Can Tennessee pre-need funeral sellers combine their individual trusts into one statewide trust fund?

Subject

Opinion No. 13-42, Legality of Single Statewide Trust Fund for Pre-Need Funeral Trusts, June 4, 2013

Plain-English summary

Pre-need funeral contracts are agreements under which a person pays now (lump sum or installments) for funeral or burial services to be provided later, upon death. To protect consumers, Tennessee's Prepaid Funeral Benefits Act (Tenn. Code Ann. §§ 62-5-401 to -417) requires sellers to set aside the prepaid funds in a regulated trust (or, alternatively, in a prearrangement insurance policy) so that the money is there when needed.

Rep. Fitzhugh asked whether multiple Tennessee pre-need sellers could combine their individual trusts into a single statewide trust fund. The AG said no.

The Act's text at § 62-5-407(b) is the key. The provision lets the trustee establish "a separate trust fund for each pre-need funeral contract or a single trust fund for all pre-need funeral contracts issued by a pre-need seller" (emphasis added). The "by a pre-need seller" language unambiguously caps the combination at one seller. The statute permits either:

• One trust per contract (most granular), or
• One trust per seller for all of that seller's contracts (more administratively manageable).

It does not permit one trust for multiple sellers' contracts.

The statute reinforces this by:

• § 62-5-407(a): "Every pre-need seller engaged in the business of selling pre-need funeral contracts funded by a trust shall establish a pre-need funeral trust fund" (emphasis added).
• References to a seller changing the trustee of "its trust fund" (singular, per seller).
• Account-naming: "[t]he trust accounts shall be carried in the name of the pre-need seller."

The AG applied the canon of construction expressio unius est exclusio alterius (to express one thing is to exclude others). Overstreet v. Commercial Steering Div., 256 S.W.3d 626, 633 (Tenn. 2008). When the legislature listed the permitted trust structures (per-contract or per-seller), it implicitly excluded other structures (like a multi-seller statewide trust).

The Act's investment rules at § 62-5-408 (requiring at least 50% in insured deposits, prudent investor standards) don't authorize statewide consolidation; they only constrain how each individual seller's trust must be invested.

Where the specific Prepaid Funeral Benefits Act conflicts with general trust and fiduciary law in Title 35, the specific Act controls. Matter of Harris, 849 S.W.2d 334 (Tenn. 1993).

Currency note

This opinion was issued in 2013. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The Prepaid Funeral Benefits Act has been amended periodically since 2013. Anyone advising on a current pre-need trust question should pull the current §§ 62-5-401 et seq. and check for any provisions specifically authorizing consolidated or pooled trust arrangements.

Background and statutory framework

Pre-need funeral contracts. Tenn. Code Ann. § 62-5-403(8)(A): any agreement requiring payment in advance, whether lump sum or installments, funded by a pre-need funeral trust, a prearrangement insurance policy, or a combination, for funeral/burial services or merchandise where use is not immediately required. § 62-5-403(8)(B) excludes cemetery merchandise/services regulated under Title 46.

Pre-need funeral trust. § 62-5-403(11): funds set aside in a trust account held by a trustee to provide for a pre-need funeral contract.

Approved trustees. § 62-5-403(14) (as of July 2011): state or national bank, federally chartered savings and loan, state-chartered trust company, or (in the discretion of the Commissioner of the Department of Commerce and Insurance) a securities brokerage firm in good standing. Prior to July 2011, qualified CPAs were also allowed.

Pre-need seller. § 62-5-403(13): a funeral establishment or other entity registered (or required to register) under the Act to sell pre-need contracts.

Trust requirement: § 62-5-407.

(a) Every pre-need seller engaged in the business of selling pre-need funeral contracts funded by a trust shall establish a pre-need funeral trust fund. The trust fund shall be established by executing a written trust agreement with the trustee . . . . [A] pre-need seller may change the trustee of its trust fund by providing written notice to the commissioner . . . along with evidence sufficient to the commissioner that the trustee will be able to comply with the requirements of this part.

(b) If the pre-need funeral contract purchaser chooses to fund the pre-need funeral contract by a trust deposit or deposits, the pre-need seller shall deposit all funds with the trustee, to be held in trust, within fifteen (15) calendar days of receipt. . . . The trustee may establish a separate trust fund for each pre-need funeral contract or a single trust fund for all pre-need funeral contracts issued by a pre-need seller. The trust accounts shall be carried in the name of the pre-need seller, but accounting records shall be established and maintained for each individual pre-need funeral contract beneficiary showing the amounts deposited and invested, and interest, dividends, increases, and accretions earned.

The key phrase: "issued by a pre-need seller" (singular). The trustee may consolidate at the seller level but not across multiple sellers.

Investment requirements: § 62-5-408. Principal and earnings kept intact, with limited uses, and prudent-investor standard. At least 50% in insured deposit accounts. These rules don't change the trust structure question; they only regulate how each seller's individual trust must be invested.

