We anticipate that the following section of the Missouri record keeping proposal is directed at the situation where consumers assign an existing insurance policy to the funeral home:

All information obtained or possessed by the seller related to any insurance policy used to fund any preneed contract that may include, but not be limited to, a copy of the insurance policy, any assignment or beneficiary designations, and the status of any insurance policy.

Nothing in this regulation shall require the seller to affirmatively obtain records from the insurance company, but if the purchaser, beneficiary, insurance company, or any other person provides the seller with this information, the seller shall be required to maintain those records;

This section conflicts with earlier provisions that require the preneed seller to retain periodic statements provided by insurance companies.   To reconcile the two provisions, this provision should be restricted to policies where the funeral home has no contractual relationship with the insurance company.  Funeral homes often find Met Life difficult when seeking policy information.  Appreciating that reality, the proposal would seem to require the funeral home to retain whatever it receives about the policy, but no requirement exists to seek out a report or record

With regard to preneed contracts that are canceled, Missouri preneed sellers are being requested to retain the following documents:

 (1)       All records providing any sort of notice to the seller of the cancellation of a preneed contract; and

(2)        All records showing the date, name of who is paid, the amount paid out and a description of the type of payment made to any purchaser or any other person upon cancellation of any preneed contract, and the name and address to whom the payments were made.

The proposal language does not seem to contemplate R.S.Mo. Section 436.457 (when the seller may cancel a preneed contract).

The next section of Missouri’s preneed record rule is confusing.  A prior provision of the rule (¶D(1)) would require a seller to maintain records reflecting the receipt of funds from an insurance company, and documents showing the seller’s performance of the contract.  However, for insurance funded contracts, the rule would also seek the following additional records:

 (a) Records showing notice received from the insurance company or the provider that the preneed contract has been fulfilled; and

(b) Records of any payment from the insurance company that the insurance company provides to the seller or that the seller obtains from the provider or any other source.

The first section may be seeking a form of notice that includes a confirmation to the insurance company that the preneed contract has been performed.  One insurance representative has suggested to the State Board that insurance companies are not in the practice of obtaining confirmation of the performance of preneed contracts.  Whatever the objective of that section, the language is inadequate to put funeral homes on notice.

Regarding the second section, how is the contemplated record different from that described in the prior paragraph D(1)?

Missouri’s proposed preneed records rule includes a provision that would require funeral homes to document the payment of excess funds:

  1. For all fulfilled preneed contracts:

 (3)   Records showing payments made to the state of Missouri or to any other person including the amounts paid, the dates paid and the name of the person paid; and

The State of Missouri has long asserted that funeral homes have an affirmative duty to determine when the preneed contract beneficiary was the recipient of public assistance, and whether the State has a claim on excess preneed funds.  Preneed contracts with price protection guarantees from the funeral home will not result in excess funds that are subject to state claims.  However, the marketing of final expense products is becoming much more prevalent, and such products frequently pay all proceeds to the funeral home.  If the proceeds exceed the funeral and burial costs, the state wants a record of the excess proceeds and who was paid.  Funeral directors may not want the duties that come with such products, but the state views the funeral home as having benefited from the spend down that gave rise to the preneed contract, and the exclusion of the life insurance policy or final expense trust from resource testing.

The next section of Missouri record keeping proposal addresses funeral homes that handle insurance premium payments.  For funeral homes that rely upon insurance funding for their preneed program, the initial payment is typically handled by the funeral director or preneed agent, and then subsequent premium payments are made directly to the insurance company.  However, some funeral homes also handle the monthly premium payments.   For these two situations, Missouri funeral homes would be required to satisfy the following record requirements:

  1. For insurance funded preneed contracts, if the seller or the seller’s agent receives payment from the consumer for the insurance:

(1) Records that show the date, the name of the person paid, a description of any consumer payments received, and records showing any account into which those funds are deposited; and

(2) Records showing the date, the name of the person or entity paid, and description of payments to any insurance company.

The first question that arises about this section concerns the phrase “the name of the person paid”.   That phrase is open to different interpretations.  And then, what kind of “description of any consumer payment” is the rule contemplating?  Source of funds?   The next second subparagraph then again seeks “the name of the person or entity paid”.   How is that “person paid” different from the person paid referenced in the prior paragraph?

But, what is perplexing about this section of the proposal is what records are not required: receipts and disbursements made by the insurance company.  In our prior post we discussed the rule’s provisions requiring trust disbursement records, and how those records would have allowed regulators to track disbursements made from NPS trusts.  But, the NPS abuses that brought down the Ponzi scheme were made by the insurance company Lincoln Memorial.  NPS used white-out to change single premium contract purchases to installment payments, and then policy loans were used to obtain funds before the contract was serviced.  If the misconduct of NPS is the basis for requiring additional trust records, then the rule proposal should also address the abuses perpetrated by the insurance company.   Borrowing from the prior section of the rule proposal, the following records would also be required:

(3) If funds for a preneed contract are paid by the consumer directly to the insurance company, the seller shall maintain, or be able to access, records from the insurance company showing the dates and amounts of each premium and the name of the preneed contract beneficiary for each premium received; and

(4) Records showing any disbursement from an insurance policy for any purpose other than cancellation or fulfillment of a preneed contract with a description of the purpose for the disbursement, and the date, amount and to whom the payment was made.

