Woman surprised by shrinking funeral trust
Carol Lespreance thinks funeral homes are getting away with “legalized (financial) rape.”
In February 1993, Carol and her husband, Alfred, made their funeral arrangements.
They picked out caskets, selected cards, got an itemization of the costs, and paid for everything through a preneed trust — exactly $4,998.24 for Alfred’s funeral at Lincoln’s Roper and Sons.
About six months ago, Lespreance decided she would want a different funeral home to handle her husband’s funeral. She wanted to move that money.
But her pre-need trust was worth less money than she had put into it years ago.
In December 2006, there was $4,723.61 in that trust account, a loss of $274.63 in 13 years.
Sure that something was amiss, Lespreance contacted the Department of Insurance. She wrote to the state ombudsman. She called the state auditor.
Each agency looked into it.
But what had happened to Lespreance was allowed under a state law passed in 1986.
The funeral home took the first 15 percent of the money. Then it invested the remaining 85 percent into a trust, a “master trust” pooling the money from many pre-need contracts.
Under state law, the seller — the funeral home — got to keep the earnings that exceeded the consumer price index from that master trust during the good years.
The individual trust accounts were credited with only the interest earnings matching the CPI.
During years when the investments lost money, the funeral home did not have to take any losses. Individual accounts did.
So when Lespreance decided she wanted to move the funeral from Roper and Sons to Wyuka Funeral Home, there was less than $5,000 in her husband’s account.
Lespreance had been concerned about the trust over the years, as she saw money slip away.
But she was assured her funeral arrangements were “guaranteed,” so she need not worry about the specific amount in the trust.
As long as a pre-need contract guarantees a specific funeral, the funeral home has to provide that funeral no matter how much money is in the trust, said Bill Lauber, past president of the Nebraska Funeral Directors Association and its legislative chairman.
“If everything is pre-paid, the purchaser does not lose anything. We guarantee the funeral,” Tom Roper said Friday.
The amount of money in the trust account becomes an issue when someone, like Lespreance, wants to switch funeral homes.
Most likely, it would be people who retire to another state and want to change funeral locations, Lespreance said.
What happened to Lespreance’s trust is all legal: the 15 percent off the top; the division of interest, with the funeral home taking much of the profit in good years but not the losses.
Most funeral homes — and almost all rural homes — put trust money into individual trusts, usually into certificates of deposit, said Lauber.
Those CDs generally have low interest rates, but there are no losses, he noted.
Just a few funeral homes in the urban areas use master trusts, he said.
Nebraska funeral homes have about $93 million in pre-need trust accounts, according to the Nebraska Department of Insurance. About $42 million — about 45 percent of the total investment — is in master trusts.
The Department of Insurance has been concerned for a number of years about the use of master trusts, Eric Dunning, the department’s legislative liaison, said during a Sept. 21 public hearing on the issue.
The agency has had a number of inquiries from people about “master trusts that have pursued more aggressive investment strategies.”
These people “have found it disconcerting to take losses in their accounts, as has happened during recent downturns in the equities markets,” he said.
The department also questioned whether allowing funeral homes to retain earnings of the trust above the consumer price index “is warranted since pre-need sellers can retain up to 15 percent of the trust amount up front,” he said in testimony before the Banking, Commerce and Insurance Committee.
Through her perseverance, Lespreance was able to get more than $6,000 from her trust account at Ropers.
“I made all kinds of noise. Otherwise, I wouldn’t have gotten that much.”
But she still had to “dramatically downsize” the new funeral arrangements for her husband at Wyuka because $6,000 buys less of a funeral today than $5,000 did in 1993.
A friend estimated Lespreance probably lost $8,000 to $12,000 because the funeral home was able to keep most of the interest in good years and took none of the losses, Lespreance said.
The whole incident troubles her.
“It’s unconscionable that Roper’s are sitting on the money.”
She trusted the funeral home. “I had dealt with their people for years. I developed a sense of trust.”
And she is incensed by the fact state law allows funeral homes to pocket the interest but protects them from losses.
It’s all legal, she said, but there is something wrong with the law.
“I thought the state was supposed to protect us.”
