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Date Posted: 23:15:10 02/05/08 Tue
Author: Bob O. Link
Subject: R.I.P. OFF
In reply to:
Bobby N. Harmon
's message, "FARMER vs HARMON - Exhibit: "CEMETERY OPERATOR FACES CRIMINAL PROBE" & WITNESS GOV JOHN WAIHEE" on 22:45:30 02/05/08 Tue
By Barry Yeoman, January & February 2008
A funeral-industry scandal that’s fleecing thousands of Americans
In 1975 Audrey and Carl Brewer purchased what they thought was peace of mind—both for themselves and their family—when they bought two pre-paid funeral plans from Forest Hill South, a mortuary and cemetery in Memphis. Their plans cost them a total of $1,298, which they paid off in monthly installments of $27. That included caskets, the funeral services, and two burial plots on Forest Hill South’s 80-acre grounds. The Brewers considered their pre-need contracts as protection against inflation and a way, when they died, to take the financial burden off their children. “They [Forest Hill] told me everything was taken care of,” says Carl, 89, a retired housepainter. “The only thing I would owe would be if I wanted some flowers on the casket.”
The Brewers had no reason to question the honesty of Forest Hill. Its three locations had been in business since 1888, serving the rich and the poor alike, including such luminaries as Elvis Presley and his mother, Gladys. Like the Brewers, thousands of customers from Tennessee, Mississippi, and Arkansas had also trusted the company’s reputation enough to buy pre-need policies. Then in July 2006, one of Forest Hill’s new owners, Oklahoma oilman Clayton Smart, called a press conference to announce he was invalidating 13,500 pre-paid funeral contracts, including the Brewers’. While police stood by to prevent a customer riot, Smart explained that any contract holder who wanted to use his or her pre-need policy would have to pay an additional $4,000, more or less, at the time of death, even if the plan was already paid in full. “Obviously, things were a lot cheaper in 1965,” Smart explained. “I wouldn’t have bought the business if I thought I’d have to honor those contracts.”
Officials with the Tennessee attorney general’s office offer a different explanation for why Smart wasn’t honoring the contracts. They allege Smart and his partner, attorney Stephen Smith, drained the company’s pre-need trust funds of $20 million shortly after they purchased Forest Hill in 2004. Those funds, which were part of the purchase and were earmarked to pay for the pre-paid funerals and cemetery care, “were supposed to be in very conservative investment vehicles,” says Martha Davis, a senior counsel in the state’s bankruptcy division. Instead, she says, Smart and Smith diverted the money to risky hedge funds and unsecured loans owned by Quest Minerals and Exploration, an oil-and-gas company controlled by Smart’s family. The attorney general’s office says the Quest loans ended up being worthless.
Smart’s staggering announcement was just one more chapter in what is becoming a growing national scandal: pre-paid funeral contracts that don’t deliver. Industry watchdogs say that while most funeral directors operate honestly, the problems associated with pre-need policies have become too widespread to ignore.
“This is not every once in a while, and it is not just a few bad apples,” says Joshua Slocum, executive director of the Funeral Consumers Alliance. “People want to believe that if they sign a check now for a pre-paid funeral, they can close their eyes and say, ‘La, la, la, everything’s going to be fine.’ It’s a dangerous delusion.” A delusion because too often funeral companies change hands, close their doors, or simply raid the trust funds where their customers’ payments are supposed to be securely collecting interest. As a result, when the services are needed, there’s no money left. Even worse, because of inconsistent state regulation and enforcement, there’s often no recourse for distressed families who thought everything was taken care of.
It’s not just consumers who are outraged. The funeral industry itself has warned that pre-need abuses are ruining their profession’s reputation. “We funeral directors should never have been able to take money for pre-need,” says Michael Tod Good, a mortician in Reamstown, Pennsylvania. “It’s just too tempting.”
Carl Brewer, the housepainter, discovered the dangers of pre-need last year when his wife, Audrey, died suddenly of an aneurysm. Six months earlier, just before Smart’s announcement, Carl had talked with Forest Hill employees, who assured him his contract was still valid. So he was surprised when, after Audrey’s death, the staff at Forest Hill South informed him he’d have to pay an additional $3,510 before they would honor his wife’s pre-need contract.
“There’s nowhere we could go to come up with that much money,” says daughter-in-law Shirley Brewer. Forest Hill finally accepted $194 in cash as a down payment on the extra fee. Then, Carl, not knowing what else to do, signed a contract promising to pay the rest even though he knew he couldn’t. “We did what we had to do to lay Mom away,” says Shirley.
The notion of pre-need funerals dates back to the 1930s, when local morticians informally began allowing customers to pay for their services in advance. The deals were often sealed with little more than a handshake. “It was a matter of trust,” says Ron Hast, publisher of the industry newsletters Mortuary Management and Funeral Monitor.
By the 1980s, as national chains began gobbling up family-run funeral homes, the industry realized there was profit to be made in pre-need sales. Pre-payment would guarantee a steady stream of business in the future, and the pre-need money could be invested to keep pace with the rising cost of funerals. The companies developed more aggressive marketing tactics to convince Americans that pre-payment was a gift to one’s survivors. “Your purchase price is frozen now,” Forest Hill wrote its pre-need customers. “You will not [have to] pay one cent more.”
Today, pre-need continues to be big business. A 2007 AARP survey of 1,087 Americans 50 and older found that 23 percent of them had made pre-payments on funerals, burials, or both. Dan Isard, founder of The Foresight Companies, a consulting firm for funeral homes, estimates that $18 billion is currently invested in pre-need accounts. He projects that will increase by about $2 billion a year. This money, however, isn’t being stuck in file cabinets as in the old days. Funds are now invested in sophisticated life insurance policies or state-regulated trusts....
And big funeral chains don’t necessarily offer more protection than the smaller family-run businesses. In Hawaii, state officials accused RightStar, a conglomerate of cemetery and funeral companies, of bleeding at least $20 million from pre-need accounts. “Money was wired or taken out or transferred,” alleges Attorney General Mark Bennett. In addition, he claims, RightStar illegally canceled $2.8 million worth of pre-need contracts. “The people weren’t informed,” he says. “Many were still sending money.” (RightStar’s attorney didn’t return calls.)...
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