Can a North Carolina bank's trust department market and sign preneed funeral arrangements with customers, with a funeral home as the service provider?

Plain-English summary

A North Carolina bank trust department proposed a service that would let customers set up a trust to pay for their own funeral years in advance. The mechanics had the customer ("trustor") signing an inter vivos trust agreement with the bank, naming the bank trustee. The customer paid an initial amount into the trust. The trust agreement could be revocable or irrevocable. At the same time the customer signed a "pre-arrangement agreement" with a particular funeral home, naming the trust fund and its net income as consideration. The funeral home agreed to deliver services and merchandise at the customer's death.

The Director of Preneed Regulation at the State Board of Mortuary Science asked the AG whether the preneed funeral statutes permitted this kind of arrangement. Attorney General Michael F. Easley and Special Deputy AG Charles J. Murray concluded the answer was no, the bank trust department could not engage in this business.

The reason came down to a 1992 statutory change. Before July 9, 1992, preneed funeral arrangements were governed by Article 13B of Chapter 90, regulated by the Banking Commission. That regime had an explicit exception in N.C.G.S. § 90-210.34(a) saying that "person, firm, partnership, association or corporation" needed a preneed license to accept or hold preneed payments, "except financial institutions as defined in N.C.G.S. § 90-210.30(2)". Because financial institutions were already regulated by the Banking Commission under Chapter 53, the Article 13B framework simply exempted them from a duplicate licensing requirement.

Chapter 901 of the 1992 Session Laws moved preneed regulation from the Banking Commission to the Board of Mortuary Science and recodified the statute as Article 13D of Chapter 90. The new licensing provision, N.C.G.S. § 90-210.67(a), said no person could offer or sell preneed funeral contracts or make funded funeral prearrangements without first securing a license from the Board, with no carve-out for financial institutions. The AG read that deletion as a deliberate legislative choice to end the financial institution exemption.

Once the bank had no licensing exemption, the next question was whether the proposed arrangement was a "preneed funeral contract" under N.C.G.S. § 90-210.60(5). That definition swept in any contract or series of contracts, however funded, that had as its purpose the furnishing of funeral services or merchandise at a time determinable by the death of the named person. The bank's trust agreement plus the simultaneous funeral home prearrangement clearly fit. So selling the package required a preneed license, and under the new Article 13D, only licensed funeral establishments and their employees and agents could get one. A bank was structurally ineligible.

A bank could still hold preneed deposits, but only in a specific role. N.C.G.S. § 90-210.61(a)(1) required preneed licensees to deposit all funds in an insured account in a financial institution, in trust, in the licensee's name. The licensee was the trustee, the bank was the depository. The proposed arrangement inverted that structure: the bank was the trustee and the funeral home was the service provider. That structural inversion did not fit the mandatory deposit requirement and was therefore unauthorized.

The opinion identified a second, independent problem under Article 13A of Chapter 90, the "Practice of Funeral Service" article. N.C.G.S. § 90-210.20(k) defined "practice of funeral service" to include "making arrangements for funeral service" and "making financial arrangements for the rendering of such services." N.C.G.S. § 90-210.25(f) made it illegal to engage in the practice of funeral service without a funeral service license. The proposed bank trust business would constitute both making arrangements for and making financial arrangements for the rendering of funeral services. Even setting aside the preneed licensing problem, the bank would also be practicing funeral service without a license.

Currency note

This opinion was issued in 1993. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The preneed funeral statutes in Article 13D of Chapter 90 have been amended several times since 1993. Anyone designing a current preneed product or bank trust service should verify the present statute and Board of Mortuary Science rules.

Background and statutory framework

Preneed funeral arrangements are a regulated combination of two things: a contract for future funeral services, and a financial vehicle that funds those services. Without regulation, the funding vehicle can be looted before the customer's death (the funeral home spends the money, then goes out of business) or the contract can prove unenforceable (the funeral home is sold, the new owner refuses to honor the original promise). North Carolina's preneed laws addressed both risks by requiring licensing of the contract seller, trust-account deposit of the customer's funds, and ongoing reporting and audit by a regulator.

