Fiduciary 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: While some states’ death care laws allow for a custodial relationship, the vast majority of states require a fiduciary relationship to protect the consumer who has transacted with the death care client. As a consequence, public policy may restrict or prohibit the fiduciary’s authority to delegate key functions or decisions. State death care laws are often confusing; even to the death care client.  Intense competition with the death care industry has often resulted in laws that are ambiguous, and open to different interpretations. Overlapping regulatory jurisdiction is also a problem within the death care industry. To the extent the client can comply with the requirements of the death care laws, the funeral home or cemetery will not likely be informed with regard to the fiduciary responsibilities imposed on death care accounts by the bank’s regulators. While the death care industry is conservative by nature, some funeral homes and death care vendors can be very aggressive about securing preneed business. The Office of the Comptroller of the Currency has warned national banks about the risks attendant to the death care account… [Preneed Funeral Memo April 11, 2000] 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: Fiduciary Personnel Questionnaire Trust Instrument Review Tax Return and Allocations Procedures Distribution Procedures/Documentation Death Care Contract Review Individual account administration State law requirements Maintaining the required trust liability Reg 9 Reports Uniform Principal and Income Act compliance Uniform Prudent Investor Act compliance 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: payments deposited into trust disbursements for the cancellation or performance of a contract trust income by character administrative expenses the trust’s market value Provide funeral homes a written monthly report of each purchaser account’s: payment balance trust deposit balance market value sales price and unpaid balance 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       
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Preneed Resource Company 5350 W. 94th Terr, Suite 202 Prairie Village, KS 66207 Tel: 913-378-9922 Tel: 800-449-0030 Fax: 913-378-9924