FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Insurance Coverage of Prearranged/Prepaid Funeral Services and Service Contracts
October 18, 1988
Walter P. Doyle, Counsel
This is in response to your letter of October 21, 1988, inquiring as to the insurance coverage available for prearranged and prepaid funeral services and service contracts. I assume for purposes of this letter that the funeral home has complied with all applicable state laws including the licensing and recordkeeping requirements set forth in chapter 25 of the regulations of the Banking Department of Texas. The FDIC's Legal Division views the primary purpose of prearranged funeral plans as the provision of funeral services and funeral merchandise.
FDIC regulations provide that the vested and ascertainable interest of each beneficiary of an irrevocable express trust account held at an FDIC-insured bank is insured up to $100,000. 12 C.F.R. §§ 330.1(c), 330.10. Texas law provides, however, that prepaid funeral service agreements are revocable at the will of the trustor. Tex. Rev. Civ. Stat. Ann. art. 548b. Although the plans are not created pursuant to an irrevocable trust, they do represent custodial arrangements, and insurance would therefore be determined on the basis of $100,000 per beneficiary of the plan; however, any individually-held accounts of the beneficiaries would be added to their respective interests in the plans and insured to $100,000 in the aggregate.
To the extent that interests are not vested and ascertainable, they will be aggregated with general funds of the custodian and the total will be insured to $100,000 only.
Certain recordkeeping requirements must be complied with before the above described insurance coverage is available. These recordkeeping requirements are set forth in section 330.1(b) of the FDIC's regulations. 12 C.F.R. § 330.1(b). This section requires that the deposit account records of the bank reveal that a custodial relationship exists. 12 C.F.R. § 330.1(b)(1). In addition, the details of the custodial relationship and the ownership interest of the beneficiary in the deposit account must be ascertainable from the records of the bank or the records of the custodian maintained in good faith and in the regular course of business. 12 C.F.R. § 330.1(b)(2). Where the custodian is acting for more than one beneficiary, the name and ownership interest of each beneficiary in the commingled, specifically designated custodial account must be, at all times, ascertainable from the records of the bank or the records of the custodian maintained in good faith and in the regular course of business.
As indicated above, the bank does not have to carry the names of the individual beneficiaries on its records so long as the bank's records reveal the custodial relationship exists, and so long as the details of the custodial relationship and the ownership interest of each beneficiary are ascertainable from the records of the custodian maintained in good faith and in the regular course of business.
It is important to note that if the funeral home prearranged services plan is an attempt to collect funds or obtain a high rate of interest on funds that are not intended to be used for the purchase of funeral merchandise and services, then the foregoing analysis and conclusions would not apply on the grounds that the plan is required to register with the Securities and Exchange Commission under section 8 of the Investment Company Act of 1940. This section generally applies to business trusts that solicit funds from the public for investment purposes. The deposits of any trust which is required to register under section 8 are considered those of a corporation, thereby limiting the total insurance coverage of plan funds to $100,000. 12 C.F.R. § 330.5(b).