Paragraph 26b of the Complaint filed by the Missouri State Board of Embalmers and Funeral Directors alleges that the Missouri Funeral Trust fails to maintain “records that explain why the principal held in trust exceeds the face value of the preneed contract associated with that account…” We anticipate that this claim is considering the contract reports provided by the MFT trustee, and that the bank’s accounting system is reporting principal as opposed to deposits or corpus. The principal reported by the bank accounting system would include consumer deposits plus realized net income. This is a typical feature of preneed accounting programs that use tax cost basis as the account’s “value”. For paid in full consumer contracts, the principal could eventually exceed the contract sales price when income is accruing to the account. If the bank’s preneed accounting system can track consumer deposits, this could be an issue that is easily remedied.
But, another cause for accounts that have a “principal” amount in excess of the preneed contract sales price is the spend down situation where the public administrator continues to add funds to a contract that is already paid in full. This is a situation where the funeral home needs to document the transaction with a contract addendum.