Prepaid Funeral Contracts, Perpetual Care Cemeteries

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Prepaid Funerals    Perpetual Care Cemeteries

Prepaid Funeral Contracts

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Attorney General Opinion KP-0232

Whether a funeral provider may infer a decedent's preferred method of disposition from the contents of a prepaid funeral contact.

January 7, 2019

Ken Paxton, Attorney General of Texas

You ask about a funeral provider's authority to determine a decedent's preferred method of disposition from the contents of a prepaid funeral contract.1 The Texas Department of Banking (the "Department") regulates prepaid funeral contracts, which are governed by chapter 154 of the Finance Code. See TEX. FIN. CODE §§ 154.051(a), .151(a); see generally id. §§ 154.001-.416 (chapter 154). The current model form for prepaid funeral contracts provides for a purchaser to indicate the desired disposition of his or her remains, either burial, cremation, or other. Request Letter at 2; see 7 TEX. ADMIN. CODE § 25.3(b) (Tex. Dep't of Banking, Prepaid Funeral Contracts). You are concerned about older forms and nonstandard contracts that do not address the type of disposition desired. See Request Letter at 2. You tell us that "[w]hen a funeral provider is confronted with an older form contract, in which the purchaser has not explicitly stated his or her desired method of disposition, the funeral provider commonly infers the type of disposition from the services or merchandise purchased," such as the purchase of funeral services or merchandise more consistent with burial than with cremation. Id. You ask whether, when "an executed funeral contract lacks an affirmative election with respect to a type of disposition, [a funeral provider must or may] infer the decedent's election from the contents of a prepaid funeral contract." Id. at 1.

Courts interpreting statutes attempt to give effect to the Legislature's intent as expressed in the plain language of the text considered in the context of the entire statutory scheme: Jaster v. Comet II Constr., Inc., 438 S.W.3d 556, 562 (Tex. 2014). Chapter 154 of  the Finance Code and section 711.002 of the Health and Safety Code resolve your question. Under chapter 154, "[p]repaid funeral benefits" are "prearranged or prepaid funeral or cemetery services or funeral merchandise, including an alternative container, casket, or outer burial container." TEX. FIN. CODE § 154.002(9). A prepaid funeral benefits contract must obligate a funeral provider to provide the benefits as a party to the contract. Id. § 154.151(b)(2), (c); see also id. § 154.002(6) (defining "funeral provider" as "the person designated in a prepaid funeral benefits contract that has agreed to provide the specified prepaid funeral benefits"). The contract must "state the details of the prepaid funeral benefits to be provided." Id. § 154.151(b)(3). The benefits may include prepaid funeral services and merchandise. Id. § 154.002(9). "Funeral services" are services sold pre-need and used to "care for and prepare a deceased human body for burial, cremation, or other final disposition[,] and . . . arrange, supervise, or conduct a funeral ceremony or the final disposition of a deceased human body." Id. § 154.002(13)(A), (B). "Funeral merchandise" means goods sold pre-need for use in conjunction with funeral services. Id. § 154.002(12).

After the death of the beneficiary of a prepaid funeral benefits contract, the funeral provider must "deliver the contracted funeral merchandise and services and cash advance items required under the contract," subject to the right of modification after the decedent's death as allowed under section 154.1551. Id. § 154.161(a)(2)(A). Section 154.1551 allows persons with the right and responsibility to control the disposition of the beneficiary's remains to reasonably modify some terms of the prepaid funeral benefits. Id. § 154.1551(a). But if the purchaser of the contract is also the beneficiary, the contract may not be modified to "change the type of disposition specified by the purchaser in the contract, whether by burial, cremation, or another alternative . . . as provided by Section 711.002(g), Health and Safety Code." Id. § 154.1551(a)(2). 

Section 711.002 governs the disposition of a decedent's remains. TEX. HEALTH & SAFETY CODE § 711.002; see generally Tex. Att'y Gen. Op. No. JC-0279 (2000). Subsection (g) of that statute establishes the right of a person to control the disposition of his or her remains: 

A person may provide written directions for the disposition, including cremation, of the person's remains in a will, a prepaid funeral contract, or a written instrument signed and acknowledged by such person. . . . The directions may be modified or revoked only by a subsequent writing signed and acknowledged by such person.

