that attendance at Midwest conventions have dropped dramatically, and attributed this in part to a failure to adapt meetings and conventions to the needs of the industry’s Millenniums.   That column offers antidotal evidence that young directors are complaining that the association convention fails to offer information or skills that can be taken home and incorporated into their business.   The knock against association membership not providing an adequate return on investment is not new.  Mortuary Management ran a similar column (Colleague Wisdom) in 2008.   But, while the Mortuary Management column didn’t offer any suggestions for improvement, the Dead Beat column does.

To cut down on time demands, the Dead Beat column recommends that association board business be conducted by conference calls.  We would take that recommendation a step further, and recommend one of several video conferencing software options.  A video conference allows participants to share documents and judge each other’s reactions to ideas and recommendations.

We also like the recommendation about webinars, but would also take that suggestion further.   Allow educational webinars to be sponsored by vendors.  Webinars that provide good content will be popular with association members, and provide vendors the marketing opportunities they seek.

To get out of ‘a rut’, associations need to actively court Millenniums, women, and growing ethnic communities.   The column appropriately suggests recruiting from mortuary schools.  But, associations also need to recruit the ‘corporates’, who can be valuable sources for industry trends.

The Dead Beat column suggests that associations are losing members to other types of leadership groups and roundtables.  Associations should give thought to developing roundtable groups in lieu of spending funds on high dollar motivational speakers.  We have heard industry members express interest in attending association meetings if they could hear from peers (and the big boys) on issues such as sales programs, staffing, and compliance.

These kinds of changes require time and leadership.  Unfortunately, cemetery associations tend to be dependent upon volunteers, and funeral associations have limited budgets and personnel.   Accordingly, we would suggest that death care associations give thought to banding with other state associations, or (God forbid) reaching across the competition divide to cemeteries, crematories and monument builders.  The Southern Cemetery, Cremation and Funeral Association is a good example.   The SCCFA is also somewhat unique in its allowing vendors to participate in the association’s leadership.

Determining Preneed Trust Investment Returns: A Quick and Simple Method

Posted in Preneed Shortfalls, Total Return Trust

Most funeral directors would be hard pressed to calculate what investment return their preneed trust is producing.  Regular deposit and distribution activity makes computation of investment returns difficult.  The more frequent the activity, the harder it is to compute the return.  Accordingly, it would be easier for the funeral director to look at paid in full contract, and compare its value at different dates.  For example, assume an $8,293.50 contract was sold on September 1, 2012 with a single premium (trusted at 100%).  Five years later that contract is serviced in October, and the funeral home receives $9,758.24, the trust has had a simple annual return of 3.5%.  The investment return of $1,464.74 (9758.24-8293.50) is divided by $8,293.50 to come up with an aggregate return of 17.66%.  That aggregate return is divided by the years the contract was outstanding (5).

With regard to mutual funds, investment research analysts use five time periods to assess the fund’s performance: year-to-date, one year, three years, five years and 10 years. Of most relevance to investors such as preneed sellers are the five and 10-year periods, with the latter time frame being considered the best measure of an investment manager’s ability to perform.

So, if preneed sellers want to measure their trust performance against other funding options, take a sampling of contracts with a sales date prior to October  1, 2007, and perform the calculation set out above.  Be sure to use contracts that were paid in full on the date of sale.  If different start dates are used, the returns should differ slightly, but they should be within a fraction of a percent of each other.

Sale of NPS Preneed Contract Approved

Posted in NPS/Lincoln

A Texas court has approved the sale of a majority of the NPS preneed business to a Texas insurance company and its subsidiary.  As we reported a few weeks ago, Liberty Bankers Life Insurance and Capitol Life Insurance Company will assume the NPS preneed business written in Missouri and Illinois as of November 1st.  Funeral homes holding NPS contracts should anticipate receiving more information after November 1st.

