HOUSE BILL REPORT

ESSB 5850

As Amended by the House

BYSenate Committee on Financial Institutions & Insurance (originally sponsored by Senators Johnson, Smitherman, von Reichbauer, Owen, Moore, Sellar, McCaslin, Madsen, Metcalf, Bailey, Thorsness and West)

Modifying the contract transactions of funeral establishments.

House Committe on Health Care

Majority Report:  Do pass. (8)

      Signed by Representatives Braddock, Chair; Brooks, Ranking Republican Member; Chandler, Morris, Sommers, Sprenkle, Vekich and Wolfe.

Minority Report:  Do not pass. (1)

      Signed by Representative Prentice.

House Staff:John Welsh (786-7133)

AS PASSED HOUSE APRIL 12, 1989

BACKGROUND:

Under state law, individuals may purchase funeral services in advance of death from licensed funeral homes offering "pre-need" or "prearrangement" funeral service contracts.  The purchaser generally pays cash up front or pledges the proceeds of an insurance policy.  If cash is paid, the funeral home must place at least 85 percent of the money into a trust account in a qualified public depositary.  The remaining funds may be retained by the funeral home.

Pre-need funeral expense contracts are revocable.  Any purchaser or beneficiary of such a contract may receive a full refund of the amount of the contract including interest and earnings of the trust.  In order to offer such agreements, a funeral home must receive a certificate of registration from the state Board of Funeral Directors and Embalmers.  All pre-need contract forms must be approved by the board.

Public assistance programs permit individuals to set aside funds for funeral expenses without these funds being included in the assessment of an individual's need for public assistance.  Pre-need contracts do not qualify for this funeral expense allowance because of the potential revocation.

No provisions exist allowing:  Two or more funeral homes to pool trust funds into a single trust account; funeral homes to collect administration costs of the trust; the use of irrevocable pre-need funeral expense contracts; and the transfer of a pre-need funeral expense agreement from a bankrupt establishment to another funeral home with the approval of the beneficiary.

A violation of the chapter concerning funeral directors is a gross misdemeanor.

SUMMARY:

Various modifications are made to the statutes concerning funeral home operations.

Funeral homes are required to make a full refund to a consumer cancelling a revocable pre-need contract within 30 calendar days from which the contract was signed.  If the contract is cancelled after 30 days, the funeral home is allowed to retain up to 10 percent of the contract.  A pre-need contract trust may be made irrevocable for beneficiaries who qualify or attempt to qualify for public assistance.

A funeral home is allowed to charge for administration costs associated with the trust fund.  Any charge for administrative costs may not exceed 1 percent of the face amount of a pre-need contract per annum.  The administrative changes may not reduce the value of the trust so that the services or merchandise provided under the contract are lessened.  Trust funds may be invested in instruments issued or insured by an agency of the federal government if such instruments are held in a public depositary. The board is directed to examine pre-need funeral service trusts at least once every three years.  The examination expense must be paid by the funeral home.

The definition of a prearrangement funeral service contact is expanded to include those contracts funded through insurance.  Certain disclosures are to be made regarding contracts funded by insurance and the disclosure requirements are increased for contracts funded through a trust.  Additional information concerning pre-need contracts must be included in applications for certificates of registration and annual reports submitted to the board.

If a funeral home goes bankrupt, a pre-need contract may be transferred to another funeral home, in lieu of refund, with the consent of the contract's beneficiary.  For any sale of a funeral home, a report showing status of pre-need contracts must be submitted to the Department of Licensing.

Any trust which is abandoned after 50 years reverts to the state pursuant to law.

Two or more funeral homes may commingle trust funds into a "master" trust.

A violation of this chapter is made a class C felony.

Fiscal Note:      Available.

House Committee ‑ Testified For:    Bill Growell, AARP, State Legislative Committee; Bredin Thompson, Mountain View Funeral Home and Cynthia Jones, Department of Licensing.

House Committee - Testified Against:      Larry Mathews (for himself, not as a Funeral Board member), and D.C. Ferguson, People's Memorial Association.

House Committee - Testimony For:    This bill will provide greater protection for consumers of funeral services as it requires important disclosures in pre-need contracts about funding, the term of the trust and effects of cancellation. It allows trusts to be irreversible where the client is on public assistance, saving the state burial costs. It requires examination of trust records periodically by the state.  Pre-need funeral contracts provide a far greater benefit to consumers over traditional insurance contracts.

House Committee - Testimony Against:      Funeral homes should not be able to make a profit for financing funeral services.  The retention of 15 percent of amounts paid up-front represents an unreasonable profit, in addition to the 1 percent annual administration fee.  These trusts are only marketing devices to sell caskets and services, and the consumer is being charged to buy these services.