69K-7.0012. Care and Maintenance Trust Fund Withdrawals

(1) Definitions

As used in this rule the following definitions apply:

(a) “Board” refers to the Board of Funeral, Cemetery, and Consumer Services.

(b) “Division” refers to the Division of Funeral, Cemetery, and Consumer Services.

(c) “Care and maintenance trust fund accounting year” refers to the twelve consecutive month period established and used by the Care and Maintenance Trust Fund trustee or servicing agent of the trust fund for trust fund tax and annual reporting purposes.

(d) “Change of distribution method” refers to changing from the net income withdrawal method to the total return withdrawal method, or from the total return withdrawal method to the net income withdrawal method.

(2) Procedure for making withdrawal election.

(a) Regarding the election referenced under section 497.2675(2), F.S., the initial election and each subsequent change of election shall be made by filing a completed, signed, and dated Election of Care and Maintenance Trust Fund Distribution Method, Form DFS-N1-2177, effective 05/2016 with the Division at least 60 days prior to the effective date specified in the election. This form is incorporated herein by reference, and may be obtained from http://www.flrules.org/Gateway/reference.asp?No=Ref-07502, or from the Board’s office or from the Board’s website http://www.myfloridacfo.com.

(b) Upon receipt by the Division of a completed, signed, and dated Election of Care and Maintenance Trust Fund Distribution Method, Form DFS-N1-2177, effective 05/2016, the Division shall affix the Division’s dated receipt stamp to the form and shall within five business days return a copy of the form as thus stamped to the contact person shown on the form.

(c) The Division shall provide the Board with an informational copy of all election forms filed with the Division.

(3) Calculation of distribution under total return withdrawal method.

(a) The total return withdrawal percentage may be any amount from zero percent up to but not exceeding five percent, as specified on the election filed with the Division.

(b) For purposes of calculating the average fair market value of the trust under section 497.2675(2)(b), F.S., the fair market value of the trust shall be determined as of January l of each year used in the averaging calculation.

(c) The fair market value of trust assets shall be determined by the trustee or the servicing agent who is not under common control with the cemetery licensee to whom the trust relates. Neither the trustee nor the servicing agent shall rely on asset valuations provided by or on behalf of the cemetery. Provided, a cemetery that is authorized to act as its’ own trustee under section 497.266(2), F.S., may calculate the fair market value of its trust assets and calculate the amount of its total return distribution.

(d) The amount to be distributed under either the net income withdrawal method, or the total return withdrawal method, shall be calculated by the trustee, or the servicing agent who is not under common control with the cemetery licensee, to whom the trust relates. Provided, a cemetery that is authorized to act as its own trustee under section 497.266(2), F.S., may calculate the fair market value of its trust assets and calculate the amount of its total return distribution.

(e) Application of sections 497.2675(2)(b) l. and 2., F.S.

1. The phrase “if assets are added” as used in section 497.2675(2)(b)1., F.S., refers to deposits to trust of the amounts required to be deposited under section 497.268, F.S., and any extraordinary deposits to trust such as but not limited to deposits to correct deficiencies in prior period deposits.

2. The phrase “if assets are distributed” as used in section 497.2675(2)(b)2., F.S., refers to extraordinary distributions from the trust pursuant to written consent of the licensing authority under section 497.266(3), F.S.

3. The application of subprargraphs 497.2675(2)(b)1. and 2., F.S, are illustrated in the examples below.

Example A

Example A ignores growth or reduction in investment values, and distributions from the trust. Assume the trustee or servicing agent wants to determine the average fair market value of the trust for a 2016 distribution under the total return withdrawal method. This computation will involve averaging the trust fair market value as of January 1, 2014, 2015, and 2016. Assume the fair market value of the trust was $100 on 1-1-2014. Assume that cemetery sales of interment spaces resulted in deposits to the Care and Maintenance Trust Fund of $2.00 in 2014 and $2.20 in 2015. The computation of average fair market value for the 2016 distribution under the total return withdrawal method will be as follows:

Table A l

	2014	2015	2016
Beginning market value Principal addition	$100	$102.00	$104.20
	2.00 + 2.20	2.20
FMV for averaging purposes	$104.20	$104.20	$104.20

The average fair market value for the 2016 distribution equals $104.20.