Stay Out of Jail Card: A Workout Plan to Keep Consumers Whole

Posted in Compliance

A few weeks ago we reported on a legislative auditor’s recommendation to sunset the West Virginia Funeral Board because of its poor handling of consumer fraud complaints.   Criticism of the Board focused primarily on the Harding Family Group matter, where Chad Harding had filed fraudulent insurance claims of almost $1 million.  But, the auditor’s report also referenced a complaint against the Broyles-McGuire Funeral Home.  Independent news reports suggest that Joel McGuire made fraudulent claims of almost $75,000.  Accordingly to a recent press release, Mr. McGuire has since pled guilty to wire fraud and could face 20 years in federal prison.   So, how is it that the funeral director who steals $1 million can avoid prison while the funeral director who steals $75,000 faces 20 years in the slammer?     Mr. Harding, with the assistance of an outside investor, restored the stolen funds.  In contrast, Mr. McGuire locked his funeral home’s doors and fled the state.

With regard to either of these situations, the WV State Board never appears to have been an active player in seeking a workout plan that would protect the consumers.  A plan to replace stolen consumer funds would be dependent upon the continued operation of the funeral home.  That may also require leaving the funeral home in the control of the owner.   The alternative would be a fire sale of the funeral home assets that would bring pennies on the dollar.

In its own defense, the WV Funeral Board claimed it is the last to learn of funeral directors’ fraudulent conduct, and suggested that it was conserving resources by waiting to take action after the conclusion of other agencies’ proceedings.   Bull Hockey.   For the protection of industry consumers, an industry board of funeral directors should assume a proactive role once fraud is discovered.  Funeral directors will understand better than the Attorney General’s office about the value of a funeral home operation and whether a workout plan could be successful.

West Virginia Funeral Board: Flagged for Expedience

Posted in Associations

The West Virginia Legislature’s Audit Office has given that state’s Funeral Board a failing grade.   The audit report was covered in detail in the September 25th editions of the Memorial Business Journal and the Funeral Service Insider, and we recommend both newsletters to our readers.  Hyperlinks to the newsletters are below.  In a nutshell, a former president of the Funeral Board made fraudulent death claims on about $1 million of Homesteaders insurance policies.  Homesteaders sued the funeral director, and won a judgment.  With help from a local businessman, the funeral director settled with Homesteaders.  The West Virginia Attorney General’s Office brought a separate lawsuit, and the former Board president reached a settlement with the Attorney General.   Watching the funeral director wiggling from the hook of responsibility, the West Virginia Funeral Directors Association pressed the State Board to take action against the funeral director.

Eventually, the WVFDA became frustrated with the lack of action taken by the Funeral Board, and reached out to the West Virginia Legislature.  Then two years after first receiving notice of the fraudulent conduct, the State Board accepted a ‘plea bargain’ agreement prepared by the funeral director’s attorney.  Per the plea bargain, the former Board president received a 6 month license suspension.  This outraged some of the State Board members, and the West Virginia Funeral Directors Association.

The Legislature responded quickly, and within a few weeks, their auditor went calling upon the State Board with his findings.  The Board’s Executive Director responded in writing, citing the advice given by their attorneys that the Board’s hands were tied until a complaint was received.  The letter also attempts to justify the plea bargain by explaining the legal costs avoided by the State Board.  But the letter only served as fodder for the auditor in lambasting the State Board for favoring one of their own over the duty to protect consumers.

In actuality, the Board and its staff did probably perceive the plea bargain as an expedient resolution.  But in doing so, the Board members failed their industry and consumers.  For the three new members that voted to approve the plea bargain, their credibility is ruined.  Sunsetting the State Board is not the appropriate answer.  As the auditor suggests, the State Board needs to be reconstituted, and with industry members with strong ethical track records.

*Reprinted from the Funeral Service Insider – September 25, 2017

**Reprinted from the Memorial Business Journal – September 25, 2017

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The New Owner of NPS: Liberty Banker Life

Posted in NPS/Lincoln

The Special Deputy Receiver over National Prearranged Services recently filed an application to assign a significant portion of the NPS preneed contracts to Liberty Bankers Life Insurance, and a subsidiary, Capitol Life Insurance Company.  If approved by the court, the NPS contracts will transfer on November 1st.  Preneed contracts sold in Missouri and Alabama will be assumed by Capitol Life, and the remaining states’ contracts will be assumed by Liberty Bankers.  Both companies will rely on an independent insurance company, Texas Service Life Insurance Company, to process claims.