Reach Nancy Hicks at 473-7250 or nhicks@journalstar.com.
In February 1993, Carol and her husband, Alfred, made their funeral arrangements.
They picked out caskets, selected cards, got an itemization of the costs, and paid for everything through a preneed trust — exactly $4,998.24 for Alfred’s funeral at Lincoln’s Roper and Sons.
About six months ago, Lespreance decided she would want a different funeral home to handle her husband’s funeral. She wanted to move that money.
But her pre-need trust was worth less money than she had put into it years ago.
In December 2006, there was $4,723.61 in that trust account, a loss of $274.63 in 13 years.
Sure that something was amiss, Lespreance contacted the Department of Insurance. She wrote to the state ombudsman. She called the state auditor.
Each agency looked into it.
But what had happened to Lespreance was allowed under a state law passed in 1986.
The funeral home took the first 15 percent of the money. Then it invested the remaining 85 percent into a trust, a “master trust” pooling the money from many pre-need contracts.
Under state law, the seller — the funeral home — got to keep the earnings that exceeded the consumer price index from that master trust during the good years.
The individual trust accounts were credited with only the interest earnings matching the CPI.
During years when the investments lost money, the funeral home did not have to take any losses. Individual accounts did.
So when Lespreance decided she wanted to move the funeral from Roper and Sons to Wyuka Funeral Home, there was less than $5,000 in her husband’s account.
Lespreance had been concerned about the trust over the years, as she saw money slip away.
But she was assured her funeral arrangements were “guaranteed,” so she need not worry about the specific amount in the trust.
As long as a pre-need contract guarantees a specific funeral, the funeral home has to provide that funeral no matter how much money is in the trust, said Bill Lauber, past president of the Nebraska Funeral Directors Association and its legislative chairman.
“If everything is pre-paid, the purchaser does not lose anything. We guarantee the funeral,” Tom Roper said Friday.
The amount of money in the trust account becomes an issue when someone, like Lespreance, wants to switch funeral homes.
Most likely, it would be people who retire to another state and want to change funeral locations, Lespreance said.
What happened to Lespreance’s trust is all legal: the 15 percent off the top; the division of interest, with the funeral home taking much of the profit in good years but not the losses.
Most funeral homes — and almost all rural homes — put trust money into individual trusts, usually into certificates of deposit, said Lauber.
Those CDs generally have low interest rates, but there are no losses, he noted.
Just a few funeral homes in the urban areas use master trusts, he said.
Nebraska funeral homes have about $93 million in pre-need trust accounts, according to the Nebraska Department of Insurance. About $42 million — about 45 percent of the total investment — is in master trusts.
The Department of Insurance has been concerned for a number of years about the use of master trusts, Eric Dunning, the department’s legislative liaison, said during a Sept. 21 public hearing on the issue.
The agency has had a number of inquiries from people about “master trusts that have pursued more aggressive investment strategies.”
These people “have found it disconcerting to take losses in their accounts, as has happened during recent downturns in the equities markets,” he said.
The department also questioned whether allowing funeral homes to retain earnings of the trust above the consumer price index “is warranted since pre-need sellers can retain up to 15 percent of the trust amount up front,” he said in testimony before the Banking, Commerce and Insurance Committee.
Through her perseverance, Lespreance was able to get more than $6,000 from her trust account at Ropers.
“I made all kinds of noise. Otherwise, I wouldn’t have gotten that much.”
But she still had to “dramatically downsize” the new funeral arrangements for her husband at Wyuka because $6,000 buys less of a funeral today than $5,000 did in 1993.
A friend estimated Lespreance probably lost $8,000 to $12,000 because the funeral home was able to keep most of the interest in good years and took none of the losses, Lespreance said.
The whole incident troubles her.
“It’s unconscionable that Roper’s are sitting on the money.”
She trusted the funeral home. “I had dealt with their people for years. I developed a sense of trust.”
And she is incensed by the fact state law allows funeral homes to pocket the interest but protects them from losses.
It’s all legal, she said, but there is something wrong with the law.
“I thought the state was supposed to protect us.”
Reach Nancy Hicks at 473-7250 or nhicks@journalstar.com.
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