By Carol McIntire
Editor
April 21, 2009
Preplanning funerals is a practice that became popular several years ago.
It provides people with the opportunity to pre-plan and pre-pay for funeral expenses, ensuring their burial would be as planned and eliminates pressure from family members who often have to make burial plans during very emotional times.
Four Carroll County families saw their loved ones make their plans in the late 1980’s, placing funds with a local funeral home, trusting their investment would keep pace with inflation and provide them with the funeral they planned.
Imagine their surprise to learn that would not be the case.
Imagine their surprise to learn that, years later, there was less money in their respective accounts than when the contracts were signed.
The circumstances surrounding the discovery of lost funds and the betrayal felt by the families is quite similar. At this point, it should be noted there are likely others who have pre-need arrangements who have suffered the same experience, but are not yet aware of it.
When the discovery was made, the families, with the assistance of another local funeral director, turned to the State of Ohio Board of Embalmers and Funeral Directors, only to have the door shut in their face, not once, but twice due to a lack of authority on the part of the board. Their next stop: State Representative Mark Okey.
After hearing of their plight, Okey asked each of the four families to submit questions to him, which he, in turn, forwarded to the Board of Embalmers and Funeral Directors. He did some investigating on his own into how Ohio law treats pre-need funeral contracts and then arranged a face-to-face meeting between officials and board members from the Board of Embalmers and Funeral Directors and the four families in Carrollton.
Following is the story of the four families:
How it began
Lois Alquist of Canton, Frances Cole, Roberta Frampton and Martha King, all of Carrollton, executed pre-need funeral contracts between the years of 1986 and 1994 with a Carrollton Funeral Home known at the time as Allmon-Dugger Funeral Home. Alquist deposited $4,387.11 in 1994, King, $2,836.55 in 1986 in two installments of $2,000 and $836.55, Frampton $4011.27 in 1989 and Cole $4,856 in 1989 with the funeral home. Each signed an irrevocable pre-need funeral agreement that included a section stating, “the interest and/or dividend income earned on the amount deposited, including any increase in the principal, shall be subject to the terms of this irrevocable pre-need funeral contract and shall not be refundable.” Each was also aware of the fact that sales tax would be paid from their initial deposit and, according to Internal Revenue guidelines, they would be sent an interest income statement (1099) and would be responsible for paying taxes on any interest the account earned. All four contracts were signed by Larry Dugger, licensed funeral director, on behalf of Allmon-Dugger Funeral Home.
J.D. Hively and his wife, Carla, became partners in the funeral home with Larry Dugger and his wife, Mary Ann in 1992 and the name was changed to Allmon-Dugger & Hively Funeral Home and a new license was issued in 1997 under the name Allmon-Dugger & Hively.
Cole provided the FPS with the years she received a 1099 report for interest earned on a CD at Banc Ohio (now National City Bank). She received statements for the years of 1990, 1993, 1994, 1995, 1996 and 1997. The others said they received statements for similar years. Cole’s statements through 1997 showed she earned $1,340.44 on her CD (excluding the years of 1991 and 1992), which should have increased her balance to $6,048.42
Changes begin
On May 7, 1998, Allmon-Dugger & Hively Funeral Home was sold to Equity Corporation International (ECI), a corporate firm based in Lufkin, TX. With the change of ownership, came a change of duties. J.D. Hively was named the operating manager and Dugger took on a limited role as a consultant and part-time administrator.
The four families, or their representatives, noted during the meeting with Rep. Okey that the interest statements stopped arriving after the funeral home was sold to ECI.
Copies obtained from the Board of Embalmers and Funeral Directors included a letter from Larry Dugger to Atty. Michael Adams of the firm Cochran, Rooke & Craft LLP of Houston, TX., counsel for ECI. It included a list of “irrevocable pre-need funeral contracts as of April 20, 1998,” which was during the time the sale of the funeral home was finalized. The list showed only the original value of pre-need contracts for King, Frampton and Cole. There was no indication of any increase in value and Alquist was not on the list. King’s second payment of $835.66 was not included in the list.
The FPS was not able to able to locate any documentation indicating the exact amount of money transferred for these accounts from Allmon-Dugger & Hively to ECI. The contract between Allmon-Dugger & Hively and ECI noted in section under pre-need contracts, “...monies designated for endowment have been deposited in the appropriate accounts and administered and reported in accordance with the terms of the agreements with purchasers and as required by laws and regulations and all taxes on earnings have been paid by the acquired company.”
In a letter dated May 22, 1998, and addressed only to Fran, Hively said he was providing copies of the contracts of the Irrevocable and General Trust. In the letter, he noted the balances in the two accounts totaled $100,880.36 and the liability for the general trust was $98,724.96, leaving a balance of $2,155.40, “which was counted as part of the cash that is suppose to go to Larry and me.”
Another change
ECI didn’t own the funeral home long. That same year (1998), ECI was merged with Service Corporation International (SCI), a Houston, TX, corporation.
For the next four years, the families did not receive any 1099s or other statements indicating losses or gains on their pre-need contracts.
A third change
In November 2002, the Edward Cotton Family of Kensington purchased the funeral home from SCI and a license was issued to Allmon-Dugger-Cotton Funeral home.
It was after this transfer of ownership the contracts came into question.
Edward Cotton, who is now deceased, handled the transfer for the family, according to his son, Curtis, who is now operating the Carrollton funeral home. Curtis told the FPS money for the pre-need contracts was transferred when the sale was completed, but he was not aware of any type of printout that showed the individual account balances when the sale was completed. He said the money was immediately put into a Forethought Trust account.