TEX. HEALTH & SAFETY CODE § 711.002(g). If a decedent does not leave written directions concerning disposition, then persons designated in subsection (a) of the statute, in the priority listed, have the "right to control the disposition, including cremation, of the decedent's remains." Id. § 711.002(a). Subsection (a) lists first "the person designated in a written instrument signed by the decedent" followed by certain relatives of the decedent and duly qualified executors or administrators of the decedent's estate. Id. § 711.002(a)(l)-(7). The person who has the right to control disposition under subsection (a) has the duty to "faithfully carry out the directions of the decedent to the extent that the decedent's estate or the person controlling the disposition are financially able to do so." Id. § 711.002(g).

A funeral provider under a prepaid funeral contract "who fails to honor the contract is liable for the additional expenses incurred in the disposition of the decedent's remains as a result of the breach of contract." Id. Subsection 711.002(i) limits a funeral services provider's liability only when carrying out (1) a decedent's written directions, or (2) the written "directions of any person who represents that the person is entitled to control the disposition of the decedent's remains." Id. § 711.002(i). A person may leave written directions for disposition of remains in the person's will, a prepaid funeral contract, or a signed and acknowledged instrument other than a prepaid funeral contract. Id § 711.002(a), (g).

Thus, a funeral provider that is a party to a prepaid funeral benefits contract must carry out its terms, but also must honor written directions by the decedent or authorized designated person about the disposition of remains. A person may specify written directions in a will or other signed and acknowledged writing rather than in a prepaid funeral benefits contract, or may not leave written directions at all. No law requires a person purchasing a prepaid funeral benefits contract to include written instructions in the contract. Id.; TEX. FIN. CODE §§ 154.151 (stating the required form of the contract), .161 (stating responsibilities of the funeral provider). Accordingly, upon the death of a beneficiary of a prepaid funeral benefits contract, the funeral provider who is a party to the contract must determine whether, as a matter of contract construction, the contract contains the beneficiary's written directions for disposition of his or her remains.

Contract construction is ordinarily a question of law subject to de novo review by the courts. MCI Telecomms. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 650 (Tex. 1999). In construing any contract, courts attempt to ascertain and give effect to the parties' "intentions ... as expressed in the writing itself." Italian Cowboy Partners, Ltd v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex. 2011). The language of a contract must be considered in the context of the contract as a whole, and words are given their plain, common meaning. Plains Expl. & Prod Co. v. Torch Energy Advisors Inc., 473 S.W.3d 296,305 (Tex. 2015) .. Although chapter 711 of the Health and Safety Code does not define "written directions," the word "direction" commonly means an "explicit instruction." WEBSTER'S THIRD NEW INT'L DICTIONARY 640 (2002).2 Language of purchase is not explicit instruction for the disposition of remains required by subsection 711.002(g) of the Health and Safety Code. See TEX. HEALTH & SAFETY CODE § 711.002(g); see also TEX. FIN. CODE § 154.1551(a)(2) (prohibiting modifications that "change the type of disposition specified by the purchaser in the contract"). Under the statutes, leaving written directions about the type of disposition has legal consequences that bind the beneficiary and the beneficiary's survivors unless the instructions are "modified or revoked [in] a subsequent writing signed and acknowledged by" the beneficiary. TEX. HEALTH & SAFETY CODE § 71 l.002(g). While a beneficiary's purchase of merchandise and services might reflect the beneficiary's thinking at the time of the contract, it does not comply with the statutory requirement that the beneficiary provide binding directions about the type of disposition. If a prepaid funeral benefits contract does not expressly address the disposition of the beneficiary's remains, a funeral provider may not deprive persons listed in section 711.002(a) of their right to control disposition when the beneficiary does not leave written directions. See id. § 711.002(a). A funeral provider's inference drawn from a statement of the purchases made in a prepaid funeral benefits contract does not satisfy the statutory requirement of written directions specifying the disposition of the beneficiary's remains. Id. § 711.002(g); TEX. FIN. CODE § 154.1551(a)(2). 

S U M M A R Y

If a prepaid funeral benefits contract lacks an affirmative election regarding the disposition of the contract beneficiary's remains, a funeral provider's inference from the purchases made in the contract does not satisfy the statutory requirement for written directions that specify the disposition of the decedent's remains under subsection 711.002(g) of the Health and Safety Code and subsection 154.1551(a)(2) of the Finance Code.

