 Pre-Paid
Funeral and Burial Services – What should be done?
August 2, 2001
by Richard A. Neuman, CPA
Weil, Akman, Baylin & Coleman, P.A.
In San Bernardino, California, the district attorney’s office is
investigating the alleged embezzlement of at least $800,000 of money
believed to have been taken from pre-need payments from various
funeral homes. In Texas, of all of the consumer complaints reviewed
by the Consumers Union with regard to the funeral industry (filed
from January 1998 to December 1999) the largest category of complaints
related to pre-need arrangements.
When Soila Trevino of Harlingen, Texas purchased her headstone
from a door-to-door agent. He requested $40 per month with payment
to be made at her home (which she always paid timely). After she
had fully paid, she discovered that the salesman had not worked
for the cemetery in more than a year. When she went to the police,
he promised to pay her back, but never did. She then contacted the
Attorney General and again the man promised to pay her back. He
eventually only paid back $75 and then promptly disappeared.
One couple purchased what they thought was side-by-side burial
plots. Over the years they had fully paid for the plots and the
company sold them another pre-need contract and a cemetery plot
for a grandchild. When the couple finally received the deeds to
their burial plots they learned that the plots were not side-by-side
but were in fact stacked. The company offered to change the contract
to side-by-side spaces but would only do so for an additional charge
of $900 and the couple would have to purchase outer burial containers
separately upon internment. Only after intervention by the Attorney
General did the company drop the additional $900 charge.
In Sarasota, Florida, people who had pre-paid contracts with a
Sarasota Funeral Home came to learn that the business had closed
without notice. Investigators for the state found that at least
thirty customers had paid between $30,000 and $40,000, but said
there could be more victims they have not yet discovered. The company
had sold between 800 and 900 pre-paid contracts. It was further
learned that the company failed to turn over the money from a number
of contracts to an independent trust company. The defunct firm’s
balance sheet reveals it has only about $17,000 in remaining assets.
The above examples are not limited to the states indicated above.
Unfortunately, the sale of pre-need cemetery merchandise and funeral
contracts has, for years, been subject to mishandling, misrepresentation,
and unfortunately, down right thievery. The truth is that the overwhelming
majority of all funeral homes, monument companies, and cemeteries
are scrupulously honest and attempt to assist the bereaved families
in an exceptionally professional manner. Unfortunately, it is the
few “bad apples” in the bunch that cause significant concern amongst
consumers.
The seminars which I present on pre-need law have given me the
opportunity to learn the laws and policies legislated by various
states with regard to pre-need activity. With the exclusion of Alabama,
which is the only state without any pre-need laws, all states have
some pre-need legislation. However, each and every state’s pre-need
laws are significantly different. Some states require 100% of pre-need
funds to be placed in trust. Other states merely require the holder
of funds to maintain a custodial relationship. Some states require
an annual report to be prepared by a certified public accountant.
Other states don’t require any annual report. The differences are
vast.
Perhaps a huge step could be taken if all states would create some
type of multi-state contract, which would require some unanimity
amongst the states with regard to pre-need law. This would create,
at the very least, some standard requirements and, in addition,
would allow the various state governing agencies and legislatures
to communicate with each other with regards to common pre-need laws.
Currently, the Federal Trade Commission Funeral Rule does not explicitly
cover pre-need sales, but the FTC is considering having the pre-need
market and cemeteries under its jurisdiction. As a tax practitioner,
I can state unequivocally that once the federal government increases
its presence in an area, it generally means more law and more complexity.
One may just ponder the thousands of pages of the Internal Revenue
Code and Treasury Regulations for corroboration of this fact. As
such, I would very much like to see less federal intervention and
more mutual state cooperation.
Some time ago the National Funeral Directors Association recommended
various revisions to pre-need arrangements. I promptly notified
my clients all over the country of these comments by the NFDA, some
of which deserve significant merit.
In the end however, those of us who are involved in the industry
are ultimately responsible for contacting our state board and legislators
to indicate what we believe are the proper methods to be used in
safeguarding our industry. I invite the readers of this column to
e-mail me with your thoughts and suggestions pertaining to this
most important issue.
- Richard A. Neuman, CPA
Richard A. Neuman, CPA is a principle with Weil, Akman,
Baylin and Coleman P.A. in Timonium, MD. He is also a member of
the Funeral Ethics Association, Ombudsman Level, and a board member
of the Children of Hope Foundation. Mr. Neuman has significant
experience in the death care industry. He provides seminars regarding
accounting and taxation issues and can be reached at (410) 561-4411.
E-mail him at: rich.neuman@wabccpas.com
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