Of the preneed contracts being transferred, Missouri is the largest block involved and Illinois is the second largest.  Missouri contracts will account for almost half of the business transferred.  Missing from the transaction are most Texas preneed contracts.  Texas contracts account for less than 1% of the transfer.  When NPS collapsed in 2008, Texas was hardest hit by the failure.  If the proposed sale to Liberty Banker Life does not include the Texas contracts, the SDR must have other plans (or offers) for the Texas contracts.

It is too early to tell how the transfer will impact the current claims process.  However, Liberty Bankers Life and Capitol Life specialize in final expense products, and therefore are familiar with the death care business.  The transaction will provide these insurance companies a marketing toehold with funeral homes.

Funeral homes should anticipate some joint announcement from the SDR and Liberty Bankers Life the second week of November.

Missouri Seller Records: 2017 Reboot?

Posted in Administration, Compliance, Master Trusts, Missouri - SB1, Recordkeeping

This time last year, the hot topic before the Missouri State Board of Embalmers and Funeral Directors was the staff’s proposed regulation to define what constitutes adequate records of a preneed seller.   The proposal was revised more than once during 2016, but it was eventually tabled by the Board before any consensus could be reached.  This blog discussed several of the industry’s concerns about the proposal in a series of posts last year (click here to view those posts).

We still believe those concerns merit an open discussion before the State Board.  Last summer, the State Board did little to facilitate any discussion with licensees.  Having since filed an administrative hearing commission complaint over the inadequacies of one seller’s records, the Board may still be reluctant.  Guidelines are needed, and the Board should be listening to licensees about defining reasonable record requirements.

Missouri’s State Board: the 2017 Sabbatical is Over

Posted in Missouri - SB1

After a 8 month sabbatical, the Missouri State Board of Embalmers and Funeral Directors will be back at work soon.   Shortly after taking office in January, Governor Eric Greitens withdrew two interim appointments to the State Board, leaving it without a quorum to take formal actions.  For the last eight months, the State Board has relied upon a committee to approve ministerial acts such as the issuance of licenses.   In the meantime, audit and discipline issues had to be tabled.

The “new” State Board has a familiar look.  All three appointments have prior experience.  Accordingly, the Board will be expected to hit the ground running. With notice requirements, we anticipate that the State Board will next meet the last week of September, or the first week of October.  The Board will have a full slate of issues for the next several meetings.

Missouri Preneed Annual Reports: Include Those Pre88 and Post88 Trusts

Posted in Exams/audits, Missouri - SB1

The Missouri Preneed Annual Report for 2017 is a little different from prior years.  Schedule H (trust funded contracts) now seeks information about Pre88 trusts and Post88 trusts.  Previously, Schedule H only referenced trusts that administered contracts sold subsequent to August 28, 2009.  This had been a source of confusion for Missouri funeral homes.  Accordingly, many have never filed a Schedule H for Pre88 trusts or Post88 trusts.  This was an issue we raised in defense of a seller called before the Missouri State Board of Embalmers and Funeral Directors last Fall.   Chapter 436 as amended gave the State Board authority to seek information about contracts sold prior to the effective date of Senate Bill No. 1, but the annual report identified trusts with contracts sold subsequent to the effective date.

As amended, Schedule H could still be confusing to funeral homes.  The addendum for listing individual contracts advises that it applies to “Pre and Post 8/29/2009”.  But the instructions correctly advise that the addendum is for listing preneed contracts sold between September 1, 2016 and August 31, 2017.    If administered correctly, Pre88 trusts and Post88 trusts should not be adding new contract sales.  If so, Schedule H’s for Pre88 Trusts and Post88 Trusts will not have a contract report.  The addendum should be marked “N/A”.   Only Part A of the Schedule need be prepared for Pre88 and Post88 trusts.