Attorney General Opinion GA-0720

Where an individual specifies the method of disposition of his or her remains in a fully paid funeral contract of which he or she is the purchaser and beneficiary, the individual's agent under a statutory durable power of attorney may not change the method of disposition. If the agent under a statutory durable power of attorney cancels a prepaid funeral contract purchased by the principal for him or herself, the principal's written directive in the contract regarding disposition of his or her remains is not canceled.

June 2, 2009

Greg Abbott, Attorney General of Texas

The Texas Department of Banking regulates the sale of prepaid funeral services and merchandise. See TEX. FIN. CODE ANN. ch. 154 (Vernon 2006 & Supp. 2008). A contract for prepaid funeral services may provide for the final disposition of an individual's remains. See id. § 154.002(13) (Vernon 2006); see also Tex. Att'y Gen. Op. No. JC-0279 (2000) at 3-4 (defining "disposition" to include burial, cremation, or other method by which a person's remains attain their final resting place). We are asked to assume for the purposes of our analysis that an individual has purchased and fully paid for a prepaid funeral contract that specifies the method for disposition of his or her remains and the individual has also executed a statutory durable power of attorney under Probate Code, chapter XII, the Durable Power of Attorney Act. 1  TEX. PROB. CODE ANN. § 481 (Vernon 2003). We are to assume that the individual, who purchased the prepaid funeral contract before the durable power of attorney took effect, has become incapacitated. See Request Letter at 5-6; see also TEX. PROB. CODE ANN. § 490(a) (Vernon 2003) (a durable power of attorney may provide that it is not affected by the principal's subsequent disability or incapacity or that it will become effective upon the principal's disability or incapacity). 2

The first question is as follows:

1. May the agent under a statutory durable power of attorney change the method of disposition, e.g., from burial to cremation, specified by the purchaser/principal in a prepaid funeral contract?

Request Letter at 1. Chapter XII of the Probate Code allows a person, the "principal," to authorize an agent or attorney-in-fact to take action with respect to the principal's property and financial matters, claims and litigation, and tax matters. See TEX. PROB. CODE ANN. §§ 481-82, 490(a) (Vernon 2003). The principal may also authorize the agent to undertake any action the principal could undertake. See id. § 490(a).

The disposition of a person's remains is governed by section 711.002 of the Health and Safety Code, which provides in part:

(a) Unless a decedent has left directions in writing for the disposition of the decedent's remains as provided in Subsection (g), the following persons, in the priority listed, have the right to control the disposition, including cremation, of the decedent's remains, shall inter the remains, and are liable for the reasonable cost of interment:

(1) the person designated in a written instrument signed by the decedent;

(2) the decedent's surviving spouse;

[(3)-(6) certain other relatives of the decedent].

. . . .

(g) A person may provide written directions for the disposition, including cremation, of the person's remains in a will, a prepaid funeral contract, or a written instrument signed and acknowledged by such person. . . . The directions may be modified or revoked only by a subsequent writing signed and acknowledged by such person. . . .

TEX. HEALTH & SAFETY CODE ANN. § 711.002(a), (g) (Vernon 2003) (emphasis added). Where the purchaser of a prepaid funeral contract provides directions for the disposition of his or her remains in the prepaid funeral contract, the "person otherwise entitled to control the disposition of a decedent's remains under this section [711.002] shall faithfully carry out the directions of the decedent to the extent that the decedent's estate or the person controlling the disposition are financially able to do so." Id. § 711.002(g). 3 Thus, the person otherwise entitled to control the disposition of a decedent's remains has a duty to carry out the decedent's directions for disposition of his or her remains. In addition, section 711.002(g) provides that a person's written directions for the disposition of his or her remains may be modified only by a subsequent writing signed and acknowledged by such person. See id. § 711.002(g). Accordingly, a person's written directions for disposition of the person's remains in a prepaid funeral contract will prevail over the preferences of the designee and relatives listed in section 711.002(a), and only the person who prepared such written directions may change them.

The single Texas case addressing section 711.002(g) in connection with a statutory durable power of attorney does not involve an attempt to change the decedent's written directions for disposition of her remains. See Carruth v. SCI Tex. Funeral Servs., Inc., 221 S.W.3d 134 (Tex. App.--Houston [1st Dist.] 2006, no pet.) (agent under a durable power of attorney signed a prepaid funeral contract for the principal, who had not made funeral arrangements). This case states that a decedent's written instructions for disposition of his or her remains pursuant to section 711.002(g), "by the plain language of section 711.002(a), take priority over any other person's right to control the disposition of the remains." Id. at 138.