Because the $2.00 added in 2014 is not reflected in the 2014 beginning balance, it is added to that balance for purposes of computing average fair market value. Because the $2.20 in deposits occurred during 2015, it is added to both the 2015 balance and the 2014 balance. The deposits in 2014 and 2015 will necessarily be reflected in the opening fair market value in 2016, so they are not separately added in that year.

Assume that cemetery sales of interment spaces resulted in deposits to the Care and Maintenance Trust Fund of $2.15 in 2016. The average trust fair market value calculation for a 2017 distribution under the total return withdrawal method will be as follows:

Table A2

	2015	2016	20 17
Beginning market value	$102.00	$104.20	$106.35
Deposits to trust	2.20 + 2.15	2.15
FMV for averaging purposes	$106.35	$106.35	$106.35

The average fair market value for the 2017 distribution equals $106.35.

Example B

Same facts as in Example A, except that in 2015 the licensing authority approved an extraordinary distribution from the trust in the amount of $5.00. The average trust fair market value calculation for a 2016 distribution under the total return withdrawal method will be as follows:

Table B l

	2014	2015	2016
Beginning market value	$100	$102.00	$99.20
Deposits to trust	2.00 + 2.20	2.20
Extraordinary distribution	(5.00)	(5.00)
FMV for averaging purposes	$99.20	$99.20	$99.20

The average fair market value for the 2016 distribution equals $99.20.

Because the $2.00 added in 2014 is not reflected in the 2014 beginning balance, it is added to that balance for purposes of computing average fair market value. Because the $2.20 in deposits occurred during 2015, it is added to the 2015 balance and the 2014 balance. Because the $5.00 extraordinary withdrawal occurred during 2015, it is subtracted from the 2015 balance and the 2014 balance. The deposits in 2014 and 2015, and the withdrawal in 2015, will necessarily be reflected in the opening fair market value in 2016, so they are not separately added or deducted for that year.

The average trust fair market value calculation for a 2017 distribution under the total return withdrawal method will be as follows:

Table B2

	2015	201 6	2017
Beginning market value	$102.00	$99.20	$101.35
Deposits to trust	2.20 + 2.15	2.15
Extraordinary distribution	(5.00)
FMV for averaging purposes	$101.35	$101.35	$101.35

The average fair market value for the 2017 distribution equals $101.35.

Example C

Same facts as in Example B, except that we assume that the aggregate net effect of rise and fall of investment values resulted in the following actual beginning fair market values: 2015, $103.00; 2016, $110.

Table C l

	2014	2015	2016	Avg FMV
Beginning market value	$100	$103.00	$110
Deposits to trust	2.00 + 2.20	2.20
ordinary distribution	(5.00)	(5.00)		$1 10
FMV for averaging purposes	$99.20	$100.20	$110.00		$103.13

The average fair market value for the 2016 distribution equals $103 .13.

Assume the actual fair market value at the beginning of 2017 is $115. The average trust fair market value calculation for a 2017 distribution under the total return withdrawal method will be as follows:

Table C 2

	201 5	201 6	2017	Avg FMV
Beginning market value	$103.00	$110	$115
Deposits to trust	2.20 + 2.15	2.15
Extraordinary distribution	(5.00)
FMV for averaging purposes	$102.35	$112.15	$115	$109.83

The average fair market value for the 2017 distribution equals $109 .83.

(4) For purposes of computing average fair market value of the trust, except for adjustments to comply with sections 497.2675(2)(b)l. and 2., F.S., the fair market value of trust assets as of each January 1 shall not be adjusted to reflect accrued liabilities or accrued but not yet received deposits.

(5) Application of Prudent Investor Rule.

(a) Pursuant to sections 497.266(4) and 497.458(5)(a), F.S., trust assets may be invested as prescribed in section 518.11, F.S., entitled “Investments by Fiduciaries; Prudent Investor Rule.” As regards to care and maintenance trusts and preneed trusts under chapter 497, F.S., investments under section 518.11, F.S., are subject to the prohibitions set forth in sections 497.458(l)(h), (i) and 497.458(5)(a), F.S.

(b) For purposes of application of section 518.11, F.S., the trustee of the Care and Maintenance trust shall consider the primary purpose of the Care and Maintenance Trust Fund to be providing for the future care and maintenance of the cemetery, as defined at section 497.005(11), F.S., after the cemetery ceases to produce any revenue stream from which care and maintenance costs may be paid.

