As discussed in our prior post, the FTC’s rulemaking notice for amending the Funeral Rule requests public comment on 40 Issues.   Those 40 issues are grouped by the FTC in the following 7 categories of potential amendments:

  1. Electronic price disclosure – whether and how funeral providers should be required to display or distribute price information online or through electronic media
  2. Cremation-related fees disclosure – whether funeral providers should be required to disclose on the general price list third party crematory or other fees
  3. Limited exceptions to the basic service fee – whether the Rule’s requirements regarding reduced basic services fees should be amended
  4. New alternative disposal methods – whether the Rule should be amended to account for new forms of disposition
  5. Amendment of the mandatory embalming disclosure – whether the Rule’s embalming disclosure requirements should be amended
  6. Improvement of price list readability – whether the Rule should be changed to improve the readability of the price lists
  7. Effect on historically underserved communities – whether changes should be made to the Rule to avoid negatively impacting underserved communities.

With regard to the category “Electronic Price Disclosures”, the FTC dedicates the attached 15 Issues.  For purposes of this post, we want to focus on the issue of whether the Funeral Rule should require funeral providers to post their general price list on their website, or provide their GPL by some other electronic means.

The FTC acknowledges that not all funeral homes maintain a website.  Some rely upon other forms of social media like Facebook.  The FTC seems to be expressing concern that funeral homes may eliminate their website if the Funeral Rule would force the posting of GPLs.  The FTC also acknowledges that some forms of social media do not lend themselves to the posting of GLPs.  So, the FTC is asking in the various Issues whether funeral homes should be required to provide their GPL by electronic means such as by Fax or Email.  A Consumer Federation of America case study suggests that California funeral homes were found to be very responsive to requests for GPLs by email.

It would not seem burdensome on the industry if the Funeral Rule required funeral homes to email the GPL within 24 hours of a request by any person residing within the service area.   The request should identify the person, include a representation that he/she (or the person for whom services are sought) resides in the funeral homes service area, and provides a valid email address.

By a posting made November 1, the Federal Trade Commission gave formal notice of its intent to revise the Funeral Rule and opened a 60 day comment period.  The notice is quite lengthy and signals that that the FTC wants major revisions to the Funeral Rule that go well beyond whether to require the posting of prices on websites.  Forty (40) issues are outlined for possible change.

The notice summarizes the FTC actions leading up to the decision to revise the Funeral Rule beginning February 14, 2020.  The FTC concluded that review with an October 20, 2022 meeting that allowed for comments from the public and from the funeral industry.  From the FTC’s summarization of comments, the agency obviously found many industry comments disingenuous.

A popular industry response to the funeral rule has been to decry its focus on funeral homes and demand the rule’s expansion to cemeteries and preneed sellers.  The FTC declined to move in that direction by suggesting no proof was provided of unfair or deceptive practices by cemeteries.

Some industry commentators urged the FTC to open the “state exemption” provision and simplify that process.  The Funeral Rule’s state exemption provision allows a state agency to exempt its state’s funeral homes from FTC oversight by proving that state agency provides greater consumer protections than the FTC.   The FTC shot this down, advising that “States have had and continue to have an option to apply for an exemption to Section 453.9, if they are interested in doing so, and the Commission will evaluate all such applications.”   (We have not found any evidence that the FTC has ever granted such an exemption.  Having sued Missouri and Virginia for Funeral Rule violations, the FTC may have little confidence in state oversight of the Funeral Rule.)

In outlining the 40 issues, the FTC frequently asks questions that signal the direction that it is leaning.  These questions offer the funeral industry an opportunity to provide thoughtful input that might actually influence the FTC’s direction.  We will use our next posts to frame issues in more detail.  The industry has until January 3, 2023 to file comments.

