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Woman surprised by shrinking funeral trust

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BY NANCY HICKS / Lincoln Journal Star

Saturday, Nov 24, 2007 - 12:12:45 am CST

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.

Prepaid funeral tips

* Understand what financial instrument will be used: insurance, individual trust, master trust.

* Make sure the contract is guaranteed, that the arrangements and material you have selected for the funeral are guaranteed.

* Find out what is not included. Prepaid funeral costs often do not include grave opening and costs, obituary costs or honorarium to the minister.

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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kay wrote on November 24, 2007 8:04 am:
" My father in law is in a nursing home. My mother in law had to have surgery so she prepaid for both their funerals before her surgery. We thought it was a good idea. After reading this story, that $19,000 would be better off in a savings account or in CDs. "

 A Director wrote on November 24, 2007 8:27 am:
" TIP: Don't move your trust, Leave it where it is. Just let the new funeral home know you have an exisiting Trust. Like the article says, you will still get the same funeral and merchandise that you originally purchased. "

 SK wrote on November 24, 2007 8:53 am:
" Perhaps Mrs Lespreance should have invested her money with a bank or financial investor. "

 U SHOULD HAVE CHECKED! wrote on November 24, 2007 9:10 am:
" Always check with the new funeral home BEFORE you take the money out of a trust. Most of them will honor an exisiting trust. That way you get the full "value" of the arrangements from them. Same service, same casket, same cremation, whatever it may be. "

 JJ wrote on November 24, 2007 9:30 am:
" I don't see a problem with this. If the aggreed funeral is guaranteed then the only problem is that they should get back exactly the same amount paid if they change their mind, minus some sort of service fee just like anywhere else. Your bank does it so why are other businesses held to a different standard. If you have the money invest it yourself and and you can keep the interest and gains. "

 Simple economics wrote on November 24, 2007 9:54 am:
" Another way to look at this is: The consumer prepaid for a product/service and the price that was paid guaranteed those goods/services at that price whenever they were actually needed. She paid a penalty or service fee by withdrawing from her original contract with the company. In 14 years the cost of products/services increase and she should not have expected to earn interest on the money she paid for a product or service. As stated $6,000 today does not buy what it did 14 years ago. "

 Anony. wrote on November 24, 2007 10:00 am:
" The government is looking out for there pocket books, watch Sicko and look at the health insurance companies etc....we should all move to Canada!!! "

 Rob wrote on November 24, 2007 11:11 am:
" I definitely think people should move to Canada. 100% for that. "

 Melly wrote on November 24, 2007 12:00 pm:
" If funeral homes did not invest the proceeds like this, they would have no incentive to offer pre-paid plans. Of course the funeral home wants to make a profit, it is a business. They don't offer the pre-paid plans out of the goodness of their hearts. "

 Kristi Burt wrote on November 24, 2007 1:04 pm:
" I think the photo headlining this article tells the whole story, she purchased a prearranged funeral and would have gotten just that even though the cost would have been more today than what she paid for it 13 years ago, however Mrs. Lespreance is the one that wanted to change the agreement she entered into. Roper and Sons were still willing to give her what she purchased. If she wanted an insurance policy or saving account she should have invested in one. I think Tom Roper was more than generous by giving her additional money back on a purchase agreement she wanted out of. What other businesses in Lincoln would give back more than you paid for something? Also the article doesn't state any reason for her not just transfering the master trust to another funeral home. This would have allowed her to get what she paid for. It was only because she wanted cash that the transaction cost her the very small amount of $ 274.63. This article has to be at the top of the list for ridiculous. "

 Rocco wrote on November 24, 2007 1:38 pm:
" It appears that she is looking at her prearranged funeral as an investment that will earn interest for her. It is a contract for guaranteed services and merchandise, which is what she would have had if she had kept it in place. "

 Ace Wagner wrote on November 24, 2007 2:32 pm:
" This really sounds like a scam to get people to prepay and than take a loss at their expense and not at the people they entrusted their money with...In short don't buy into pre-paid funerals, just invest into a cd or mutual fund and reap the profits and dividends...Good old Nebraska, finding ways to even profit from the dead! "

 well wrote on November 24, 2007 3:35 pm:
" buy life insurance, then you dont have this problem "

