GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1989

H	1 

HOUSE BILL 543*

Short Title:  Modify Funeral/Burial Trust Fund.	(Public)
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Sponsors: Representatives Duncan, Wicker, Brubaker, Hege, Rhodes, and Esposito.
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Referred to:  Commerce.
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March 13, 1989

A BILL TO BE ENTITLED
AN ACT TO MODIFY THE FUNERAL AND BURIAL TRUST FUNDS ACT.
The General Assembly of North Carolina enacts:
Section 1.  Article 13B of Chapter 90 of the General Statutes reads as rewritten:
"ARTICLE 13B.
"Funeral and Burial Funds.
"§ 90-210.30. Definitions.
As used in this Article, unless the context requires otherwise:
(1)	‘Commissioner' means the Commissioner of Banks of this State.
(2)	‘Financial institution' means a bank, trust company, credit union, savings bank or savings and loan association authorized by law to do business in this State;
(3)	‘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, but does not mean the furnishing of a cemetery lot, crypt, niche, mausoleum, grave marker or monument.
(4)	‘Prearrangement insurance policy' means a life insurance policy, annuity contract, or other insurance contract, or any series of contracts or agreements in any form or manner, issued by an insurance company authorized by law to do business in this State, which, whether by assignment or otherwise, has for a purpose the funding of a preneed funeral contract or an insurance-funded funeral or burial prearrangement, the insured being the person for whose service the funds were paid.
(5)	‘Insurance company' means any corporation, association, partnership, society, order, individual or aggregation of individuals engaging in or proposing or attempting to engage as principals in any kind of insurance business, including the exchanging of reciprocal or interinsurance contracts between individuals, partnerships and corporations.
(6)	‘Preneed licensee' means any person, partnership, association, corporation or other entity who has applied for and been granted a license to engage in the preneed funeral business under this Article.
"§ 90-210.31. Deposit of preneed funeral funds.
(a)	Except as provided in this section, all payments of money made to any person, partnership, association, corporation or other entity upon any, agreement, contract or prearrangement insurance policy, or any series or combination of agreements, contracts or prearrangement insurance policies but excluding the furnishing of cemetery lots, crypts, niches, mausoleums, grave markers or monuments, which have for a purpose or which by operation provide for the furnishing or performance of funeral or burial 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, or the providing of the proceeds of an insurance policy for such use, are held to be preneed funeral funds, and their receipt, application or disposition shall be subject to the provisions of this Article. Preneed funeral funds shall be  deposited or applied as follows:
(1)	Any payment of money received by a preneed licensee from a preneed funeral contract purchaser who chooses to have such funds placed in a financial institution shall, within the required period of time, deposit the same in a manner hereinafter provided within such financial institution in the preneed licensee's name as trustee.  Thereafter, all of the interest, dividends, increases or accretions of whatever nature earned by the funds, shall remain with the principal and shall become a part thereof, subject to all of the requirements concerning the principal of said fund hereinafter contained. Consistent with applicable tax laws, the trust fund may be charged with any taxes on said fund by reason of any interest, dividends, increases or accretions earned thereon, and for the reasonable charges paid by the trustee to itself or others for the preparation of fiduciary tax returns reporting such income. The preneed licensee, as trustee, may establish an individual trust fund for each contract, or a common trust fund for all contracts or may establish an account with the trust department of any financial institution for the deposit, custody or investment management of all contracts.  If the services of a trust department are utilized by a preneed licensee for the custody and investment management of preneed funeral trust funds, the reasonable cost thereof may be charged to the trust fund. The trust accounts shall be carried in the name of the preneed licensee as trustee but accounting records shall be maintained showing the amounts deposited and invested, and interest, dividends, increases and accretions earned thereon, with respect to each purchaser's contract.
(2)	Any payment received from a purchaser of a preneed funeral contract who chooses to purchase a prearrangement insurance policy shall, within the required period of time, be applied to the purchase of such policy.
	(b)	All payments made by the purchaser of a preneed funeral contract, agreement, prearrangement insurance policy or plan are and shall remain trust funds with a financial institution or as paid insurance premiums with an insurance company, as the case may be, until the death of the person for whose service the funds were paid and until the delivery of all merchandise and full performance of all services called for by the preneed funeral contract, agreement, prearrangement insurance policy or plan, or except where payment is made pursuant to G.S. 90-210.31A(c) or G.S. 90-210.32. 
