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In our last post we discussed the need for the Missouri State Board to provide guidance to their financial examiners regarding Section 436.425 and insurance funded contract forms.  In this post we will discuss Section 436.425 and trust or joint account funded contracts. Subparagraph 9 has created confusion for examiners and sellers.  That section states that a preneed contract shall “set forth the terms for cancellation by the purchaser or the seller”.   The Missouri law…
At its April meeting, the Missouri State Board of Embalmers and Funeral Directors discussed the formation of a “Phase 3 Committee” that would provide input for the revision of the Board financial examination handbook.  The Board staff is about half way through the second round of preneed examinations (“Phase 2”), and the Board wants to adopt new examination guidelines that can be implemented when Phase 2 Exams are completed.   However, there is an immediate need…
We continue our discussion of the composite Federal Form 1041QFT with a post about the individual account statement. With the composite return, income and expenses are allocated to the individual preneed account and taxes are computed at that level rather than at the trust level.  To allow the IRS to test the composite tax liabilities, the trustee is required to attach a statement to the Form 1041QFT that reflects each individual account’s share of income…
There are two methods for preparing a Federal Form 1041QFT.  One method has the trustee applying the QFT tax rate schedule to the preneed trust’s net income.  For larger preneed trusts, this method will likely trigger the highest tax rate (37%).  The other method is called the composite return, where trust income and expenses are allocated to the individual purchaser accounts.  The trust’s tax liability is then computed at the individual purchaser levels (with their…
Tax Code Section 685 has now been law for 21 years, and this marks our 20th year of preparing the Qualified Funeral Trust return.  (And more specifically, the composite QFT return)  The QFT return was meant to simplify income reporting for a trust that has hundreds, or even thousands, of contract beneficiaries.  Yet, we continue to be surprised to find so many fiduciaries who do not understand the income reporting requirements for these accounts.   During…
The Missouri State Board of Embalmer and Funeral Directors met this past December to discuss changes to the Preneed Examination Handbook, and former Board Chairman Don Lakin made a proposal that has merit. The State Board has licensed approximately 315 preneed sellers.  The current preneed examination procedures contemplate an onsite visit to each seller.  Many of those sellers are small funeral homes that sell less than a handful of preneed contracts in a month.  Mr.…
Our next criticism of Missouri’s pending Exam Handbook is its violation of the Four Corners Rule, which requires a document to stand on its own when being interpreted and applied.  Common law precludes parties from going to outside sources when applying the document to different situations.  While the Handbook gives lip service to the Four Corners Rule in Paragraph 13, other sections of the Handbook send examiners to various sections of law, to rules that…
The newest edition of the Missouri Preneed Exam Handbook has some significant problems.  The one we will discuss today is ambiguous instructions regarding the review of preneed contracts.  Paragraph 13 of the Handbook’s scope of financial examination states: 13) Staff shall look at 100% of all active preneed contracts that have been sold since the period covered under the last financial examination and may look at a sampling of other active and fulfilled preneed contracts,…
“Nitpicking” was one of the terms frequently used by Missouri funeral directors when referencing their preneed exam exceptions report.  (Other descriptions are not appropriate for print.)  The initial exam guideline provided no guidance to examiners for prioritizing problems found in preneed contracts and records.  It was common to see exception reports with dozens, even hundreds, of technical ‘violations’.   The original guidelines did not distinguish certain types of preneed contracts, and that led examiners to erroneously…