The Preneed Resource Company differs from all other preneed administrators in that we provide market value based administration, or “Total Return Trust Accounting”. Other preneed administrators continue to sell the same accounting services that they provided your Dad thirty years ago.
It has been many years since interest rates exceeded the funeral home’s internal cost increases. Back then, interest income was king and trustees purchased long term bonds to hold until maturity. Most preneed trustees continue to follow the same investment policy for decades. This was also convenient for preneed administrators because all that was required of them was to track consumer deposits and accrued income. That type of administration is called tax cost basis accounting, which reports the “book value” of assets. Book value would be used for the value of trust assets and individual consumer accounts.
Years of low bond yields forced other types of trustees to switch from income return investing to total return investing. With that change came the diversification of investments, and the long term investing in growth equities. But, preneed accounting systems haven’t kept up with the change to total return investing. Unrealized market growth, a crucial element of total return investing, cannot be passed through to individual preneed accounts by tax cost basis accounting. A total return trust may enjoy a net investment return of 4%, but a net income return of only 1%. Tax cost basis accounting precludes the funeral home from reaping the benefits of a productive, diversified preneed trust.
Click hear to review our blog posts on the issues related to Total Return Trusts vs Income Return Trusts.