When the MFT’s previous preneed exam was making news during the summer of 2015, reorganization plans were being filed for the Wisconsin Master Trust and the California Master Trust.  As we reported in “Association Master Trusts: De Facto Trustees”, each reorganization plan sought to eliminate the association’s de facto trustee relationship that had led to misuse and mismanagement of millions of dollars of preneed consumer funds.   The receiver appointed for the Wisconsin Master Trust did not mince words:

The Trust was hemorrhaging from the costs it was incurring. We promptly eliminated between $50,000 and $100,000 per year in administrative costs, $125,000 per year in investment advisor fees and $240,000 per year in payments to the WFDA and its affiliate. We also eliminated a large amount of other fees that did not appear on the Trust’s records but that were built into securities transactions.*

Going back to 2015, MFT declared it had “deep pockets” and could afford to sue to protect its interests and client relationships. With the purchase of the Missouri Preneed Trust, MFT may believe those pockets got deeper.  But what about consumers’ interests?  Or even funeral home provider interests?

When the MFDEA Preneed Portability video disclosed that expense distributions were being paid from the Missouri Funeral Trust to the association, we thought it was appropriate to revisit prior blog posts about the failures of association master trusts in Illinois, Wisconsin, Minnesota and California.  Those state association master trusts were forced to close, to restructure or into receivership when mismanaged by association executives. The MFDEA video suggests to us that MFT funeral providers are raising questions about the costs of the program and whether they can transfer to other preneed programs.  Knowing the history of the MFT response to inquiries, we doubt that funeral homes are being provided any useful information.

As we originally discussed in the post “Preneed Trust Shortages: investment management fees”, a state association master trust can provide the ‘critical mass’ required for economies of scale to diversify investments and reduce trust management costs.  In theory, as the state master trust grows in size, the association could better negotiate investment and administrative arrangements.  However, the reality was very different for those four state master trusts set out above.  Association executives turned a blind eye to trust expenses.

Master trust programs should provide to their funeral home providers the following information:

  • The name and address of the trustee.
  • The master trust’s written investment policy.
  • The fees paid to the trustee, fund managers, account administrators and tax preparers.
  • The taxes paid by the trust.
  • A summary report of the trust’s investment performance and asset description.
  • A disclosure of related party transactions (loans, discounts, service agreements, etc.)
  • Any sponsorship fee paid the association.

With regard to the Missouri Funeral Trust, the last item is a trick question.  For contracts sold after August 28, 2009, Missouri preneed laws restrict what may be distributed from a preneed trust.  This is especially true for preneed sellers.  If MFT is receiving income distributions from its preneed trust, other Missouri preneed sellers can cry foul.  That is why the industry is so interested in what the new State Board does with the pending MFT financial exam.

A few days after Ivana Trump’s burial, we received our first call asking about Missouri law and tax breaks for cemeteries.  The first caller had descendants buried on grounds that had been taken over by a golf course, and he was inquiring whether the Missouri golf course could be receiving tax benefits by virtue of his family’s burials.  The easy answer was no because Missouri does not provide cemeteries the tax benefits that New Jersey does.  But as we explained to that caller, all the speculation about the former president’s motives for burying his ex-wife near the tee box on No. 1 is probably for naught.  New Jersey cemetery law is very similar to those states that grant tax benefits to cemeteries (like Kansas) in that to receive the tax exemptions the land must be dedicated for cemetery purposes.  That rules out the continued use of the property as a golf course.

News reports were quick to assume that a single burial could satisfy New Jersey law and turn the golf course into a quasi-cemetery and shelter income from the golf course.  Reporters suggested that New Jersey law does not impose a required number of burials for the tax exemption.   But what the law does require is a dedication of the land for burial purposes.   The Trump National Golf Club would have to be re-dedicated as a cemetery, and that would bar revenues from golfing activities.