 Oh Yeah... wrote on November 24, 2007 4:18 pm:
" When you pay for pre-need services, you get what you bought in the first place. I wouldn't dream of letting a funeral home invest my money. I would very well pay them today for a funeral that I would envision in 10 or 15 years. Changing funeral homes should be the last thing on your mind once you've prepaid for your funeral. And "well", try buying life insurance when you are 55+. It is not as easy as you think. Furthermore, life insurance is not a good investment deal anyway. It only benefits you if you die before the actuarial tables say you are supposed to die. In other words, you are betting your life on coming out ahead by purchasing life insurance. Like the casinos, life insurance companies have the odds built into their favor. "

 Lola wrote on November 24, 2007 6:18 pm:
" If a funeral home is allowed to invest pre-paid funeral funds and make money in the good years, that should be enough. They should not be allowed to deduct money from pre-paid accounts during the bad years. If funeral homes never had to accept losses, what would prevent them from investing in increasingly high-risk ventures? The money they lost wouldn't cost them a nickel. With chain ownership dominating the funeral industry it's not difficult to see how prepaid accounts could be bankrupted by just a few years of bad investments in, say, junk mortgages. Mr. Dunning is right to be concerned about how these funds are managed. Some say, well, the funeral you pay for will the the funeral you get, regardless of how the funds do. Will it really be the same funeral and who among us wants to debate that issue in the immediate aftemath of a loved one's death? The funeral industry has huge markups on every product or service it sells and that profit is written into the pre-paid contract -- the rest is just gravy. Finally, anyone who pays fees for normal banking services needs to shop around for a better deal. They are out there. "

 concerned son wrote on November 25, 2007 11:24 am:
" I think in the beginning, this kind and caring woman was trying to make things a little easier on her family in a time of sorrow and grief, to have some one tell you that everything will still be the same as what you paid for 13 yrs.ago is hard to believe. With businesses changing owners or going out of business all together, who says that they will follow that persons wishes,or even be around to follow through. "LOVE YOU MOM" "

 Funeral Director wrote on November 25, 2007 2:09 pm:
" There are a couple of ways to fund a pre-paid funeral expense plan. #1 is a Trust or Master Trust. Both of these are managed by the bank not the funeral home. Both Trusts are taxable to the person for whom the funeral plan is set up for. The arrangements are handled by the funeral home. The law allows the funeral homes to take up to 15% for a commision and or service fees. The majority of the time when a pre-arrangment is done it is handled by a Pre-Need Counselor. That person works strictly on commission. #2 Is a life insurance product. The arrangements are done at the funeral home and money is turned over to the life Insurance Company and the investments are handled through the Insurance Company not the funeral home for the prepaid funeral plan. It is true both trusts and insurance funding vehicles can take up to 15% off the top and use that money for commissions. Life Insurance is tax free.I am not sure why Roper's did not use that as the funding vehicle to begin with in the first place. The funeral home I work for locks the client into that years prices whether it is a trust or life insurance. If a pre-plan is done today and you die in 2020 you are locked into 2007 prices. As long as the pre-arrangement is paid in full the funeral is guaranteed at the time of death. The other thing I wanted to mention is there is a lot of overhead in the funeral business. The Lincoln Funeral Homes each have around 3 limos($85,000.00 each, 2 Hearses $80,000. each, utility vehicle $30,000.) employees , building and then on top of that it is a business. The problem here is that Carol switched funeral homes. This is just like investing your money in the stock market. You buy a stock, mutual fund, etc. and you leave the money sit and grow. Remember when you invest in the Stock Market there are service charges yearly along the way as long as you have the money invested . The difference is here the service charge is done one time up front. "

 i see wrote on November 25, 2007 10:38 pm:
" i see preying on the dead is not enough for them, now they prey on the living as well "

 Observer wrote on November 25, 2007 10:59 pm:
" This is not a news story. It is a story that should have been used to illustrate how the consumer should be aware of the contract they are agreeing to, what it covers, and what should happen should they wish to change funeral homes at a later date. There does not appear to be an explanation of why this woman decided to change homes; this may have been a poor decision on her part. From the story, I do not believe it is clear that Ropers did anything wrong, and they certainly do not deserve the bad publicity. "

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