Pursuant to the plain language of section 711.002(g), an individual has the right to control the disposition of his or her remains by providing written directions, which prevail over any other person's right to make that decision. In our opinion, a court would probably hold that a person's directions in a prepaid funeral contract for disposition of his or her remains may not be changed by an agent who holds a statutory durable power of attorney under Probate Code chapter XII.

The second question is as follows:

2.  If the agent under a statutory durable power of attorney cancels a prepaid funeral contract purchased by the principal, does this also cancel the principal's written directive regarding disposition?

Request Letter at 1. We are to assume that the purchaser has not waived his or her right to cancel the contract. See id. at 6; see also TEX. FIN. CODE ANN. §§ 154.155 (Vernon 2003) (cancellation of prepaid funeral contract), 154.156 (waiver of right to cancel contract). We also assume that the statutory durable power of attorney authorizes the agent to cancel a prepaid funeral contract purchased by the principal. Section 711.002(g) provides that a person's written directions for the disposition of his or her remains "may be modified or revoked only by a subsequent writing signed and acknowledged by such person." TEX. HEALTH & SAFETY CODE ANN. § 711.002(g) (Vernon 2003); see Tex. Att'y Gen. Op. No. JC-0279 (2000) at 3 (construing section 711.002(g)). Cancellation of the prepaid funeral contract by the agent under a statutory durable power of attorney is not "a subsequent writing signed and acknowledged by" the person with respect to the disposition of his or her remains. Accordingly, if the agent under a statutory durable power of attorney cancels a prepaid funeral contract purchased by the principal for him or herself, the principal's written directive in the contract regarding disposition of his or her remains is not changed or cancelled. See Tex. Dep't of Transp. v. City of Sunset Valley, 146 S.W.3d 637, 642 (Tex. 2004) (if the statutory language is unambiguous, we must interpret it according to its terms).

Attorney General Opinion GA-0448

A family is not a "cemetery organization" subject to Section 711.034 of the Texas Health and Safety Code.

August 15, 2006

Greg Abbott, Attorney General of Texas

You ask "whether an unincorporated family attempting to establish and operate a cemetery solely for the interment of family members on family-owned property is a 'cemetery organization' required to comply with the survey, filing and dedication requirements of Health and Safety Code, § 711.034." 1  The Texas Funeral Service Commission ("Commission") does not construe section 711.034 to apply to a family-owned cemetery. See Request Letter, supra note 1, at 3. You inform us that the Commission's interpretation is not accepted throughout Texas and that at least one county "refuses to allow a family to inter a deceased family member on family-owned property." Id.

You state the family is an "unincorporated family." See id. at 1. We understand you to mean that the family members have not taken formal steps to create a corporate entity. At the same time, you do not state whether the family members have prepared or operate under articles of association. See id. at 1-3. We therefore believe that you inquire only about a family as that term is ordinarily understood.

Section 711.034 of the Health and Safety Code imposes certain dedication requirements on "cemetery organizations." TEX. HEALTH & SAFETY CODE ANN. § 711.034 (Vernon 2003). Section 711.034 requires a "cemetery organization" to survey and subdivide cemetery land into plots and to make a map or plat of the property. See id. §711.034(a)(1). The "cemetery organization" is required to "file the map or plat with the county clerk of each county in which the property or any part of the property is located." Id. § 711.034(b). Along with the map or plat, a "cemetery organization" must dedicate the property "exclusively to cemetery purposes." Id. § 711.034(c). You inquire only about the provisions of section 711.034. 2 See Request Letter, supra note 1, at 1. To answer your question, we must determine whether a family interring remains on family-owned property is a "cemetery organization."

A "cemetery organization" is defined in chapter 711 as

(A) an unincorporated association of plot owners not operated for profit that is authorized by its articles of association to conduct a business for cemetery purposes; 3 or

(B) a corporation, either for profit or not for profit, that is authorized by its articles of incorporation to conduct a business for cemetery purposes.

TEX. HEALTH & SAFETY CODE ANN. § 711.001(3) (Vernon Supp. 2005). Because the family is unincorporated, by definition it is not a corporation organized for profit or not for profit. We therefore conclude that a family is not a "cemetery organization" under subsection 711.001(3)(B).