We also question why different types of records are required based on the type of funding used.  In response to this issue, we had suggested the following record to the State Board:

With regard to consumer funds received by the Seller or the Seller’s agent, the Seller shall create and maintain a consumer receipts record for each calendar month that reflects the following:

  1. The purchaser’s name;
  2. The payor name if different than the purchaser;
  3. The preneed contract number;
  4. The date received;
  5. The source of funds (cash, check, money order, etc)
  6. The date the funds were submitted or forwarded to the funding agent;
  7. The funding agent (if the consumer receipts journal is maintained for more than one funding agent);

A Seller shall create a consumer receipts record for every month including those months in which no payments were received, until all contracts are paid in full or have lapsed according to the terms of the preneed contract.

The seller may, but is not required, to maintain a separate consumer receipts record for each funding agent used.


The next section of Missouri’s preneed record keeping proposal  targets trust disbursements made for purposes other than preneed contract performances or cancellations:

(5)          Records showing any disbursement from a preneed trust or joint account for any purpose other than cancellation or fulfillment of a preneed contract with a description of the purpose for the disbursement, and the date, amount and to whom the payment was made.

This section is in response to the misconduct of the National Prearrangement Service trustees that permitted unfettered disbursements by NPS.  Trustees may not have an issue with this requirement if the seller can comply with a copy of the trust’s tax ledger statement or an annual disbursement report.   (As discussed in our prior post, some banks may be limited in what they can provide in the way of a disbursement journal.)  However, if the State Board is seeking records that reflect the fees disbursed from each consumer account, then sellers would have to be advised if the trust’s QFT attachment would suffice.   Depending on what the proposal is ultimately seeking, Missouri sellers would need to discuss with their trustee whether existing records can be used to comply.

Sellers that rely upon joint accounts for preneed funding may need to seek clarification that a bank certification (that no funds have been disbursed) would suffice.

Many Missouri preneed sellers have become dependent upon their trustee for the individual contract accounting required by law changes implemented in 2009.  Some of those same funeral homes also have consumers make their preneed contract payments directly to the trustee.  As a consequence, the seller does not handle consumer funds, and is unable to document preneed contract payments.   The next section of the Missouri seller record keeping proposal is directed at that situation:

  1. For trust and joint account funded preneed contracts:

(4) If funds for a preneed contract are paid by the consumer directly to the financial institution, the seller shall maintain, or be able to access, records from the financial institution showing the dates and amounts of each deposit and the name of the preneed contract beneficiary for each deposit made; and

This record keeping requirement could prove problematic for Missouri’s preneed sellers in a couple of different ways.

To the extent that banks and trust companies provide on line access to trust clients, transaction records are typically archived after a couple of years.  After transactions have been archived, the preneed seller can no longer access the records via the internet portal.   Consequently, the staff’s proposals would require preneed sellers to down load transaction records on a regular basis.

Banks and trust companies use a variety of different trust accounting platforms, and some of those platforms offer limited options for reporting transactions.  To minimize account inputting, trustees may aggregate consumer payments prior to inputting deposits to their accounting system.   Consequently, the trustee may not have a record that shows the date and amount of each consumer deposit.   The best record the bank may be able to provide would be a monthly or annual summary of trust deposits.

Another problem with this section is that individual consumer accounts are typically set up in the purchaser’s name.   Payments are matched up to the purchaser (who has written the check to the bank).


In our continuing review of the Missouri Seller Record Keeping proposal, the rule next addresses what a preneed seller must retain with regard to its consumer contracts.  However, the proposal actually contains two sections requiring the retention of contracts and agreements (Section 2.A and Section 2.F). Of the two, Section 2.F is the more detailed:

  1. Copies of any agreements or contracts related to the practice of a preneed seller including, but not limited to, the following:

(1) Preneed contracts;

(2) Trust agreements;

(3) trust administration agreements;

(4) Provider agreements;

(5) Preneed agent agreements,

(6) Insurance agreements,

(7) Insurance assignments;

(8) Insurance beneficiary designations;

(9) Investment advisors; and

(9) Any other contracts or other agreements between purchasers, beneficiaries, providers, sellers, agents, financial institutions, insurance companies, investment advisors and trustees related to preneed contracts or the holding of preneed funds;

The language from this section that concerns funeral homes are the phrases “including, but not limited to,” and “Any other contracts and other agreements…”

Both phrases suggest that the staff wants open ended authority to seek funding source related agreements that they may not now be aware.  But, the last subparagraph is worded so broadly that it would define the compensation arrangements of preneed salesmen, fund managers, and insurance agency brokers as records to be maintained for the preneed examination.

