BILL ANALYSIS Ó
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|Hearing Date:July 2, 2012 |Bill No:AB |
| |374 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: AB 374Author:Hill
As Amended:June 20, 2012 Fiscal:Yes
SUBJECT: Funeral directors and embalmers.
SUMMARY: Provides that if an applicant for assignment of a funeral
establishment license is not able to submit the audit report due to
estate matters or litigation, as specified, then the applicant may
request approval from the Cemetery and Funeral Bureau to secure a
surety bond guaranteeing the payment to each trust fund account of any
shortages in the trust funds, and authorize the license assignment to
be completed upon that basis.
Existing law:
1)Licenses and regulates funeral establishments, funeral directors,
embalmers, crematories, crematory managers, cemeteries, cemetery
managers, cemetery brokers, cemetery salespersons, and cremated
remains disposers by the Cemetery and Funeral Bureau (Bureau) within
the Department of Consumer Affairs (DCA). (Business and Professions
Code (BPC) § 7600 et seq., § 9600 et seq.)
2)Authorizes the assignment of a funeral establishment license upon
payment of a fee and submission of an audit report performed by an
independent certified public accountant or public accountant
licensed in this state that verifies the accuracy of the
establishment's trust fund balances and reports the establishment's
compliance with certain provisions of the Funeral Directors and
Embalmers Law. (BPC § 7630)
3)Requires any shortages in the preneed trust funds to be funded in
order for a funeral establishment license to be assigned. (BPC §
7630)
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4)Authorizes the Bureau to enforce preneed funeral arrangement laws and
to adopt implementing rules and regulations. (BPC § 7740)
5)Defines "preneed arrangement," "preneed agreement" or "preneed" to
mean written instruction regarding goods or services or both goods
and services for final disposition of human remains when the goods
or services are not provided until the time of death, and may be
either unfunded or paid for in advance of need. (California Code of
Regulations (CCR) Title 16, § 1277)
6)Provides that protection of the public shall be the highest priority
for the Bureau in exercising its licensing, regulatory, and
disciplinary functions. Whenever the protection of the public is
inconsistent with other interests sought to be promoted, the
protection of the public shall be paramount. (BPC § 7601.1)
This bill:
1)Provides that if an applicant for assignment of a funeral
establishment license is not able to submit the audit report due to
estate matters or litigation for which the director or his or her
designee is a party, then the applicant may request approval from
the Bureau to secure a surety bond guaranteeing the payment to each
trust fund account of any shortages in the trust funds.
2)Requires and applicant requesting approval to obtain a surety bond,
as authorized in #1 above, to submit to the Bureau a report, under
penalty of perjury, setting forth the following:
a) The reasons requested for the exception to the audit
requirement;
b) A list of all trust accounts for the funeral establishment
showing the corpus (principle) of the trust, accumulated income
(earnings) and current account balances for each account.
3)Provides that if the Bureau approves the request to secure a bond,
within 30 days from the approval date, the applicant must file proof
with the Bureau of obtaining a bond meeting the requirements of this
section.
4)Provides that once satisfactory proof of the bond is filed with the
Bureau and any other requirements for assignment have been met, the
funeral establishment license may be assigned to the applicant.
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5)Requires the bond to be equal to 50% greater than the principle in
the trust accounts (i.e., 150% of the principle).
6)Requires that after the license is assigned, the funeral
establishment must annually request approval and obtain a bond
covering the trust fund accounts. Specifies that this requirement
shall continue to be met each year in which the assignee is unable
to submit an audit report and fund any shortages as required.
FISCAL EFFECT: Unknown. This bill has been keyed "fiscal" by
Legislative Counsel.
COMMENTS:
1.Purpose. This bill is sponsored by the Author to allow, in the
transfer of ownership of a funeral establishment license, a bond to
be posted in lieu of an unqualified audit report if there are
timeliness issues on a transfer of ownership due to the death of an
owner, estate issues or other legal matters, including litigation.
Specifically, the bill amends Business and Professions Code Section
7630 to allow the applicant the option of posting a bond in an
amount equal to fifty percent greater than the preneed trust balance
contained in the funeral establishment's last annual report.
2.Background. The Funeral Directors and Embalmers Law requires that an
application for a change of ownership of a funeral establishment
license must include an unqualified audit of the preneed trust. A
large number of funeral establishments utilize the California Master
Trust (CMT) to manage their preneed funds. The CMT has submitted an
audit of their trust, but issues were identified. The Bureau cannot
assign (transfer) the funeral establishment license without an
unqualified audit as specified in BPC § 7630.
If the funeral establishment license cannot be assigned to the buyer,
then the funeral establishment license cannot officially complete
the change the ownership to the new owner. This means that the new
owner cannot make a number of changes that can normally be made to
the funeral establishment license record in the Bureau's files.