Statutory construction. The plain-meaning rule (Brundage v. Cumberland County, 357 S.W.3d 361 (Tenn. 2011)) and the expressio unius canon (Overstreet v. Commercial Steering Div., 256 S.W.3d 626 (Tenn. 2008)) both support reading § 62-5-407(b) narrowly. The legislature listed allowed structures; it didn't list a statewide consolidated trust; therefore, that structure isn't permitted.

Specific vs. general. Title 35's general trust and fiduciary law might allow more flexible arrangements, but the specific Prepaid Funeral Benefits Act controls. Matter of Harris, 849 S.W.2d 334 (Tenn. 1993).

Common questions

What's a pre-need funeral contract?

A contract to pay now for funeral services later. Common variants: pre-pay for a casket, vault, services, or a full package. The money is held until the beneficiary dies, then released to the funeral home to provide the agreed services. Tennessee regulates these contracts heavily because the consumer is essentially making a long-term unsecured loan to the funeral home; without regulation, sellers could fail before services are due, leaving consumers with nothing.

Why isn't a statewide trust allowed?

Consumer protection. If one statewide trust held all pre-need money in Tennessee and a problem (mismanagement, theft, defalcation) affected the trust, every consumer in the state would be affected. Smaller trusts (per-seller or per-contract) limit the blast radius of any failure. The statute as written reflects this risk-distribution choice.

Can a seller still use one trust for all its contracts?

Yes. The statute lets a single seller maintain "a single trust fund for all pre-need funeral contracts issued by [that] pre-need seller." This is the consolidation option. What's not allowed is consolidation across sellers.

What if multiple funeral homes are commonly owned?

The opinion didn't address this. If two funeral homes are separate legal entities (separate registrations as pre-need sellers), they would each have to maintain their own trust. If they're operating divisions of one legal entity that's registered as one pre-need seller, then they're "one pre-need seller" and a single trust would be fine.

What's the alternative to a trust?

The Act allows pre-need contracts to be funded by prearrangement insurance policies instead of trusts. § 62-5-403(8)(A). Insurance has different regulatory framework but achieves the same consumer protection goal (assets set aside, separately from the funeral home's general operations).

Who enforces the trust requirements?

The Tennessee Department of Commerce and Insurance. The Commissioner has approval authority over trustees and can require evidence of compliance. § 62-5-407(a).

Citations

Tenn. Code Ann. §§ 62-5-401 to -417 (Prepaid Funeral Benefits Act); § 62-5-403 (definitions); § 62-5-407 (trust requirements); § 62-5-408 (investment requirements). Cases: Brundage v. Cumberland County, 357 S.W.3d 361 (Tenn. 2011); Overstreet v. Commercial Steering Div., 256 S.W.3d 626 (Tenn. 2008); Matter of Harris, 849 S.W.2d 334 (Tenn. 1993). Prior AG opinion: Op. 12-06 (Jan. 13, 2012).

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2013/op13-042.pdf

Original opinion text

S T A T E O F T E N N E S S E E
OFFICE OF THE
ATTORNEY GENERAL
PO BOX 20207
NASHVILLE, TENNESSEE 37202

June 4, 2013

Opinion No. 13-42

Legality of Single Statewide Trust Fund for Pre-Need Funeral Trusts

QUESTION

May sellers of pre-need funeral contracts, which are funded by a trust or trusts established by the seller, combine their individual pre-need trusts with other Tennessee sellers of pre-need funeral contracts to create a single statewide funeral trust?

OPINION

No. The Tennessee Pre-Paid Funeral Benefits Act explicitly prescribes how pre-need sellers must establish and manage the trusts required for pre-need funeral contracts that are funded by a trust rather than by a prearrangement insurance policy. These statutes confer no authority for a single statewide trust to combine funds of more than one pre-need seller, nor any authority for a statewide trust.

ANALYSIS

The Tennessee Prepaid Funeral Benefits Act, codified at Tenn. Code Ann. §§ 62-5-401 to -417, (hereinafter "TPFB") governs the qualifications and procedures for registration and general regulatory requirements for the sale of prepaid funeral benefits in Tennessee. Tenn. Code Ann. § 62-5-402. See also Tenn. Att'y Gen. Op. 12-06 at 1-2 (Jan. 13, 2012). The TPFB contains safeguards designed to ensure that, when pre-need burial contracts are sold to consumers, sufficient funds are reserved so that any benefits provided under these contracts can be paid when due upon the death of the pre-need funeral contract beneficiary. See Tenn. Code Ann. §§ 62-5-404 to -412.