(c) Real Estate. The fair market value of real estate as a trust asset shall be determined by a written appraisal obtained by the trustee, issued by a licensed real estate appraiser, which appraisal was made within twelve months prior to January 1 of the year for which the distribution under the total return withdrawal method is being calculated. For example, if an average trust fair market value is being calculated for a distribution in 2016 under the total return withdrawal method, the appraisal must have been done in the twelve months prior to January 1, 2016. If such appraisal requirement is not complied with, the real estate shall be assigned zero value as a trust asset in each year included in the average trust fair market value calculations for such distribution.

(6) Monitoring Trust Fair Market Value; action or adverse trends.

(a) The Division shall monitor the fair market value of care and maintenance trust funds as reported by trustees in annual trust reports. If the Division detects that the ending fair market value of the trust for the most recent calendar year has decreased as compared to the average ending balance of the trust for over the three most recent calendar years, the Division shall set the matter for review and action by the Board at a regularly scheduled meeting of the Board, and shall provide the licensee with 30 days advance notice that the matter will be set before the Board. The Board shall thereupon review the matter and for the protection of the care and maintenance trust fund may order any one or a combination of the following corrective measures as the Board finds appropriate for the protection of the care and maintenance trust fund:

1. A specified reduction in dollars in allowable withdrawals from the trust for a specified period,

2. A reduction in the total return withdrawal percentage for a specified period,

3. A requirement that the licensee switch to and use the net income withdrawal method for a specified period.

(b) Exceptions. The Board may in particular cases temporarily except a licensee that comes before the Board under paragraph (a), above, from imposition of corrective measures, if the Board finds that the cause of the adverse trend in the fair market value of the trust is due to one or more unusual temporary factors affecting all or a majority of the licensed cemeteries in the state or in a particular area of the state, and that for the protection of such cemeteries from insolvency the exception is necessary and appropriate.

(7) Miscellaneous provisions.

(a) All cemetery licensees shall continue to use the net income withdrawal method under section 497.2675, F.S., on and after 7-1-2016, until the effective date of an election filed by the licensee to use the total return withdrawal method, which initial election shall be made by the licensee in accordance with this rule. Each subsequent change of election shall be made by filing a separate additional completed, signed, and dated Form DFS-N1-2177 in accordance with this rule.

(b) The effective date of an initial election and any subsequent change in election shall coincide with the first day of a care and maintenance trust fund accounting year to which the election relates. All elections shall be prospective only; no retroactive elections shall be allowed.

(c) If a cemetery has more than one Care and Maintenance Trust Fund under section 497.266, F.S., a separate election shall be made and filed for each trust fund.

(d) Form DFS-N1-2177 must be signed by an authorized representative of the licensee.

(e) No Election of Care and Maintenance Trust Fund Distribution Method, Form DFS-NI-2177, effective 05/2016, shall be filed unless the cemetery licensee has been advised by the Care and Maintenance Trust Fund trustee or servicing agent that the trustee or servicing agent will be able to implement the change of distribution method indicated in the form to be filed.

(f) No trustee or servicing agent shall implement a change in distribution method unless the trustee or servicing agent has in its possession a copy of Form DFS-N1-2177 regarding the change of distribution method, which copy bears the Division’s receipt stamp.

(g) A trustee shall not make a distribution under the total return withdrawal method unless the trustee or servicing agent determines it has reliable records establishing all fair market values needed to calculate average fair market value of the trust in prior periods included in the averaging calculation.

(8) Annual Report of Trustee.

(a) Any entity which for all or any part of a calendar year served as trustee of a Care and Maintenance Trust Fund under section 497.266, F.S., shall by not later than April 1 of the following year file a Care and Maintenance Trust Fund, Annual Trustee Report (Revised), Form DFS-N1-2178, effective 05/2016, for all or that portion of the said calendar year in which it acted as trustee of the trust. This form is incorporated herein by reference, and may be obtained from http://www.flrules.org/Gateway/reference.asp?No=Ref-07503, or from the Board’s website, http://www.myfloridacfo.com.

(b) No distribution to a cemetery licensee from the licensee’s Care and Maintenance Trust Fund shall be made or allowed in any period during which the Care and Maintenance Trust Fund is delinquent in filing required reports under section 497.269, F.S., and this rule.

Rulemaking Authority 497.103, 497.2675 FS. Law Implemented 497.2675, 497.268, 497.269 FS. History–New 10-27-16.