Cemetery ownership found themselves in the news this past week with headlines like Cemetery owners charged with fraud. What happened?
So far I have seen only one news story pointing out that these are cemetery funds and not pre-paid funeral trust funds. That story, Pirkle: Management problems don’t apply to local funeral home, came out of Washington, Indiana:Robert Nelms, 39, and Debora Johnson-Nelms, 48, face multiple counts of theft, fraudulent or deceitful acts, violations of a cemetery perpetual care fund and using a perpetual care fund for prohibited loans. Nelms is president and chief executive officer of Memory Gardens Management Corp., which has Indiana locations in South Bend, Fort Wayne and Greenwood, where it owns Forest Lawn Memory Gardens.In December 2004, according to court documents filed today in Marion Superior Court, the couple agreed to purchase the company for $27 million from owner Fred Meyer of Indianapolis. The Nelmses, who already had operated funeral homes in New Jersey and New York, arranged a bridge loan for the $13.5 million down payment, a probable cause affidavit says.After the purchase, the loan was repaid using money from the company's trust fund, the affidavit says, even though that fund must be used to care for grave sites and cemetery grounds. That trust fund was transferred to a new bank, and all of the money in the account was withdrawn by April 2005, the affidavit says.
Michelle Brown with Gill Funeral Home said, “Nothing (misappropriated funds) has come from here because we’re not a cemetery. All (prepaid funeral arrangements) are bank trusts and are backed by a certified copy of death.”
The funeral home can’t access the money paid in to prepay for funerals until the bank is presented with a death certificate, according to Brown. Nelms, nor anyone else in the business, could access the money.
Since I advocated pre-paid funeral trusts as part of estate planning, emphasizing the difference between funeral trusts and perpetual cemetery funds is important for the public.
Indiana law describes with specificity how the cemetery is to set up and run a perpetual care fund.
That specific criminal penalties apply to misusing perpetual care funds does not clearly appear in the newspaper stories. The Indianapolis Star buried this paragraph towards the end of today's Cemetery case could spur other charges:
Keown, from the cemetery association, said the Nelms investigation prompted him to work with Indiana legislators to pass tougher penalties during the 2007 session. As a result, some of the charges against Nelms and Johnson were boosted from infractions to Class C felonies.
That statute reads as follows:
IC 23-14-48-9 Violation of chapter
Sec. 9. (a) Except as provided in subsections (b) and (c), a person who knowingly violates this chapter commits a Class A misdemeanor.
(b) A person who makes a false or fraudulent representation as to the existence, amount, investment, control, or condition of a perpetual care fund of a cemetery for the purpose of inducing another to purchase any burial right commits a Class C infraction.
(c) A person who knowingly or intentionally uses funds in a perpetual care fund or an endowment care fund established under this chapter for purposes other than the perpetual care of the cemetery for which the perpetual care fund or endowment fund was established commits a Class C felony.
Indiana does not list all its crimes in its criminal code and this serves as a reminder that bad business behavior may have criminal consequences.