This statutory framework sets forth a number of defined terms related to the selling of pre-need funeral contracts. A "pre-need funeral contract" is any agreement requiring payment of money in advance, funded by a pre-need funeral trust or prearrangement insurance policy or combination. Tenn. Code Ann. § 62-5-403(8)(A). "Pre-need funeral funds" are all payments of cash made to a pre-need seller upon any pre-need funeral contract. § 62-5-403(10). A "pre-need funeral trust" is funds set aside in a trust account held by a trustee to provide for a pre-need funeral contract. § 62-5-403(11). Under § 62-5-403(14), as of July 2011, trustees of a pre-need funeral trust are limited to a state or national bank, federally chartered savings and loan association, state chartered trust company, or, in the reasonable discretion of the commissioner, a securities brokerage firm. A "pre-need seller" means a funeral establishment or other entity registered to sell pre-need funeral contracts under the TPFB. § 62-5-403(13).

The TPFB specifically establishes the requirements of any trust fund for pre-need funeral contracts:

(a) Every pre-need seller engaged in the business of selling pre-need funeral contracts funded by a trust shall establish a pre-need funeral trust fund. The trust fund shall be established by executing a written trust agreement with the trustee as defined in § 62-5-403; provided, that a pre-need seller may change the trustee of its trust fund by providing written notice to the commissioner no later than thirty (30) days prior to the change, along with evidence sufficient to the commissioner that the trustee will be able to comply with the requirements of this part. . . .

(b) If the pre-need funeral contract purchaser chooses to fund the pre-need funeral contract by a trust deposit or deposits, the pre-need seller shall deposit all funds with the trustee, to be held in trust, within fifteen (15) calendar days of receipt. The pre-need seller, at the time of making the deposit, shall furnish to the trustee the name of each pre-need funeral contract beneficiary and the amount of payment on each for which the deposit is being made. The trustee may establish a separate trust fund for each pre-need funeral contract or a single trust fund for all pre-need funeral contracts issued by a pre-need seller. The trust accounts shall be carried in the name of the pre-need seller, but accounting records shall be established and maintained for each individual pre-need funeral contract beneficiary showing the amounts deposited and invested, and interest, dividends, increases, and accretions earned.

Tenn. Code Ann. § 62-5-407 (emphasis added). These provisions clearly require that the trustee must carry the trust account in the name of the pre-need seller, and the trustee may, but is not required to, establish a separate trust fund for each contract.

A single statewide trust fund would not meet the requirements established by Tenn. Code Ann. § 62-5-407. This statute provides that, at a minimum, a separate trust be established for each pre-need seller engaged in the business of selling pre-need funeral contracts funded by a trust. Similarly the provisions concerning how a pre-need seller may change the trustee of "its trust fund" are inconsistent with the notion of a statewide trust fund for plural pre-need sellers.

Thus, the explicit language of Tenn. Code Ann. § 62-5-407 requiring each pre-need seller to establish a trust and allowing, in subdivision (b), at most a "single trust fund for all pre-need funeral contracts issued by a pre-need seller" excludes the possibility of allowing a single trust fund to be maintained statewide by multiple pre-need sellers. Had the General Assembly intended the TPFB to allow a statewide trust, the General Assembly would have expressly included this option in the listing of allowable trust formation and deposit structures in the statutory scheme. See Brundage v. Cumberland County, 357 S.W.3d 361, 365 (Tenn. 2011) (stating rule of statutory construction that a court will apply the plain meaning of a statute without adopting a forced interpretation to unduly broaden the statute's scope); Overstreet v. Commercial Steering Div., 256 S.W.3d 626, 633 (Tenn. 2008) (citing the canon of statutory interpretation that "to express one thing is to exclude others").

The provisions of Tenn. Code Ann. § 62-5-408 do not impact the requirement found in Tenn. Code Ann. § 62-5-407 that a trust or trusts be created by each pre-need seller. This section includes instructions to keep intact the principal and income earned on the principal in trust, imposes limitations on the uses of the trust funds, and sets investment standards for the trust. At least 50% of the trust funds shall be invested in demand deposits, savings accounts, certificates of deposit, or other insured accounts of financial institutions, and all the investments in the portfolio must be made in accordance with the prudent investor standard. These investment criteria do not imply that the trust itself would be expanded beyond the single pre-need seller as required by Tenn. Code Ann. § 62-5-407 and do not authorize the trust to merge into a statewide trust.

Finally, the specific requirements for trusts created under the TPFB would control over any conflict between these provisions and the general provisions of trust and fiduciary law established by Title 35 of the Tennessee Code. See Matter of Harris, 849 S.W.2d 334, 337 (Tenn. 1993) (stating that a statute that is specific in nature controls over a general statute).

ROBERT E. COOPER, JR.
Attorney General and Reporter

WILLIAM E. YOUNG
Solicitor General

SARAH ANN HIESTAND
Senior Counsel

Requested by:
The Honorable Craig Fitzhugh
State Representative
33 Legislative Plaza
Nashville, TN 37243-0182