Fiduciary Issues

Death care accounts do not easily fit within most banks’ core trust business. In contrast to the conventional grantor trust, special fiduciary responsibilities are imposed on death care trusts by state death care laws and by the Internal Revenue Service. In one aspect, the additional fiduciary duties represent an expense that automatically reduces the profitability of the death care account. Those additional fiduciary duties also fall outside the bank’s compliance expertise, resulting in a liability exposure that can be difficult to assess and quantify.

Many banks attempt to accommodate the death care client by structuring the relationship as custodial in nature, and by delegating key administrative functions and decisions to the death care client. However, this approach can compound the bank’s liability exposure for the following reasons:

As the OCC underscores to national banks, death care account fiduciaries can enjoy a profitable, and compliant, relationship with the death care client when the risks are understood. Most risks to the bank can be categorized as the product of either regulatory negligence or fiduciary breach. [hyperlink to Fiduciary Risks for Death Care Trusts]  

While issues related to fiduciary breach tend to dominate news headlines, funeral directors and cemeterians entered the death care industry because they are caregivers at heart. While fraud and theft occurs, a bank that discharges its fiduciary duties to the consumer will have little, if any, liability exposure for this type of misconduct. Banks can best serve the death care industry and its consumers by addressing the issues that lead to regulatory negligence. [hyperlink to Regulatory Negligence]  

With an understanding of the fiduciary requirements, the bank can then begin to limit the death care account risks through carefully drafted trust instruments. The trust instrument can also be used to guard against tax controversies such as the deductibility of third party administrators or investment advisors. [hyperlink to Trust Instrument Recommendations]

PRC Services to Banks

Internal Audit Program A risk management report is prepared based on a review of the following: 

Qualified Funeral Trust (Section 685) Tax Administration and Reporting Services 

Monthly allocations are performed, and a composite Form 1041QFT is prepared and filed. For more information about the requirements of IRC §685 click here.

Individual Account Administration

Monthly allocations to individual preneed accounts:

Provide funeral homes a written monthly report of each purchaser account’s:

Compliance Consultation Meet with the bank’s compliance and legal staff to advise regarding state death care law requirements, OCC/State bank regulatory requirements for death care accounts, Securities Exchange Commission compliance for pooled death care accounts, and tax reporting requirements.

Trust Instruments and Documentation Preparation of trust instruments after joint consultations with the bank’s trust operations and the death care client