These changes include: changing the corporate officers on the
licensing file, changing the licensed managing funeral director,
changing the location of the business, changing the location of
preparation and/or storage facilities for human remains, or changing
the business name.
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For example, California Code of Regulations § 1211 requires a business
to only advertise under the name reflected on the Bureau's records,
and the prospective licensee cannot change the name until the
assignment is completed, often leading to confusion as to who is
actually running the business. Further, if the assignment process
is delayed for a significant amount of time, it is entirely possible
that multiple changes of ownership could occur.
Currently, the Bureau has approximately 27 transfer of ownership
applications pending. The inability to assign the funeral
establishment license, and complete the transfer of ownership, keeps
funeral businesses from appropriately carrying on their business
operations.
3.Current Litigation. This bill has become necessary due to litigation
involving the Department of Consumer Affairs' Cemetery and Funeral
Bureau and California Master Trust (CMT) and Funeral Directors
Service Corporation. CMT is a large commingled preneed funeral
trust, which pools preneed funeral trusts of individual purchasers
throughout California and holds them on behalf of various licensed
funeral establishments. The CMT was created in 1985 by the
California Funeral Directors Association (CFDA). CMT is operated
pursuant to a master trust agreement between CFDA's wholly owned
subsidiary Funeral Directors Service Corporation, and a trustee,
currently Comerica Bank located in Santa Clara County.
Committee staff notes that this measure does not in any way affect the
pending litigation. To the contrary, it allows business activities
regarding the sale and operation of licensed funeral establishments
to proceed in spite of the pending litigation.
4.Estate Matters. The bill also authorizes a bond to be obtained to
cover any preneed accounts when an audit cannot be completed because
of estate matters. There are occasions when the owner of a funeral
establishment dies, and the license is transferred to a new owner
and it may be impossible to immediately submit an audit of the
preneed trust funds in order to complete the assignment of the
license. In such cases, the bill would allow the new owner to apply
for approval from the Bureau to obtain a bond to cover the preneed
trust funds, and thus allow the assignment of the license and the
transfer of ownership of the funeral establishment to be completed.
5.Related Legislation. AB 1777 (Ma, 2012) authorizes cremated remains
to be transferred from a durable container into a scattering urn, as
defined, no more than seven days before scattering the cremated
remains at sea from a boat. This bill was approved by this
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Committee, June 11, on Consent, and is now on the Senate Floor.
SB 1197 (Calderon, 2012) an urgency measure which provides that a
crematory regulated by the Cemetery and Funeral Bureau, in addition
to the cremation of human remains, may also cremate an American flag
or flags, in accordance with federal law, as specified, and
specifies that the of the flag or flags occurs within one week
before or after, Memorial Day, Flag Day, or Independence Day. This
bill is set for hearing by this Committee on July 2.
AB 1615 (Miller, 2012) authorizes the Bureau to license and regulate
hydrolysis facilities and hydrolysis facility managers, as
specified. This bill is set for hearing by this Committee on
July 2.
AB 1225 (Veterans Affairs Committee, 2012) prohibits the sale, trade or
transfer of veterans' commemorative property out of cemeteries
except under certain conditions. This bill is set for hearing by
this Committee on July 2.
6.Prior Legislation. AB 408 (Correa, Chapter 305, Statutes of 2001)
among other things revised BPC § 7630 to provide that an audit of
the trust funds must be submitted in order to assign a funeral
establishment license. Prior to that time the law did not
specifically require the owner to provide the audit. As a result,
the Bureau had been forced to conduct these audits, which are very
time consuming and costly. The change in law was intended to
clearly establish that the owner/seller of a funeral establishment
is responsible for obtaining an audit.
1)Policy Considerations Addressed By This Measure. The laws relating
to preneed trust funds are intended to protect the interests of the
consumer who has paid for funeral arrangements in advance of need,
and to ensure that the monies the consumer has paid are intact and
available when required. The law further authorizes the Bureau to
enforce preneed funeral arrangement laws and to adopt implementing
rules and regulations as necessary. It is further mandated that the
protection of the public shall be the highest priority for the
Bureau in exercising its licensing, regulatory, and disciplinary
functions. When a licensed funeral establishment is sold or
transferred to another owner, it is important that the license be
assigned to the new owner in order for the business processes to
continue. It is also clear that when litigation or estate issues
prevent an audit of the funeral establishment's preneed trust funds
from being readily performed that it sets at odds the Bureau's need
to regulate preneed trust funds and protect consumers, and the
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licensee's need to conduct business.
Committee staff suggests that this measure is carefully balanced to
meet the needs of protecting consumers and allowing business to
continue, while not affecting any pending litigation.
SUPPORT AND OPPOSITION:
Support: None received as of June 27, 2012
Opposition: None received as of June 27, 2012
Consultant:G. V. Ayers