(c)	Each preneed licensee may establish and maintain with a financial institution of its choice, a preneed funeral fund clearing account.  Preneed funeral funds received by a preneed licensee may be deposited and held in such account until disbursed by the preneed licensee to fund a preneed funeral contract pursuant to subdivision (a)(1) or (a)(2) of this section. Such account shall be maintained solely for the receipt and disbursement of preneed funeral funds and no other purpose.
	(d)	Except as otherwise provided, nothing in this Article shall be construed to permit funds deposited in a financial institution pursuant to the provisions of this Article to be withdrawn or used to purchase prearrangement insurance. Provided, however, funds deposited in trust under the terms of a revocable noninflation-proof preneed funeral contract entered into on or after July 1, 1989, may, upon the express permission of the contract purchaser, be withdrawn and used to purchase prearrangement insurance.
	"§ 90-210.31A. Inflation-proof contracts; revocability of contracts; disposition of contract funds and substitution of licensees; approved contract forms; accounting for preneed funds.
(a)	A preneed licensee may enter into an inflation-proof preneed funeral contract that establishes a fixed price or fixed cost to the preneed funeral contract purchaser, consisting of payments by the purchaser together with all interest, dividends, increases and accretions earned thereon, for services and merchandise to be furnished at a future date regardless of changes in the cost of services and merchandise to the preneed licensee.  A preneed licensee that enters into an inflation-proof preneed funeral contract in which the funds are deposited in trust in a financial institution pursuant to G.S. 90-210.31(a)(1) may retain up to ten percent (10%) of all payments on such contract upon filing with the Commissioner a bond in the amount of the retainage.  The bond shall be in a form and with such surety or sureties, including a letter of credit issued by an insured financial institution, as may be required by the Commissioner.  The bond and any approved surety thereon shall be conditioned on a preneed licensee's compliance with G.S. 90-210.31A(c) and G.S. 90-210.32(b).  In the event of noncompliance with G.S. 90-210.31A(c) the Commissioner shall disburse the proceeds of the bond in accordance with the provisions of that section and in the event of noncompliance with G.S. 90-210.32(b) the Commissioner shall disburse the proceeds to the party who made payments to the preneed licensee.  That portion of all payments on an inflation-proof preneed funeral contract not retained by the preneed licensee shall be deposited pursuant to G.S.90-210.31(a)(1).
(b)	Upon the death of the beneficiary of a preneed funeral contract, the financial institution shall pay the funds it holds in trust under this Article, or the insurance company shall pay the proceeds held under this Article, as the case may be, to the preneed licensee which is the party to the preneed funeral contract, prearrangement insurance policy or other funded funeral or burial prearrangement, when a certified statement is furnished to the financial institution or insurance company that all terms and conditions of the contract have been fully performed by the preneed licensee.  Unless otherwise specified in the preneed funeral contract, agreement, or plan, the preneed licensee shall have no obligation to deliver any merchandise or perform any services for which payment in full has not been deposited with a financial institution or which shall not be provided by the proceeds of a prearrangement insurance policy, and any such amounts received which do not constitute payment in full shall be refunded to the estate of the deceased beneficiary of the preneed funeral contract or credited against the cost of merchandise or services contracted for by the representatives of the deceased; and any balance remaining in the fund or policy after payment for the merchandise and services as set forth in the preneed funeral agreement, preneed funeral contract or plan shall be paid to the estate of the beneficiary of the agreement, contract or plan.
