BILL ANALYSIS Ó
AB 374
Page 1
Date of Hearing: August 29, 2012
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Richard S. Gordon, Chair
AB 374 (Hill) - As Amended: August 15, 2012
SUBJECT : Funeral directors and embalmers.
SUMMARY : Specifies that if an applicant for assignment of a
funeral establishment license is not able to submit an audit
report due to specified circumstances, the applicant may request
approval from the Cemetery and Funeral Bureau (Bureau) to secure
a bond guaranteeing the payment of any shortages in the
establishment's trust funds. Specifically, this bill :
1)Allows a funeral establishment's license to be assigned upon
payment of a fixed fee, as specified, and the filing of a
completed application.
2)Provides that if an applicant for assignment of a funeral
establishment cannot submit the required audit report due to
estate matters or litigation, for which the director or
his/her designee is a party, the applicant may request
approval from the Bureau to secure a bond by an admitted
surety insurer, guaranteeing the payment to each account of
shortages in the trust funds.
3)Requires any applicant requesting to obtain a surety bond to
submit to the bureau a report signed by an authorized
representative, setting forth the reasons requested for the
exception to the audit requirement and a list of all trust
accounts for the funeral establishment showing the principal
of the trust, accumulated income, and current account balances
for each account.
4)Provides that any applicant who knowingly provides false or
misleading information shall be subject to an administrative
citation, which may include an order of abatement and a fine
in an amount not to exceed $5000 per violation, in addition to
any other remedies that may be available to the Bureau.
5)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
AB 374
Page 2
the requirements of this section.
6)Provides that once satisfactory proof of the bond is filed
with the Bureau, and any other assignments have been met, the
funeral establishment's license may be assigned to the
applicant.
7)Requires an applicant that obtains approval from the Bureau to
post a bond, to obtain a bond that is in an amount equal to
50% greater than the principal of the trust (150% of the
principal).
8)Requires that after the license is assigned, the funeral
establishment must annually request approval and obtain a bond
covering the trust fund accounts.
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 Bureau
within the Department of Consumer Affairs (DCA).
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.
3)Requires any shortages in preneed trust funds to be funded in
order for a funeral establishment license to be assigned.
4)Authorizes the Bureau to enforce preneed funeral arrangement
laws and to adopt implementing rules and regulations.
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.
AB 374
Page 3
6)Requires a licensed funeral establishment to employ a licensed
funeral director to manage, direct, or control its business or
professions.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author, "ÝThis bill]
will allow the transfer of ownership of a funeral establishment
license, and 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. ÝIt] 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."
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 Bureau cannot assign (transfer) the funeral establishment
license without an unqualified audit as specified in the
Business and Professions code.
If the funeral establishment license cannot be assigned to the
buyer, then the funeral establishment license cannot officially
complete the change of ownership to a 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, the licensed managing
funeral director, the location of the business, the location of
preparation or storage facilities for human remains, and 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
AB 374
Page 4
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.
In June of 2012, the Bureau estimated approximately 27 "transfer
of ownership" applications pending. The inability to assign the
funeral establishment license, and complete the transfer of
ownership, could keep funeral businesses from appropriately
carrying on their business operations.
This bill has become necessary due to pending litigation, filed
in 2011, involving DCA, Bureau, 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 measure does not intend to affect the pending litigation.
It attempts to allow business activities regarding the sale and
operation of licensed funeral establishments to proceed while
litigation is pending.
In addition, this bill 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.
Support . The California Funeral Directors Association writes in
support, "If an applicant for assignment of a funeral
establishment's license is not able to submit the audit report
due to specified circumstances, the bill would authorize the
applicant to submit a request, signed under penalty of perjury,
AB 374
Page 5
for approval from the Bureau to secure a bond guaranteeing the
payment of any shortages in the establishment's trust funds.
ÝThis bill] would require an assignee to maintain the bond after
assignment of the funeral establishment's license by the
Bureau."
Related Legislation . SB 1197 (Calderon) of 2012 is an urgency
measure that allows a crematory, regulated by the Cemetery and
Funeral Bureau, in addition to the cremation of human remains,
to also cremate an American flag or flags, in accordance with
federal law, as specified. This bill is pending on the Assembly
Floor.
AB 1615 (Miller) of 2012 authorizes the Bureau to license and
regulate hydrolysis facilities and hydrolysis facility managers,
as specified. This bill was held in the Senate Appropriations
Committee.
AB 1225 (Committee on Veterans Affairs) of 2012 prohibits the
sale, trade or transfer of veterans' commemorative property out
of cemeteries except under certain conditions. This bill is
pending on the Assembly Floor.
Previous Legislation . AB 1777 (Ma) Chapter 79, Statutes of
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 from a
boat at sea.
AB 408 (Correa) Chapter 305, Statutes of 2001 among other things
revised the Business and Professions code to provide that an
audit of the trust funds must be submitted in order to assign a
funeral establishment license.
REGISTERED SUPPORT / OPPOSITION :
Support
California Funeral Directors Association (sponsor)
Opposition
None on File.
Analysis Prepared by : Elissa Silva / B.,P. & C.P. / (916)
AB 374
Page 6
319-3301