Perpetual care adequacy occurs when a cemetery has enough funding to pay for all of its future maintenance and upkeep costs in perpetuity. For a cemetery that is not filled, funding will come from existing assets in a “care fund”, investment gains from those assets, and contributions from future sales into the care fund. Maintenance and upkeep costs include annual maintenance costs (e.g. lawn care), periodic expenses occurring once every few years (e.g. roof replacement, road replacement), and catastrophic expenses occurring rarely (e.g. flood recovery, repairs due to earthquake). Cemetery perpetual care funds are critical to the long term health of a cemetery. It is important to perform a perpetual care adequacy study every three to four years to ensure that the perpetual care fund will be able to fund the cemetery’s needs in perpetuity.
What is a Perpetual Care Adequacy Study?
The most important business question you ask about your perpetual care fund is, “Do we have enough?” When you ask that question, you want to know more than most executives. You want to know if your cemetery has enough to take care of itself forever.
Is Your Care Fund Adequate?
The best way to answer that question is to forecast perpetual care fund balances for many years in the future. A detailed perpetual care fund balance sheet forecast can tell you if you have enough, how likely you are to run out, and when (if ever) you are likely to run out of funds. A significant benefit of a very long-term perpetual care analysis is that you’ll know where you are heading now, so you can make some changes if you don’t like what you see 100 years down the road. We have performed analyses like these numerous times before and can help you complete that daunting task.
Since 2000, our Principal, Hayden Burrus, has consulted with numerous cemetery managers and had the chance to learn of the plans and goals they have for their businesses. The vast majority of cemetery managers have the expectation that their perpetual care funds will cover their expenses for the foreseeable future (10+ years). Some wrongly believe that if expenses are covered for the foreseeable future, then their perpetual care funds are adequate.
The problem with this view is that solvency for the foreseeable future does not guarantee long-term (100+ years) solvency. In addition, the actions required now to guarantee long-term solvency are usually quite minor. However, if we ignore long-term solvency, the required future changes to a perpetual care fund will become increasingly painful. And, of course we’ve all seen what happens if the long-term solvency of a perpetual care fund goes unaddressed for too long. Eventually the cemetery either falls into disrepair or becomes a ward of state or local governments, a religious order or historic society. In any event, cemetery perpetual care becomes dependent on the financial means and goodwill of others, rather than from the contributions made by land owners and decedents in the cemetery.
Many managers have had a difficult time jumping through all of the hoops required to perform an initial analysis. Finding the appropriate expertise and devoting enough management time to this issue are among the top roadblocks to performing an initial study. Another roadblock is often reluctant staff or management who believe that an adequacy study is unnecessary – “We’ve gone this far without one, so we probably don’t need one.”
Hayden Burrus, Principal of PerpetualCareAdequacy.com, is the most recognized expert in the field of perpetual care adequacy. He has navigated these hurdles before. An independent analysis from PerpetualCareAdequacy.com will give management support that it is engaging in responsible long-term perpetual care management practices. For most cemeteries, the time to perform a perpetual care adequacy analysis is now.
All of our perpetual care adequacy analyses consider the remaining inventory and model how the perpetual care balance will change once the inventory is depleted. Additionally, each analysis forecasts the probability of the perpetual care balance reaching certain values (such as zero). Every analysis is a custom-built model, so they consider the investment allocation of the perpetual care fund, and the possibility of great returns or poor returns in any given year. With a long-term analysis, the probability of a 1-in-100-year catastrophe occurring at some time during the study timeframe becomes a near certainty, so those events must be built into the model as well. We forecast results far out into the future under a wide variety of scenarios to gain an understanding of how likely it is that each result occurs. PerpetualCareAdequacy.com is the only company that customizes its one-of-a-kind Monte Carlo simulation model to understand how your perpetual care fund will perform under every feasible scenario well into the future. Nobody else builds a model as robust as we do. Click on the links to learn more.
As of January, 2017 Hayden is now a published author. He released the first book in a five part series on personal finance education. The series is titled Never Make an Uninformed Financial Decision Again. and Book 1 is titled “Understanding Money”. You can read more about the book series here.
Even better, you can buy Book 1 – Understanding Money on Amazon here.