 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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