The 1992 transfer of preneed regulation from the Banking Commission to the Board of Mortuary Science reflected a policy choice that the funeral-service side of the arrangement, not the deposit-holding side, was the regulatory center of gravity. Banks already had robust prudential supervision; what the customer needed protection from was a bad funeral home, not a bad bank. So the new regime gave the Mortuary Board exclusive licensing authority and required the licensed funeral establishment to be the contracting party. The bank's role shrank to depository.

The opinion's statutory-construction work followed a familiar canon: specific provisions control general provisions, so the specific preneed statutes in Article 13D controlled the general banking authority granted under Chapter 53. Even if a bank's general trust authority would otherwise let it accept the trustor's funds for the purpose, the preneed-specific framework overrode that general authority.

The deletion of the financial-institution exception was treated as the key drafting signal. When the General Assembly takes the trouble to rewrite a statute and consciously omits language that was there before, courts and the AG read the omission as deliberate. The pre-1992 exception was conspicuous in N.C.G.S. § 90-210.34(a); its absence from the post-1992 N.C.G.S. § 90-210.67(a) was therefore not an oversight.

The opinion did not address a related question: what happens to preneed arrangements set up by banks before the 1992 transfer. The answer is presumably that they remained valid under the pre-existing exemption (grandfathered), but the bank could not market new ones after Article 13D took effect.

Common questions

Could the bank get a preneed license under the new regime?

No. N.C.G.S. § 90-210.67(a) limited preneed licenses to licensed funeral establishments and their employees and agents. A bank trust department, even one acting in good faith and with full prudential supervision, was structurally ineligible.

Could the bank hold preneed funds for a licensed funeral home?

Yes, but only in the role specified by N.C.G.S. § 90-210.61(a)(1): as depository, with the preneed licensee (the funeral home) named as trustee on the account. The bank could not be the customer's contracting trustee.

Could a customer set up their own trust at a bank for future funeral expenses without involving any funeral home?

The opinion did not address that, but the operative question would be whether the trust was a "preneed funeral contract" under N.C.G.S. § 90-210.60(5). A customer-only trust with no contract for funeral services would not, but a trust paired with a funeral home pre-arrangement (as proposed here) would.

What were the consequences if a bank engaged in this business anyway?

The opinion did not impose specific penalties, but offering preneed contracts without a license would violate § 90-210.67(a), and making funeral-service arrangements without a funeral service license would violate § 90-210.25(f). Either could expose the bank and its officers to enforcement action by the Mortuary Board.

Was the 1992 transfer of preneed regulation from the Banking Commission to the Mortuary Board challenged on policy grounds?

The opinion does not discuss any challenge. The transfer was a legislative choice and the AG simply implemented the resulting statute.

Citations

• N.C.G.S. § 90-210.20(k) (definition of practice of funeral service)
• N.C.G.S. § 90-210.25(f) (illegal to engage in practice without license)
• N.C.G.S. § 90-210.30 (Article 13B definitions, pre-1992)
• N.C.G.S. § 90-210.34(a) (former financial institution exemption)
• N.C.G.S. § 90-210.60(5) (definition of preneed funeral contract)
• N.C.G.S. § 90-210.61(a)(1) (deposit requirement)
• N.C.G.S. § 90-210.67(a) (current preneed licensing requirement)
• 1992 N.C. Sess. Laws ch. 901

Source

• Landing page: https://ncdoj.gov/opinions/preneed-funeral-arrangements-by-bank-trust-departments/

Original opinion text

FORMAL OPINION

DATE: May 24, 1993
SUBJECT: Preneed Funeral Arrangements by Bank Trust Departments
REQUESTED BY: Mr. Donald H. Carpenter, Director of Preneed Regulation, North Carolina State Board of Mortuary Science

QUESTION: Do the statutes regulating preneed funeral arrangements prevent a bank from marketing and entering into agreements described in the fact situation set out below?
CONCLUSION: Yes.

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. §90-210.34(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. §90-210.61(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 otherwise. 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