(c)	At the option of a preneed funeral contract purchaser, the contract may be made revocable or irrevocable.  If the preneed funeral contract is made irrevocable, the purchaser, and after his death the beneficiary or such beneficiary's legal representative may, upon written notice given to the financial institution or insurance company and the preneed licensee which is a party to the contract, direct the substitution of a different preneed licensee to furnish funeral services and merchandise.  Such a substitution may be made either before or after the death of the beneficiary of the preneed contract; provided, however, on the death of a preneed funeral contract beneficiary, a funeral establishment providing any funeral services or merchandise need not be a licensee under this Article to receive payment for such service or merchandise.  Upon receipt of such notice, the financial institution shall immediately pay the funds held therein pursuant to G.S. 90-210.31(a)(1), together with all accumulated interest, dividends, increases and accretions thereon, to the preneed licensee which is a party to the preneed funeral contract; provided, however, if the preneed funeral contract is funded by a prearrangement insurance policy, the insurance company may not pay any of the funds until the death of the beneficiary of the contract.  The preneed licensee which is the party to the preneed funeral contract shall immediately pay all such funds received, together with any principal amount previously retained on an inflation-proof contract pursuant to G.S. 90-210.31A(a), but not including any interest, dividends, increases or accretions earned on such an amount, to the successor preneed licensee so designated; provided, however, the preneed licensee which is a party to the contract may retain not more than five percent (5%) of said funds received from the financial institution.  Upon making payments pursuant to this subsection, the financial institution and the preneed licensee which is a party to the preneed funeral contract shall be relieved from all further liability on the contract.  The person giving notice of this substitution of preneed licensee and the successor preneed licensee shall enter into a new preneed funeral contract for the funds transferred, and this Article shall apply, including the duty of the successor preneed licensee at the election of the preneed contract purchaser to deposit the funds in a financial institution or purchase prearrangement insurance if the death of the beneficiary of the contract has not occurred.  Nothing in this subsection shall be construed to permit an irrevocable preneed funeral contract to be made revocable or to result in the payment of any of the transferred funds to the beneficiary of the preneed funeral contract or his  estate, except as provided by subsection (b) of this section.
(d)	This Article does not apply to contracts for funeral services or merchandise sold as burial insurance policies which are regulated by Part 13 of Article 10 of Chapter 143B of the North Carolina General Statutes.
(e)	The Commissioner shall approve all forms for preneed funeral contracts.  All such contracts must be in writing and no form shall be used without prior approval of the Commissioner.  Any use or attempted use of an oral preneed funeral contract or any written funeral contract in a form not approved by the Commissioner shall be deemed a violation of this Article by the person selling the services or merchandise thereunder.
(f)	Within 10 days of being relieved of its obligation to perform under a preneed funeral contract by reason of substitution, or having its obligation to perform extinguished by termination of the preneed funeral contract, or within 30 days of providing any funeral or burial services, or the furnishing or delivery of personal property, merchandise or services of any nature to any beneficiary under the terms of a preneed funeral contract established pursuant to the terms of this Article, the preneed licensee shall prepare in a manner and on a form acceptable to the Commissioner a final accounting of all receipts and disbursements.
"§ 90-210.32. Refund of deposit.
(a)	Within 30 days of receipt of a written request from the purchaser of a revocable preneed funeral contract who has contract funds deposited with a financial institution pursuant to G.S. 90-210.31(a)(1), the financial institution holding such funds in trust shall refund to the contract purchaser the entire amount deposited with such financial institution, together with all interest, dividends, increases and accretions earned thereon.
(a1)	Within 30 days of receipt of a written notice of cancellation of any prearrangement insurance policy purchased pursuant to G.S. 90-210.31(a)(2) the issuing insurance company shall refund to the prearrangement policy purchaser any unearned premiums.
(b)	Within 30 days of receipt of a written demand for refund given to any preneed licensee by any party who has funds paid under a revocable preneed funeral contract, the preneed licensee which has retained any portion of the payments pursuant to G.S. 90-210.31A(a) shall refund to the preneed contract purchaser the entire principal amount retained by the licensee without any interest, dividends, increases or accretions earned on such fund.
(c)	After making refund pursuant to this section and giving notice of the refund to the preneed licensee, the financial institution or insurance company shall be relieved from all further liability. After making refund pursuant to this section, the preneed licensee shall be relieved from all further liability.
(c1)	Notwithstanding subsections (a) and (b) of this section, funds paid under a revocable preneed funeral contract shall not be refundable after the preneed licensee has furnished any services or merchandise under such contract following the death of the preneed funeral contract beneficiary.
(d)	This section shall not apply if the preneed funeral contract provides that it is irrevocable. Such contracts may not be revoked or any proceeds thereof refunded except by order of a court of competent jurisdiction.
"§ 90-210.33. Deposit within 10 days of receipt.  
	(a) Except as provided in this Article, all funds received by a preneed licensee pursuant to the provisions of this Article shall, within 10 days of the receipt thereof, be deposited by such licensee in a financial institution in the preneed licensee's name as trustee. 
(b)	Premiums received in payment for prearrangement insurance policies shall be applied to the purchase of such policy within 10 days of receipt; provided, however, a preneed licensee, or its agents or employees, shall have a period of 45 days from the receipt of any prearrangement insurance premiums to complete any contracts, instruments of assignment or other documents necessary to finalize an insurance funded funeral prearrangement.