Thus, the family is a "cemetery organization" only if it is an "unincorporated association of plot owners." 4  Id. § 711.001(3)(A). Chapter 711 does not define an "unincorporated association of plot owners," but does provide that it is excluded from the section 711.021 requirement that entities engaged in the business of cemetery purposes be organized as a corporation. See id. § 711.021(g)(2) (Vernon 2003). A "family, fraternal, or community cemetery that is not larger than 10 acres" is also excluded from this corporate structure requirement. Id. § 711.021(g)(1). Because these exceptions are listed in section 711.021 as two separate exceptions, they must be different from each other. If they were identical, the inclusion of both exceptions would be redundant, a result which is to be avoided. See Henry v. Kaufman County Dev. Dist. No. 1, 150 S.W.3d 498, 507 (Tex. App.--Austin 2004, pet. granted) ("A statutory construction that creates a redundancy is to be avoided."). Thus, a "family . . . cemetery" is not an "unincorporated association of plot owners not operated for profit." TEX. HEALTH & SAFETY CODE ANN. § 711.021(g)(1), (2) (Vernon 2003). We therefore conclude that a family is not a "cemetery organization" under subsection 711.001(3)(A). Because it is not a "cemetery organization," a family is not subject to the requirements of section 711.034. 5

Attorney General Opinion GA-0310

A funeral establishment need not comply with a statutory requirement that it obtain a "cremation authorization form" signed by an "authorizing agent" when a purchaser in a prepaid funeral contract has previously specified disposition of the purchaser's remains by cremation.

March 9, 2005

Greg Abbott, Attorney General of Texas

You ask whether a funeral establishment must comply with a statutory requirement that it obtain a "cremation authorization form" signed by an "authorizing agent" when a purchaser in a prepaid funeral contract has previously specified disposition of the purchaser's remains by cremation.1

Chapter 154 of the Finance Code, denominated "Prepaid Funeral Services," vests the administration of prepaid funeral contracts in the Department of Banking (the "Department") and authorizes the Department to adopt reasonable rules for such administration. TEX. FIN. CODE ANN. § 154.051(a)-(b) (Vernon Supp. 2004-05). A "person," defined as "an individual, firm, partnership, corporation, or association," id. § 154.002(8), must, in order to sell prepaid funeral contracts:

(1) file an application for a permit with the department on a form prescribed by the department;

(2) pay a filing fee in an amount set by the commission under Section 154.051; and

(3) if applicable, pay extraordinary expenses required for out-of-state investigation of the person.

Id. § 154.102. The Department is required to "approve a sales contract form for prepaid funeral benefits before the form is used." Id. § 154.151(a). Section 154.1551(a) provides, in relevant part:

(a) The funeral merchandise and services to be provided by the seller under a fully paid prepaid funeral benefits contract may be modified after the death of the beneficiary if the modification complies with Subsection (b) or is otherwise agreed to in a writing signed by the seller and the person charged with the disposition of the beneficiary's remains by Section 711.002(a), Health and Safety Code, except that:

(1) if the purchaser is also the beneficiary:

(A) the contracted funeral merchandise and services may not be modified if the contract contains a clause that prohibits modification; and

(B) a modification may not change the type of disposition specified by the purchaser in the contract, whether by burial, cremation, or another alternative by which the purchaser's remains attain their final resting place, as provided by Section 711.002(g), Health and Safety Code . . . .

Id. § 154.1551(a)(1)(A)-(B). Thus, chapter 154 of the Finance Code specifically declares that, where a purchaser of a prepaid funeral contract specifies in the document that, on death, the purchaser's remains shall be disposed of by cremation, and that such contract may not be modified, the decedent's remains must be cremated.

Section 711.002 of the Health and Safety Code imposes virtually the same requirement:

(a) Unless a decedent has left directions in writing for the disposition of the decedent's remains as provided in Subsection (g), the following persons, in the priority listed, have the right to control the disposition, including cremation, of the decedent's remains, shall inter the remains, and are liable for the reasonable cost of interment:

(1) the person designated in a written instrument signed by the decedent;

(2) the decedent's surviving spouse;

(3) any one of the decedent's surviving adult children;

(4) either one of the decedent's surviving parents;

(5) any one of the decedent's surviving adult siblings; or

(6) any adult person in the next degree of kinship in the order named by law to inherit the estate of the decedent.