Section 2.A of the proposed rule reads:

  1. For all preneed contracts:

(1)  A copy of the executed preneed contract;

(2) A copy of all terms of the preneed contract;

(3) A copy of any attachments, additions, or documents supplemental to the preneed contract;

(4) Records related to the funding source for the preneed contracts, and

(4) All other records required by law to be maintained.

It is probably understood by preneed sellers that the retention of an executed preneed contract includes all documents supplemental to the agreement, such as the description of goods and services.  But, if such language is needed, it could be added to Section 2.F.1.  That would eliminate the first three subsections of the 2.A.

The last two subsections of 2.A ( both numbered as (4)) are both vague and ambiguous.  Later sections of the rule proposal cover both of those subsections in greater detail.  Accordingly, Section 2.A should be omitted completely and Section 2.F should then be revised to address the two phrases that are causing funeral directors concern.

It’s been fifteen months and counting, but the Missouri State Board of Embalmers and Directors and their Division staff are still at odds over a rule for defining minimum record keeping requirements for preneed sellers.  The Division staff first floated an “Adequate Records” rule in July 2015, but the draft was not formally submitted to the Board for discussion until the following December.  That proposal was criticized as ambiguous and overreaching, and a special January meeting was scheduled for further discussion.  (In our January 3rd post, we reported on the outcome of that meeting.)  The staff submitted a revised rule to the State Board in June, and again the State Board tabled the proposal.  So last month, the Division staff submitted a third recordkeeping rule.  But, the Board and staff quickly became frustrated with each other, and the proposal was tabled with a warning from the Board attorney that licensees will suffer the consequences if no rule is adopted.  That warning suggests that the Division staff will continue to direct the preneed examiners to seek the types of records described in the rule proposal.  Some sellers will not be able to produce the requested records, and those ‘missing records’ will be cited as exceptions on the examination report.  It will then be the licensees’ turn to become frustrate when summoned by the staff to appear before the Board regarding the “adequacy” of their seller records.

The reluctance of the Board members to approve the record keeping proposals stems in part from their own uncertainty about what records are being sought, and the purposes for requiring such records.  The mantra expressed by the industry, and echoed by some Board members, is that the staff is attempting to go beyond the mandate of SB1 (to ensure all consumer funds are deposited with the preneed funding agent).

Over the following weeks, we will explore the staff’s third proposal and the examination handbook in detail.

The first record described in the proposed Missouri recordkeeping regulation could actually require preneed sellers to maintain three, maybe four, sets of journals:

(1) receipt and disbursement journals containing a record of deposits to and withdrawals from both preneed trusts and preneed joint accounts, specifically identifying the date, source, and description of each item deposited as well as the date, payee, and purpose of each disbursement;

This section contemplates a journal for consumer payments received by the seller and deposited to trust or joint account, and a journal of disbursements from the preneed trust or joint account to the seller.  With regard to trust funded contracts, Missouri law requires all consumer payments be made to trust.  However, this proved burdensome for sellers with a high volume of payments, and consequently sellers are allowed to administer payments through a commercial clearing account.  When a clearing account is used to process individual consumer payments, a commingled, lump sum deposit is then made to the trust at month end.

When a seller does use a clearing account to administer consumer payments, the regulation may require one receipts journal for the clearing account and another receipts journal for the trust account.  Or, the regulation could be interpreted to require a receipts journal and disbursements journal for the clearing account.  The journals would have to be sufficient to allow an auditor to determine that the consumer payment was deposited to trust within the time required by statute.

When consumers make their payments directly to the trust, the seller may, or may not, actually handle the payment.  Consumer payments may be made by a direct deposit or by checks mailed directly to the trust.  When the seller does not handle the payment, it is not clear whether the seller would be required to document such payments to the receipts journal.

Another question that comes to mind is whether the seller can use a bank transaction report to satisfy the receipts journal requirement.  Some of our bank clients include the consumer’s name when recording a deposit to their system.   However, commingled, lump sum deposits made from a clearing account would not reflect individual consumer names.  With such deposits, supporting detail might have to be provided that reflects a reconciliation of the deposit to the clearing account receipts.

To the extent that bank generated reports are used, sellers will have to be current in their production of such reports because most banks limit the time such data is maintained on line.  The banks we work with limit the availability of such data from 18 months to 24 months.  Sellers are only audited once every 5 years, and if a seller waits until an audit is scheduled to retrieve reports, the first three or so years will not be available.

Sellers should also note that the regulation is also seeking the source of funds, i.e., whether the consumer paid by check or cash.

At one time, it was custom for preneed sellers to book consumer payments to the funeral home’s income records, and defer recognition of the income until performance of the contract.  The funeral home’s tax records would have been a source for the journals, and other records, sought by the proposed regulation.  However, the practice of booking preneed payments to income is no longer encouraged. Consequently, the proposed regulation would require the Missouri preneed seller to maintain financial records that are in addition to their tax and financial records.