(c)	The preneed licensee at the time of making deposit as trustee shall furnish to the financial institution the name of each payor, and the amount of payment on each account for which the deposit is being made.
(d)	If a preneed licensee, or a preneed funeral contract purchaser, purchases a prearrangement insurance policy, such licensee shall notify the insurance company of the name of each payor and the amount of each payment when such policy or policies have been purchased.  Except as provided by G.S. 90-210.31(c), at no time before making a deposit or purchasing a prearrangement insurance policy may a preneed licensee, or its agents or employees, deposit in his or its own account or the account of any other person, partnership, association, corporation or entity any monies coming into its or their hands for the purpose of purchasing services, merchandise or prearrangement insurance policies under the provisions of this Article.
"§ 90-210.34. Application for license.
(a)	No person, firm, partnership, association, or corporation or other entity may offer or sell preneed funeral contracts or offer to make or make any funded funeral or burial prearrangements, whether funded by prearrangement insurance policies, trust deposits or otherwise, without first securing a license from the Commissioner. Only funeral establishments holding a valid establishment permit pursuant to G.S. 90-210.25(d) shall be eligible for license hereunder. Employees and agents of such entities licensed hereunder, may sell preneed funeral contracts, prearrangement insurance policies and make funded funeral or burial prearrangements only on behalf of and to be performed by one employer or one principal; provided, however, that, in the event such agents and employees engage in prearrangement insurance sales, these agents shall meet the licensing requirements of the Commissioner of Insurance; provided, further, such employees and agents may sell such preneed funeral contracts and prearrangement insurance policies and make such prearrangements for any number of funeral establishments licensed under this Article which are wholly-owned by or affiliated, through common ownership or contract, with the same entity.  Application for a license shall be in writing, signed by the applicant and duly verified on forms furnished by the Commissioner. Each application shall contain at least the following: the full names and address (both residence and place of business) of the applicant, and every member, officer and director thereof if the applicant is a firm, partnership, association or corporation and any other information as the Commissioner shall deem necessary. Any license issued pursuant to the application shall be valid only at the address stated in the application for the applicant or at a new address approved by the Commissioner.
(b)	Each application for a license shall be accompanied by a nonrefundable investigation fee of one hundred dollars ($100.00). If the license is granted, the investigation fee shall be applied to the annual license fee for the first year or part thereof. Upon receipt of the application and payment of the investigation fee, the Commissioner shall issue a renewable license unless he determines that the applicant has made false statements or representations in the application, or is insolvent, or has conducted, or is about to conduct, his business in an illegal, unethical or fraudulent manner, or is not duly authorized to transact business in this State. Each preneed licensee under this Article shall pay annually to the Commissioner on or before June 30 of each year, a license fee of one hundred dollars ($100.00).
(c)	Any licensee selling a preneed funeral contract, whether funded by a trust deposit or a prearrangement insurance policy, shall remit to the Commissioner of Banks, within 10 days following the sale of the contract, a service charge of ten dollars ($10.00) for each sale to be used by the Commissioner in administering this Article. Such service charges may not be remitted in cash.
"§ 90-210.35. Licensee's books and records; notice of transfers, assignments and terminations.
(a)	A preneed licensee shall keep for examination by the Commissioner accurate accounts, books, and records in this State of all preneed funeral contract and prearrangement insurance policy transactions, copies of all agreements, insurance policies, instruments of assignment, the dates and amounts of payments made and accepted thereon, the names and addresses of the contracting parties, the persons for whose benefit funds are accepted, and the names of the financial institutions holding preneed funeral trust funds and insurance companies issuing prearrangement insurance policies. The Commissioner may at any time investigate the books, records, and accounts of a preneed licensee with respect to its trust funds, contracts and prearrangement insurance policies and for that purpose may require the attendance of and examine under oath all persons whose testimony he may require.
(b)	A preneed licensee may transfer preneed funds held by it as trustee from the financial institution which is a party to a preneed funeral contract to a substitute financial institution which is not a party to the contract.  Before the transfer may be made, the transferee financial institution shall agree to make the disclosure required under the preneed funeral contract to the Commissioner or his designated examiner.  Within 10 days after the transfer, the licensee shall notify the Commissioner in writing of the name and address of the transferee financial institution. If the preneed funeral contract is revocable, the licensee shall notify the contracting party 10 days in advance of the intended transfer.