   . . . .

(g) A person may provide written directions for the disposition, including cremation, of the person's remains in a will, a prepaid funeral contract, or a written instrument signed and acknowledged by such person. . . . The directions may be modified or revoked only by a subsequent writing signed and acknowledged by such person. The person  otherwise entitled to control the disposition of a decedent's remains under this section shall faithfully carry out the directions of the decedent to the extent that the decedent's estate or the person controlling the disposition are financially able to do so.

TEX HEALTH & SAFETY CODE ANN. § 711.002(a), (g) (Vernon 2003) (emphasis added). Again, where a purchaser of a prepaid funeral contract has therein designated cremation as part of that contract, the purchaser's preference may not be overruled or modified. We limit our discussion here to a situation in which a decedent has designated in a prepaid funeral contract that the purchaser's remains shall be cremated.

In 2003, the legislature added chapter 716, denominated "Crematories," to the Health and Safety Code 2.  Section 716.051 provides:

Except as otherwise provided in this chapter, a crematory establishment may not cremate deceased human remains until it receives:

(1) a cremation authorization form signed by an authorizing agent; and

(2) a death certificate or other death record that indicates that the deceased human remains may be cremated.

Id. § 716.051 (Vernon Supp. 2004-05). Section 716.052 describes the contents of a cremation authorization form. See id.  § 716.052(a)-(d). It also requires a representative of the contracting funeral establishment to sign the form and directs a crematory establishment to "provide a cremation authorization form to an authorizing agent on request." Id. § 716.052(d).

You indicate that

[a] question has recently arisen regarding the relationship between statutory provisions that authorize a person to direct the disposition of [that person's] remains and prohibit a funeral provider from disposing of the remains in any other manner, and provisions that prohibit a funeral provider from cremating remains without written authorization from an authorizing agent . . . . The question has arisen because, in some instances, the person who is the statutorily designated authorizing agent has refused, for religious or other reasons, to execute the required form, even though the decedent has provided written directions in a prepaid funeral contract specifying disposition by cremation.

Request Letter, supra note 1, at 1. You therefore ask whether, and if so how, these provisions may be reconciled. See id. at 2.

At first glance, section 716.051 of the Health and Safety Code, which prohibits a crematory establishment from cremating "deceased human remains until it receives . . . a cremation authorization form signed by an authorizing agent," would seem to be in irreconcilable conflict with both section 154.1551 of the Finance Code and section 711.002 of the Health and Safety Code, which require a crematory establishment to fulfill, upon a person's death, its contractual obligation to the purchaser of a prepaid funeral contract. We are admonished, however, to harmonize statutes concerning the same subject matter, if possible, so as to give effect to all. See Tex. Gov't Code Ann. § 311.026(a) (Vernon 1998); Argonaut Ins. Co. v. Baker, 87 S.W.3d 526, 531 (Tex. 2002) (harmonizing Insurance Code and Labor Code provisions); Acker v. Tex. Water Comm'n, 790 S.W.2d 299, 301 (Tex. 1990) (harmonizing predecessor of Administrative Procedure Act and Open Meetings Act provisions). And in our view, these disparate statutes may be readily harmonized.

Section 716.001 of the Health and Safety Code, part of the 2003 legislation, defines "authorizing agent" as "a person authorized to dispose of a decedent's remains under Section 711.002." Tex. Health & Safety Code Ann. § 716.001(1) (Vernon Supp. 2004-05). As we have indicated, section 711.002(a) lists a number of individuals who may control the disposition of a decedent's remains. But the wishes of such persons are subject to an overriding qualification: "Unless a decedent has left directions in writing for the disposition of the decedent's remains . . . ." Id. § 711.002(a) (Vernon 2003). Moreover, subsection (g) of chapter 711 contemplates that "[a] person may provide written directions for the disposition, including cremation, of the person's remains in a . . . prepaid funeral contract." Id. § 711.002(g). We therefore conclude that, (1) because section 716.051 requires the signature of an "authorizing agent," (2) because "authorizing agent" is defined by reference to section 711.002, and (3) because section 711.002 clearly permits the purchaser of a prepaid funeral contract to designate the disposition of the decedent's remains, no cremation authorization form is required in a situation in which a purchaser of a prepaid funeral contract has specified in that document the disposition of the purchaser's remains.

