Trustee Services Death care accounts do not fit within a bank’s core trust business.  Compliance officers are not trained on the special fiduciary responsibilities imposed by state death care laws and the Internal Revenue Service.  These additional fiduciary duties represent an expense that reduces the profitability of the death care account. 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 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. [hyperlinks to Fiduciary Risks for Death Care Trusts and 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] Qualified Funeral Trust (Section 685) Tax Administration  Monthly allocations are performed, and a composite Form 1041QFT is prepared and filed. For more information about the requirements of IRC §685 click here. Preneed 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  and cemeteries a written monthly report of each purchaser account’s: payment balance trust deposit balance market value sales price and unpaid balance Maintenance Care Trust Administration Cemetery regulators are seeking to expand the duties of the cemetery care fund trustee.  Special definitions of income and principal are often codified, and the trustee may be held accountable for compliance with these special provisions.  Non-compliance with these special provisions often results in administrative proceedings that pits the trustee against the cemetery client.  PRC can help the trustee avoid these regulatory pitfalls with trust instruments and administration.  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 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       
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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 Bill@preneedresource.com
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