Questions arise
Lester Dodds of Sweeney-Dodds Funeral Home of Carrollton and Amsterdam said it was after the purchase by the Cotton family that four families visited the Sweeney-Dodds Funeral Home within a three-week period seeking to transfer their pre-need funeral contracts to Sweeney-Dodds.
When Dodds began the process to transfer the contracts, he learned the families did not have the amount of money in the accounts they believed was there.
“I was the one who had to tell them the money they thought was there, actually was not,” he said.
When the Cotton family learned of the discrepancies in the accounts, they agreed to honor the original contracts as signed by Allmon-Dugger and Allmon -Dugger & Hively and provide the casket, vault and service outlined in the original contract.
Complaints filed
The four families filed complaints with the Ohio Board of Embalmers and Funeral Directors. Jennifer Baugess, the board’s administrative assistant, said the matter was brought before the board in a confidential manner so as not to disclose the names of the four complainants.
In a letter to each of the four families in August 2007, Baugess noted due to the length of time that had passed since the original contracts were written, specific bank records were not available. “Although there are certain requirements of a funeral director upon receiving funds for pre-need arrangements, we were unable to verify how Mr. Dugger handled these initial funds,” she wrote.
“After careful review of all information provided and bank records which are available, it was determined no provable violations of our statute exists upon which to base any disciplinary action. Therefore, the board voted to close this specific complaint,” she closed the letter.
During the meeting with Rep. Okey, Baugess said the Board of Embalmers and Funeral Directors does not have any enforcement power. “Funeral directors submit yearly reports and we keep them on file,” she said. “If we find any probable cause that a crime has been committed, we refer the complaint to the Commerce Department.
After verifying that funeral directors are required to file annual reports with the Board of Embalmers and Funeral Directors in the Ohio Revised Code (ORC), the FPS contacted Baugess. Ohio Revised Code states, Any funeral home that which sells or provides funeral goods or services under a pre-need funeral contract shall maintain all funds paid pursuant to the contract in accordance with ORC and submit a report by March 30 of each year a report that lists all accounts held, including the name of the beneficiary, name and address of the trust and the account balances as of the ending date of the report period.
Believing the yearly statements would shed light as to the whereabouts of the interest, the FPS asked Baugess to pull the reports for Allmon-Dugger & Hively for 1997 (the year before the sale was completed) and 1998, the year the sale was completed. Baugess obliged, and said the report for 1997 did not include a list of individual accounts with account balances for the end of the year. The 1997 report listed filed by ECI listed National City Bank as the bank where the funds were deposited, but did not include an individual list with account balances.
The reports for Allmon-Dugger-Cotton for 2002 showed it as a branch of Maple Cotton Funeral Home of Kensington. It did not include a list of individual accounts or balances.
Baugess said many funeral homes only report the total amount of pre-need funeral services sold during the year. “Many funeral homes do not include the individual list,” she said. “We don’t have any way of knowing if the list they submit is complete.”
ORC also includes a provision for penalties for violation of the law. The maximum penalty for violating the section of law is a fine of up to $5,000 or a one-year jail sentence or both.
Where did the interest go?
During the investigation, the now late Edward Cotton sent a letter to the Board of Embalmers and Funeral Directors. “SCI kept all interest, plus took a fee when they turned the pre-need funds over to us,” he noted. “We took those funds and deposited them into Forethought. We have honored all funeral contracts the former Allmon-Dugger Funeral Home and Allmon-Dugger & Hively Funeral Home made,” he wrote.
J. Christopher Couch, senior corporate counsel for SCI, responded to a request from the Board of Embalmers and Funeral Directors for a printout showing trust balances for accounts held on behalf of Allmon-Dugger & Hively Funeral Home. “These balances, less amounts paid based on certificates of performances submitted by Allmon-Dugger-Cotton Funeral home were the basis of the funds transferred to that entity’s trustee after the funeral home’s sale.”
The printout, dated January 2003, showed Frampton’s balance as $3,956.54; Cole’s as $4.724.17; Alquist’s, $4,358.95 and Arbogast-King’s, $1,966.82. Each was less than their original deposit, nearly 20 years later.
A new word emerges
Bob Wasco, president of the Board of Embalmers and Funeral Directors, who attended the meeting arranged by Rep. Okey, told representatives of the four families the only time the law would be broken was if the funeral home didn’t provide the funeral stated in the pre-need contract or asked for additional funds from the family. “Allmon-Dugger-Cotton has agreed to honor these contracts so no law has been broken,” he said.
In response to more questions from the families, Rep. Okey and Wasco, told the group the interest could have been “swept” from the accounts.
Wasco said with the incomplete records, it is not possible to tell where interest funds went. “The funeral home company that owned the property may have gone in and swept the interest off the accounts. This is a gray area in the law,” he said. “It doesn’t say you can sweep interest, but it also doesn’t say you can’t sweep interest.”
“I don’t think anyone broke the law, they skirted the law,” added Okey.
Bob Dye, whose wife, Pam, is the daughter of Frampton, called the situation a ponzi scheme. “Someone took the money, but who?” he asked. “Why should anyone even think of doing a pre-need funeral? “You may not be able to call it stealing, but it’s immoral.”
What’s next?
With the investigation closed by the Ohio Board of Embalmers and Funeral Directors, the families are left without any clear answer of where their interest earnings went.
The four families have all moved their contracts to Sweeney-Dodds Funeral Home. The funeral home has invested the funds in a secure and growing trust that provides quarterly growth reports, according to Dodds.
Rep. Okey noted a new law pertaining to pre-need funeral contracts is now in effect and will address several of the issues discussed at the meeting.
“We have identified issues here today that need to be resolved,” Okey said. “The new law doesn’t address everything, but it is a step in the right direction. We have to remedy situations like these for future generations.” |
