4000 - Advisory Opinions
Insurance Coverage Afforded Prepaid Funeral Plans
September 27, 1990
Mark A. Mellon, Senior Attorney
This is in response to your letter of September 17, 1990 pertaining to federal deposit insurance coverage. You wish to ascertain how funds deposited by a funeral home pursuant to a pre-paid funeral plan will be treated under the Insurance Regulations. You gave an example in your letter of a client turning funds over to a funeral home to cover funeral expenses in advance. The funds are deposited by the funeral home in an FDIC-insured depository institution in an escrow account. The client may have the funds returned to him at any time. The funds are deemed to be trust funds under the state law of New York.
Since the client can have the funds returned to him at any time, they cannot be insured as irrevocable trust funds pursuant to 12 C.F.R. § 330.11. The funds would instead be insured on an agency basis and the funeral home would be deemed to be the custodian of the funds on the behalf of the client. 12 C.F.R. § 330.6. The funds are insured to $100,000 as the individually-owned funds of the client, however, any individually held accounts of the client would be added to his respective interest in the plan and insured to $100,000 in the aggregate. 12 C.F.R. § 330.5. If the account title which you gave in your example is used by the funeral home, this will be sufficient to satisfy the requirement that the deposit account records of an insured institution must disclose that an account is held pursuant to a fiduciary relationship on which a claim for insurance coverage is based. 12 C.F.R. § 330.4(b)(1). The regulations also require that the interests of the participants in a pre-paid funeral plan be ascertainable either from the deposit account records of the insured institution or from the records of the accountholder. 12 C.F.R. § 330.4(b)(2). If an individual account is set up for each plan participant, however, as you state in your letter, this should not pose any difficulty either.
I hope that this letter is responsive to your inquiry. Please do not hesitate to contact me if you have any questions about this or any other matter.