Missouri Senate bill would require inspection of pre-need funeral sellers

Thursday, February 12, 2009 | 6:02 p.m. CST

JEFFERSON CITY — In response to the financial collapse of a St. Louis company, senators signed off Thursday on new oversight for Missouri's prearranged funeral industry.

The legislation would entrust the state Board of Embalmers and Funeral Directors with new powers to inspect the finances of pre-need funeral sellers and take action against unsound companies.

It also would increase the amount of money that the sellers of funeral contracts must hold in trust to pay for a customer's eventual funeral expenses.

The legislation comes after last year's collapse of St. Louis-based National Prearranged Services Inc. and its affiliated Texas-based insurance companies, which are under FBI investigation for alleged corporate misconduct.

The companies were placed under receivership in Texas and are being liquidated. People who purchased funeral contracts are still receiving the services, but funeral homes are taking a financial hit because they are getting paid only the face value of the original contracts — not the inflation-adjusted amount it takes to actually provide the funeral services.

As of Thursday, National Prearranged Services still had 154,886 funeral contracts valued at more than $646 million, including 56,261 contracts in Missouri worth $198 million. Those figures have been slowly declining as its customers die.

The Senate legislation received first-round approval by voice vote Thursday and needs a second chamber vote to move to the House. That could come next week.

A key part of the bill requires the state regulatory board to conduct a financial examination of funeral contract sellers at least once every five years and gives the board discretion for more frequent examinations.

Some senators had raised concerns that they were giving the board too much power through a provision that would allow the board to immediately suspend the license of a pre-need funeral seller if an examination found a shortage in their trust fund accounts.

But those concerns were eased by an amendment Thursday instead allowing the state board to go to Cole County court for an injunction suspending a seller's license. The amended bill also allows the board to hire private attorneys.

Prepaid funerals generally are handled in one of three ways: the seller opens a joint account with the customer at a local bank, often as a certificate of deposit; the seller takes out a life insurance policy on the customer; or the seller places the money in a trust fund, which earns interest from investments.

Under current law, the sellers of prepaid funerals can take 20 percent of the money in a trust, plus the interest it earns, for their own use. The legislation would limit that to 15 percent and require interest to remain in the trust.

One reason some people purchase pre-need funeral contracts is because the money put into them does not count against an asset limit when determining Medicaid eligibility.

State Sen. Jack Goodman, R-Mount Vernon, successfully amended the bill Thursday to also allow people to place up to $10,000 in an irrevocable trust for funeral expenses, without it counting against their Medicaid eligibility.

"I don't think our state policy should be compelling our low-income Missourians into that marketplace" for prepaid funeral contracts, Goodman said.

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