Endowment Care Trust Funds
Developed in 1998 by the Government and Legal Affairs Task Force of the
International Cemetery and Funeral Association
A cemetery endowment care trust fund is designed to ensure that income will always be available for the continued maintenance and upkeep of the cemetery, even when all the interment spaces are sold. The cemetery authority should not be permitted to withdraw the principal of the endowment care trust fund, but receives the income earned by the principal to offset maintenance expenses.
These endowment care trust funds often have two components: general care and special care. The income from the general care portion of the endowment care trust fund is used to maintain the entire cemetery based on priorities set by the cemetery authority. Special care is supplemental to or in excess of endowment care, and in accordance with the specific directions of any donor of funds for such purposes, might include care of a specific interment space, care of plantings in a designated area, maintenance of memorials, flower placements, and so on.
Determining an "adequate" level of maintenance for any cemetery is quite subjective. Because each cemetery is unique and has maintenance needs which vary over time, it is impractical to set general standards for maintenance. There are many variables that can contribute to changing maintenance needs of a cemetery, so each cemetery authority should have flexibility in setting priorities for expenditures.
It is common for a cemetery authority to subsidize maintenance costs from current income until the cemetery has sold most of its interment spaces. Because sales taper off, rather than ending abruptly, a cemetery can be "sold out" from a practical standpoint although it still has some interment spaces remaining to sell. When a cemetery is no longer active, its administrative and service costs will be lower, thereby reducing the operating expenses necessary to maintain the cemetery.
The cemetery authority of an endowment care cemetery should adopt a written policy which covers the investment philosophy, goals, responsibilities, and strategy for the way in which the endowment care trust funds are to be managed and invested.
The imposition of unreasonable investment restrictions may not provide adequate protection of purchasing power of the endowment care trust fund.
The trustee's duties and responsibilities concerning an endowment care trust fund should be detailed in the trust instrument. The investment management of assets held in the trust should be governed by the "Prudent Investor Rule," under the "Uniform Prudent Investor Act," which was developed by the National Conference of Commissioners on Uniform State Laws, to set general standards for trustees; to allow trustees flexibility in choosing investments; to specify that their work is to be judged on the basis of the performance of all their investments; and to allow them to delegate investment decisions.
- Income from the endowment care trust fund may be used for any administration and upkeep of the cemetery including, but not limited to, maintenance, repair, and replacement of landscaped areas, memorials, roads, walkways, walls, irrigation systems, buildings, and related overhead. It is the responsibility of the cemetery authority to determine the priorities for spending income from the endowment care trust fund.
- Although a cemetery authority may subsidize the cost of maintaining the cemetery from current income, it should have no obligation to provide more care and maintenance than may be provided by the income from the endowment care trust fund.
- Each cemetery authority should determine the proper level of funding for the endowment care trust fund to produce the income necessary for providing an adequate level of maintenance for that cemetery. There should be a statutory minimum established for the endowment care trust fund contribution. Special care contributions should be fully trusted at the amount received for that purpose.
- The cemetery authority may be allowed to require contributions from memorial buyers to the endowment care trust fund, the income of which should be used for memorial care. These contributions should be assessed in a uniform and non-discriminatory manner regardless of which entity sells or installs the memorial.
- Only the income of the endowment care trust fund should be paid toward the care of the cemetery. Income such as dividends, interest, and rents, as well as a portion of the capital gains, may be distributed after the deduction of expenses. All costs incurred with respect to the operation of the endowment care trust fund should be paid from the endowment care trust fund including, but not limited to, trustee fees, investment advisory fees, income taxes, administration, accounting, audit, regulatory fees, and surety bonds.
- A cemetery authority investing the endowment care trust fund in equities may set aside a portion of the capital gains as a reserve for investment losses and a reserve for future maintenance, repair, or restoration of the cemetery or embellishments in the cemetery. The reserve for maintenance should not exceed a specified percentage of the total endowment care trust fund. The cemetery may withdraw funds from the maintenance reserve as needed for the care of the cemetery.
- A cemetery authority, or person designated by the cemetery authority, should be responsible for the performance of care and maintenance of the cemetery it owns and for services relating to the opening and closing of any interment space located in the cemetery.
- Endowment care trust funds should be subject to an annual filing requirement. The cemetery authority should report to the regulatory authority amounts collected during the year, investments, income and expenses, and amounts paid to the cemetery authority for endowment care. Penalties should be imposed on the cemetery authority for failure to file in a timely manner.
- Verification of the activities of the endowment care trust fund should be performed through periodic examination by the regulatory authority or the cemetery authority could submit an independent auditor's opinion.
- Upon transfer of ownership of a cemetery, the selling party should certify that amounts allocated for the endowment care trust fund have been collected and deposited as required in the endowment care trust fund. If a deficiency is reported, the buying party should develop a plan for corrective action. The buying party should have no liability for endowment care trust fund shortages in reliance upon the selling party's certification of past compliance. Accordingly, the selling party should retain liability for any deficiencies in the endowment care trust fund that occurred during its period of ownership.
- The cemetery authority should be allowed to adopt rules and regulations for the care and maintenance of the cemetery.
- The "Prudent Investor Rule" should be adopted to govern how endowment care trust funds should be managed and invested.
- The trustee, designated by the cemetery authority, should be a person, state or national bank, trust company, or federally insured savings and loan association, authorized to transact business in the state. The cemetery authority should have the ability to change the trustee.
- The trustee should have the authority to commingle individual endowment care trust fund accounts into a master trust, maintaining separate records of corresponding allocations and divisions of assets, liabilities, income, and expenses.
- An endowment care trust fund should not be invested in assets that are owned by the cemetery authority, nor in assets that are owned, directly or indirectly, by any directors, officers, employees, or relatives having beneficial interest in the cemetery authority.