BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 374|
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THIRD READING
Bill No: AB 374
Author: Hill (D)
Amended: 8/15/12 in Senate
Vote: 21
SENATE BUSINESS, PROF. & ECON. DEV. COMM. : 8-0, 7/2/12
AYES: Price, Corbett, Correa, Hernandez, Negrete McLeod,
Strickland, Vargas, Wyland
NO VOTE RECORDED: Emmerson
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : Not relevant
SUBJECT : Funeral directors and embalmers
SOURCE : Author
DIGEST : This bill 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.
Senate Floor Amendments of 8/15/12 clarify the penalty for
submitting false information.
CONTINUED
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ANALYSIS :
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) Section 7600 et seq. and 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 Section 7630)
3. Requires any shortages in the preneed trust funds to be
funded in order for a funeral establishment license to
be assigned. (BPC Section 7630)
4. Authorizes the Bureau to enforce preneed funeral
arrangement laws and to adopt implementing rules and
regulations. (BPC Section 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, Section
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
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protection of the public shall be paramount. (BPC
Section 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/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 an applicant requesting approval to obtain a
surety bond, as authorized in #1 above, to submit to the
Bureau a report, 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 any applicant who knowingly provides false
information pursuant to #2 above, shall be subject to an
administrative citation, which may include an order of
abatement and a fine in an amount not to exceed $5,000
per violation, in addition to any other remedies that
may be available to the Bureau.
4. 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.
5. 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.
6. Requires the bond to be equal to 50% greater than the
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principle in the trust accounts (i.e., 150% of the
principle).
7. 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.
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 Section
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.
For example, California Code of Regulations Section 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.
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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.
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.
This bill 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.
Estate Matters . This 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 8/6/12)
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California Funeral Directors Association
JJA:m 8/16/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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