Death Care Law
Pool Fund Program In cooperation with UMB Bank n.a., the Preneed Resource Company now sponsors a pooled investment fund for death care funds.  The PRC Death Care Master Account will provide diversified investing through three portfolios managed by UMB Bank n.a.  Each portfolio will emphasize a specific objective (fixed income, dividend, or equity growth), and an allocation among the three Portfolios will be established for each participating death care trust based on its unique characteristics.  For example, a preneed funeral trust with active sales (and thus, ongoing deposit activities) may be invested 30% in the Fixed Income Portfolio, 30% in the Dividend Portfolio, and up to 40% in the Equity Growth Portfolio.  A preneed funeral trust with no active sales (and thus, a ‘wasting’ trust) may be invested 30% in Fixed Income, 50% in Dividend Portfolio, and up to 20% in the Equity Growth Portfolio.  A cemetery preneed merchandise trust (needing a greater return to offset bronze and granite cost increases) may be invested 20% in the Fixed Income, 30% in the Dividend Portfolio, and up to 50% in the Equity Growth Portfolio.  A cemetery care fund subject to restrictions against capital gain distributions may be invested 45% in the Fixed Income, 45% in the Dividend Portfolio, and up to 10% in the Equity Growth Portfolio.  The PRC Death Care Master Account is a unitized common trust fund that makes monthly allocations of market value changes, income and expenses.  This structure will provide small trusts of under $1 million the economy of scales that are necessary to diversify and spread investment risks, but without the costs and expenses of mutual funds.  The Master Account has no hidden 12b-1 fees, buried expense ratios or mutual fund costs.  Yet, the PRC Death Care Master Account provides the greatest possible flexibility in setting a death care trust’s Portfolio allocation, and then to adjust that allocation based on market conditions and changes to the facts and circumstances of a death care trust.  Monthly deposit, distribution and income activity will be allocated to Portfolios in a manner to best maintain the targeted Portfolio allocation of each participating death care fund. Pooled investment accounts are generally referred to as common trust funds by the financial industry.  A common trust fund (CTF) must comply with certain Federal laws and regulations.  These laws are referred to as 12 CFR Part 9 (Reg 9), the collective investment fund guidelines promulgated by the Office of the Comptroller of The Currency (the OCC).  The Reg 9 requirements provide fiduciaries safe harbor guidelines to remain outside the requirements set by the Securities Exchange Commission for investment companies.  Costs associated with investment company compliance would be prohibitive for a master preneed program.  (Every preneed trust consists of individual trusts, and thereby, represents a common trust fund if the preneed trust deposits have been pooled for investment purposes.) However, Reg 9 recognizes that death care trusts are a special type of common trust fund, and exempt such funds from many of the CTF requirements.  While, the OCC has issued a memorandum to national banks acknowledging funeral homes will benefit from the economies of scale that banks can provide as death care trustees, the OCC provides banks no specific guidance regarding how to administer death care trusts.  This lack of guidance has contributed to the preneed master trust problems we have covered in our compliance blog (hyperlink and search for Master Trusts).  Those problems could have been avoided with a unitized trust that adhered to an investment policy tailored for death care trusts.  To minimize costs, PRC advocates an alternative CTF structure that was adopted by one of its OCC chartered clients.  But this structure includes a master administration agreement, investment policies for each Portfolio, and unitized pool administration.  For years, we have recommended against the ‘parking’ of death care funds in ultra conservative investments.  Now, we are providing the documents, administration and compliance to do so.  We cannot make promises about investment returns or performance, but this approach to diversification will better protect the death care operator against the volatilities of the current investment market.  And currently, it is the fixed income security that faces volatility risks from rising Fed interest rates.    
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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