(c)	In the event that any preneed licensee transfers or assigns its assets or stock to a successor funeral establishment or terminates its business as a funeral establishment, the licensee and assignee shall notify the Commissioner not less than 15 days prior to the effective date of said transfer, assignment or termination.
(d)	Financial institutions that accept preneed funeral trust funds pursuant to G.S. 90-210.31(a)(1) and insurance companies who issue prearrangement insurance policies pursuant to G.S. 90-210.31(a)(2) shall upon request by the Commissioner or his designated examiner, disclose any information regarding preneed funeral trust accounts held or prearrangement insurance policies issued by it for a preneed licensee.
(e)	In the event that any preneed licensee is unable or unwilling or is for any reason relieved of its responsibility to perform as trustee or to perform any preneed funeral contract, the Commissioner, with the written consent of the purchaser, or, after the purchaser's death or incapacity, the beneficiary of the preneed funeral contract, may order the contract to be assigned to a substitute preneed licensee provided that the substitute licensee agrees to accept such assignment.
"§ 90-210.36. Enforcement of Article; notice of denial or revocation of license; appeal.
(a)	The Commissioner shall enforce the provisions of this Article and has the power to make investigations, subpoena witnesses, require audits and reports and conduct hearings as to violations of any provisions of this Article.  The Commissioner has the authority to require such other reports and information and to promulgate such rules as are necessary to carry out the provisions of this Article.
(b)	No license shall be denied or revoked except on 10 days notice to the applicant or licensee.  Upon receipt of such notice the applicant or licensee may, within five days of such receipt, make written demand for a hearing.  The hearing before the Commissioner shall be an informal hearing and shall be held with reasonable promptness.
(c)	Notwithstanding any other provisions of law, any aggrieved party may, within 30 days after final decision of the Commissioner and by written notice to the Commissioner, appeal to the North Carolina Court of Appeals for a final determination of any question of law which may be involved.  The cause shall be entitled ‘State of North Carolina on Relation of the Commissioner of Banks against (here insert name of appellant).'  In the event of such an appeal, the Commissioner shall certify the record to the Clerk of the Court of Appeals within 30 days thereafter.  Such record shall include all memoranda, briefs and any other documents, data, information or evidence submitted by any party to such proceeding except for material such as trade secrets normally not available through commercial publication for which such party has made a claim of confidentiality and requested exclusion from the record which the Commissioner deems confidential.  All factual information contained in any report of examination or investigation submitted to or obtained by the Commissioner's staff shall also be made a part of the record unless deemed confidential by the Commissioner.
"§ 90-210.37. Conversion of funds as felony; violations misdemeanors; penalties; and criminal liability of officers, directors, agents and employees.
(a)	Anyone who embezzles or fraudulently or knowingly and willfully misapplies, or in any manner converts preneed funeral funds to his own use, or for the use of any partnership, corporation, association or entity for any purpose other than as authorized by this Article; or anyone who takes, makes away with or secretes, with intent to embezzle or fraudulently or knowingly and willfully misapply or in any manner convert preneed funeral funds for his own use or the use of any corporation, partnership, association or entity for any purpose other than as authorized by this Article shall be punished as a Class H felon.  Each such embezzlement, conversion, or misapplication shall constitute a separate offense and the same may be prosecuted individually.
(b)	Any person who willfully violates any other provision of this Article shall be guilty of a misdemeanor and shall be fined not less than five hundred dollars ($500.00) nor more than one thousand dollars ($1,000), or shall be imprisoned for not less than 10 days nor more than six months, or both. Each such violation shall constitute a separate offense and the same may be prosecuted individually.
(c)	If a corporation embezzles, or fraudulently or knowingly and willfully misapplies or converts preneed funeral funds as defined in subsection (a) hereof or otherwise violates any provisions of this Article, the officers, directors, agents and/or employees responsible for committing the offense shall be fined or imprisoned as herein provided."
Sec. 2.  (a) This act shall become effective July 1, 1989, and shall apply to preneed funeral contracts and funded funeral prearrangements made and entered into on or after the effective date.
(b) Any person licensed by the Commissioner under Article 13B of Chapter 90 of the General Statutes before the effective date shall be entitled to have his license renewed notwithstanding that he is not a funeral establishment or a firm, partnership, association or corporation offering or selling prearrangement insurance policies, provided he otherwise has satisfied the requirements of that Article.