Missouri’s new State Board will have its first meeting this week, and one week after the State was sued by a former State Board employee.  The lawsuit alleges that the Division of Professional Registration usurped State Board authority to fire employees who had defied Division Director warnings to stand down.  What we now know through news reports is that the State Board and its staff were pursuing enforcement actions against funeral home establishments and at least one major preneed seller.  While the State Board did heed a Division directive about picture taking during funeral home inspections, the staff continued to investigate problem funeral homes and preneed sellers.   Obviously this displeased the Division Director who then manipulated the Governor’s  Office by seeking the appointment of four State Board members who had agreed to violate the State’s open meeting law and follow the Division’s instructions.   In the aftermath, State Board disciplinary proceedings were dismissed or modified without formal Board actions.   Those actions were contrary to promises the Legislature had made to preneed consumers with the passage of Senate Bill No.1.   Bowing to pressure from Missouri’s Senate, the Governor withdrew the four State Board appointments.

Missouri funeral directors are curious whether the Division will still be pulling State Board strings.   They are asking whether the new State Board will reinstate discipline proceedings against the Warrensburg funeral home with licensing issues and preneed problems.    What is the status of that preneed audit against a major preneed seller?   What has the Division been doing with inspections and audits during the past 7 months?

We are also curious about what the whistleblower lawsuit will turn up through its discovery efforts.   Immediately following the termination of the Board staff, the executive director of a major preneed seller suggested to us that the preneed audit supervisor had been included in the firings because he had made derogatory statements to a preneed seller that had been disciplined.  That executive director advised that the preneed seller had strong connections to the Governor and that’s how business works in Jeff City.   We can’t help but think that those suggestions were a red herring, and that the whistleblower lawsuit will uncover the identity of the troubled preneed seller.

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.

With this post we are returning to the misstatements made by the Missouri Funeral Directors and Embalmers Association in their May video explaining preneed portability.  At minute 10:18 of the MFDEA video, the association attorney advises that Chapter 436 only allows transfer of preneed contracts to funeral homes licensed by the Missouri State Board.  Employing a strained interpretation of “alternate provider”, the association suggests that state law precludes the transfer of a Missouri preneed contract to a funeral home licensed in another state.  There was a time that the Missouri State Board might have agreed with that statement.  However, the Federal Trade Commission warned the State Board in 2008 that such an interpretation of Missouri law would be an impermissible restraint of trade.

In 2006, this author represented a cemetery client that sought to register as a Chapter 436 preneed seller.  The State Board refused, taking the position that only Missouri licensed funeral establishments could agree to perform a Missouri preneed contract.  The State Board took that position at a time when a Federal Trade Commission complaint was already pending against it.  This author wrote to the FTC requesting that it expand its complaint to address preneed.  The FTC incorporated our inquiry into their discipline of the State Board, requiring the Board to post the Settlement and the FTC’s response to our letter on the Board website for 10 years.

Yes, Chapter 436 has been rewritten since the FTC’s 2008 Settlement with the Missouri State Board.  But the FTC will pierce through the smoke and mirrors argued by the association and look to see if the State Board interprets the law to restrain Missouri preneed contract holders from transferring to an out of state funeral home.   We anticipate that the new State Board will decline to back up the MFDEA’s efforts to discourage preneed portability.

Late in 2021, PNC Bank threw in the towel.  After years of litigation and two appeals, PNC Bank agreed to a settlement with the NPS special deputy receiver.  Last month, our Illinois clients began receiving POC notices from the SDR that a portion of their claims for inflation would be honored.  Payment of funeral home POCs signals the beginning of the end of the NPS receivership.  This got us to thinking about the impact of the NPS court decisions on preneed trust administration.  The watershed finding for PNC Bank’s liability was that provider funeral homes are beneficiaries of a third party seller preneed trust.  In states other than Missouri, the provider funeral home must be a party to the preneed trust and have always been owed duties by the trustee.  But because Missouri preneed law authorizes third party preneed sellers, those types of entities have excluded the provider funeral home from being a party to the trust.  So for Missouri’s remaining handful of third party sellers, the NPS appellate decisions are game changers.

Most states’ preneed laws define a preneed seller to be a licensed funeral home.  Common sense suggests that the entity with the obligation to perform the contract will be diligent in safeguarding the consumer’s funds.   While states allow the funeral home to employ an agency to market, sell and administer consumer funds, they will not allow an independent entity to step between the funeral home and the consumers’ funds.

