Preneed Funeral Arrangements by Bank Trust Departments

I. FACTS.

A trustor enters into an inter vivos trust agreement with a North Carolina bank which is licensed to solicit trust business in North Carolina and to administer such business, naming the bank trustee of a fund, paid by the trustor to the trustee bank, a purpose of which fund is to pay for the funeral and burial expenses of a named beneficiary at time of death. The trust agreement provides:

. The trustee charges a trustee’s fee in accordance with its published fee schedule and may be reimbursed for expenses.

. The trustee may select funeral services and merchandise if the trustor does not, and the trustee must approve substitutions if selected items are not available at death.

. The trust agreement may be revocable or irrevocable.

. The trustor, subject to the trustee’s approval, may (but is not required to) name another North Carolina financial institution as depository of the trust fund. However, the first bank remains trustee and as such is subject to the trust laws of the state.

Simultaneously with the execution of the trust agreement, the trustor, as purchaser, enters into a "pre-arrangement agreement" with a North Carolina funeral home, pursuant to which:

. Funeral arrangements and merchandise may be chosen at a later date or may be selected as described in the pre-arrangement agreement.

. The consideration is the trust agreement.

. The funeral home agrees to provide the services and merchandise at the time of death of the beneficiary in exchange for the trust fund and its net income.

. The pre-arrangement agreement is enforceable against the funeral home by the trustee bank on behalf of the trustor/purchaser.

II. DISCUSSION.

For the purposes of this discussion it is assumed that the trust business described in the fact situation does not violate any general statutory or common law principles of banking law. A review of Chapter 53 of the General Statutes entitled "Banks" does not show any statute specifically addressing preneed funeral arrangements by banks. The answer to the question then will be determined on the basis of whether the described trust business violates the provisions of the statutes dealing specifically with preneed funeral arrangements because a statute dealing with a specific area (preneed funeral arrangements) will control statutes dealing with a general area (banking law). 12 Strong’s NC Index 3rd, Statute §5.8. Therefore, if the described trust business violates the provisions of the statutes regulating the preneed funeral arrangement area of the law, the bank may not engage in the described trust business even though the described trust business would be otherwise authorized by the general principles of banking law.

Prior to July 9, 1992, the preneed statutes were contained in Article 13B of Chapter 90 of the General Statutes. Chapter 901 of the 1992 Session Laws revised and recodified those statutes as Article 13D of Chapter 90 and removed the regulation of preneed funeral arrangements from the Banking Commission to the Board of Mortuary Science. The regulatory scheme under Article 13B can be summarized as follows: all payments for preneed burial contracts were declared to be held in trust; those payments had to be deposited in a financial institution; except for financial institutions (which, of course, were regulated by the Banking Commission under Chapter 53 of the General Statutes) it was illegal for any person, firm, partnership, association or corporation to accept or hold preneed burial payments without obtaining a preneed license; and, any person, firm, partnership, association or corporation could apply for a license.

Prior to the 1992 amendment, the specific provision requiring a license to accept or hold preneed payments, N.C.G.S. §90-210.34(a), reads as follows:

No person, firm, partnership, association or corporation may, without first securing from

the Commissioner a license, accept and/or hold payments made on pre-need burial

contracts, except financial institutions as defined in N.C.G.S. §90-210.30(2) hereof.

The underlined language quite clearly establishes an exemption from the requirement that a license was necessary to accept or hold preneed payments for financial institutions which, as noted above, were regulated by the same office that issued the preneed licenses, i.e. the Banking Commission. The 1992 amendment rewrote the licensing requirements, now located in N.C.G.S. §90-210.67(a), as follows;

No person may offer or sell preneed funeral contracts or offer to make or make any

funded funeral prearrangements without first securing a license from the Board.

The deletion of the exception for financial institutions located previously in N.C.G.S. §90210.34(a) leads to the conclusion that the General Assembly intended to terminate the previous exception for financial institutions which allowed them to accept and hold payments for preneed burial contracts without the need for a preneed license.

The question then becomes: Would the described trust business constitute the sale of preneed funeral contracts which would require a preneed license from the Board of Mortuary Science under the provisions of N.C.G.S. §90-210.67(a)? The definition of "preneed funeral contract" is set out in N.C.G.S. §90-210.60(5) (1992) and reads as follows:

"Preneed funeral contract" means any contract, agreement, or mutual understanding, or

any series or combination of contracts, agreements or mutual understandings, whether

funded by trust deposits or prearrangement insurance policies, or any combination

thereof, which has for a purpose the furnishing or performance of funeral services, or the

furnishing or delivery of personal property, merchandise, or services of any nature in

connection with the final disposition of a dead human body, to be furnished or delivered

at a time determinable by the death of the person whose body is to be disposed of . . .

The described trust business is a series of contracts or agreements for the purpose of the furnishing of funeral services and is, therefore, a "preneed funeral contract" as defined in

N.C.G.S. §90-210.60(5). Under the provisions of N.C.G.S. §90-210.67(a) set out above, only preneed licensees can offer for sale or sell preneed funeral contracts. In direct contrast to the previous regulatory scheme, the new statute, N.C.G.S. §90-210.67(a), provides that only licensed funeral establishments and their employees and agents can obtain preneed licenses. Therefore, a bank is ineligible to obtain a preneed license under the provisions of N.C.G.S. §90-210.67(a) and the described trust business would violate the provisions of Article 13D of Chapter 90.

While it is true that financial institutions continue to be authorized to hold trust payments for a preneed burial contract, they can do so only as set forth in N.C.G.S. §90-210.61(a)(1). That section provides that "the preneed licensee shall deposit all funds in an insured account in a financial institution, in trust, in the preneed licensee’s name . . . ." And that "[t]he trust accounts shall be carried in the name of the preneed licensee as trustee, . . . ." Use of the term "shall" implies that these requirements are mandatory. This appears to be the only manner in which a bank is authorized to hold preneed burial funds in trust under the provisions of Article 13D of Chapter 90. Since the General Assembly has specified the manner in which a bank can hold preneed burial funds in trust, it is concluded that these provisions control over a bank’s general authority to establish trust agreements. In the fact situation posed, the trustor has deposited funds in trust in the bank, and the bank, not the preneed licensee, is the trustee. The proposed arrangement, therefore, does not conform to the mandatory requirements of N.C.G.S. §90210.61(a)(1) and, therefore, is not authorized.

An additional problem with the described trust business arises in regard to Article 13A of Chapter 90 entitled "Practice of Funeral Service." The term "practice of funeral service" is defined in N.C.G.S. §90-210.20(k) as follows:

"Practice of funeral service" means engaging in the care or disposition of dead human bodies or in the practice of disinfecting and preparing by embalming or otherwise dead human bodies for the funeral service, transportation, burial or cremation, or in the practice of funeral directing or embalming as presently known, whether under these titles or designations or otherwide. It also means engaging in making arrangements for funeral service, selling funeral supplies to the public or making financial arrangements for the rendering of such services or the sale of such supplies.

The provisions of Article 13A of Chapter 90, specifically N.C.G.S. §90-210.25(f), make it illegal for a person to engage in the practice of funeral service without a funeral service license. The described trust business would constitute making arrangements for funeral services and making financial arrangements for the rendering of funeral services and, therefore, would be in violation of the provisions of Article 13A of Chapter 90.

MICHAEL F. EASLEY Attorney General

Charles J. Murray

Special Deputy Attorney General