Missouri was in that same boat until 1982.  That law change had been lobbied by National Prearranged Services and Funeral Security Plans, companies which acted as preneed sales agencies for funeral homes in various states.  The key change sought by NPS and FSP was the definition of a preneed seller.  If the seller was no longer required to be a licensed funeral home, an independent entity could control the entire preneed transaction.  In the 1980s’, the trust funded preneed was king, and these future third party sellers wanted control over the trustee.  It was described to this author as the golden rule: he who controls the gold will rule.  By controlling the funding arrangement, the third party seller would also control the funeral home provider.  Using a separate funeral home provider contract to set out the terms of preneed contract performance and payment, a seller could exclude the provider funeral home from trust management and investment oversight.

When sued for its role in the NPS collapse, PNC Bank argued that claims made by the SDR on behalf of provider funeral homes were inappropriate because they were not beneficiaries of the NPS trusts.  PNC Bank cited the court to Chapter 436, and argued the position that NPS had taken with funeral homes for decades: funeral directors have no rights under our trusts.  In the first civil trial, the court erroneously allowed tort claims to be asserted.  Those tort claims resulted in large damage awards against PNC Bank that were eventually overturned in the first appeal.   When the case was remanded to the trial court, the issues were narrowed to breaches of fiduciary duty, and the trial court ruled that NPS’ provider funeral homes were beneficiaries of the trusts.  PNC Bank appealed again.  In the decision filed in August 2017, the Eighth Circuit agreed with the trial court and turned the third party seller trust argument upside down.  By affirming provider funeral homes to be trust beneficiaries, the appeals court superimposed the Missouri uniform trust code on to Missouri preneed trusts and the seller/provider relationship.

For four decades, third party preneed sellers have told disgruntled provider funeral homes to go pound sand.  A seller like NPS could cite the seller/provider agreement to deflect the funeral home’s demands for information.  The Eighth Circuit changed all of that.  Because preneed trusts make distributions to the provider funeral home, the Missouri uniform trust code deems it to be a “qualified beneficiary”.   As a qualified beneficiary, a provider funeral home can side-step the seller’s stonewall and request an accounting from the trust’s fiduciary.  If NPS provider funeral homes had made accounting demands on Allegiant Bank, their top management may have looked closer at NPS’ actions.

If a third party seller can no longer isolate a trustee from the disgruntled funeral director, will a bank or trust company accept a Missouri third party seller trust?

We are continuing with our posts to correct the misstatements made by the MFDEA in its May 24th video on Missouri law and preneed portability.  At minute 28:50 of the video, the association’s general counsel states that with regard to the transfer of preneed contracts, a successor seller must execute a State Board affidavit and assume all obligations of the preneed contract.   The video states that when funding has not kept up with price guarantees the successor seller may not be willing to assume all of the obligations of the contract (honoring the price guarantees).    The video suggests that the simple option is to cancel the contract and get a refund.

The problem with this explanation is that it ignores that Section 436.500.2(2) allows an assuming seller to file a plan in lieu of the State Board’s affidavit.  We have represented numerous Missouri successor sellers and used a “plan” called an assignment and assumption agreement.  Depending upon the available funding to be transferred with the preneed contract, the seller may or may not honor the original price guarantees.  In situations where the original seller has impaired or depleted the contract funding through misconduct, the successor seller may offer to enter into new arrangements with the preneed consumer.   The State Board may always reject a Section 436.500.2.(2) plan, but this office has never had that happen.

If a successor seller were to accept the video’s recommendation for cancellation, the original seller stands to reap a windfall.  For pre-SB1 contract where 100% of the consumer payments were trusted, the seller could keep that 20% and all trust growth.  For post SB1 contracts, the seller could keep the 5% origination fee and all trust growth.

This section of the video seems intended to discourage funeral homes from even inquiring about an assumption of their preneed contracts being administered by MFT.