Finally, to the extent that the application of section 716.052 of the Health and Safety Code would purport to abrogate any provision of a prepaid funeral contract entered into prior to its effective date of September 1, 2003, it may contravene the contract clauses of the federal and state constitutions. See U.S. Const. art. I, § 10, cl. 1; Tex. Const. art. I, § 16. These provisions prohibit the state from enacting any law that would impair the obligation of contracts. In order to come within the protection of these constitutional provisions, a contract must be legally enforceable and must involve property interests that have a material value. See Thompson v. Cobb, 65 S.W. 1090, 1091 (Tex. 1902); Mexican Nat'l R.R. v. Mussette, 26 S.W. 1075, 1077 (Tex. 1894).

We conclude that a funeral establishment need not comply with a statutory requirement that it obtain a "cremation authorization form" signed by an "authorizing agent" when a purchaser of a prepaid funeral contract has previously specified disposition of the purchaser's remains by cremation, and therefore, we need not answer your second question as to options available to a funeral establishment if an authorizing agent refuses to sign the cremation authorization form.

Attorney General Opinion JC-0279

Authority of individual designated to handle disposition arrangements for a decedent to modify the terms of a prepaid funeral benefits contract, and related questions.

September 1, 2000

John Cornyn, Attorney General of Texas

You ask whether and to what extent section 711.002(g) of the Texas Health and Safety Code prevents the person handling disposition arrangements for a decedent from changing the funeral arrangements specified in a prepaid funeral benefits contract. Section 711.002(g) of the Health and Safety Code states that a person may provide written directions for the disposition of his or her remains in a prepaid funeral contract, among other written instruments, and that these directions may be modified or revoked only in a signed writing. You ask to what extent section 711.002(g) of the Health and Safety Code limits changes in the funeral arrangements specified in a prepaid funeral benefits contract if the decedent signed the contract and is the named beneficiary. Section 711.002(g) applies only to changes in directions for "disposition" of the decedent's remains that are included in a prepaid funeral services contract (or other written instrument), that is, directions for burial or an alternative, such as cremation, whereby the remains reach their final resting place. If the decedent is the named beneficiary but did not purchase and sign the contract, section 711.002(g) does not apply to changes of the disposition instructions found in a prepaid funeral services contract. The application of section 711.002(g) is not affected by the fact that the contract is not fully paid at the time of the purchaser/beneficiary's death.

Chapter 154 of the Texas Finance Code vests in the Texas Department of Banking ("the Department") regulatory power over the business of selling prepaid funeral services and merchandise. Sexton v. Mount Olivet Cemetery Ass'n, 720 S.W.2d 129, 132 (Tex. App.-Austin, 1986, writ ref'd n.r.e.). Sellers of prepaid funeral benefits must hold a permit issued by the Department and must comply with provisions designed to protect the funds received from purchasers. Tex. Fin. Code Ann. ch. 154, subchs. C. (permit requirement); E. (insurance-funded prepaid funeral benefits); F. (trust-funded prepaid funeral benefits) (Vernon 1998 & Supp. 2000). Sales contracts for prepaid funeral benefits must be on a form approved by the Department, and must "state the details of the prepaid funeral benefits to be provided, including a description and specifications of the material used in the caskets or grave vaults to be furnished." Id. § 154.151 (Vernon 1998). "Prepaid funeral benefits" means "prearranged or prepaid funeral or cemetery services or funeral merchandise, including an alternative container, casket, or outer burial container." Id. § 154.002(8) (Vernon Supp. 2000). It does not include a "grave, marker, monument, tombstone, crypt, niche, plot, or lawn crypt" unless it is sold in contemplation of trade for a funeral service or funeral merchandise subject to chapter 154. Id. "Funeral service" is defined as a service sold or offered for sale on a preneed basis that may be used to:

(A) care for and prepare a deceased human body for burial, cremation, or other final disposition; and

(B) arrange, supervise, or conduct a funeral ceremony or the final disposition of a deceased human body.

Id. § 154.002(12).

You first inquire about the extent to which section 711.002(g) of the Health and Safety Code bars a person handling disposition arrangements from changing the funeral arrangements specified in a matured prepaid funeral benefits contract if the decedent, as purchaser, signed the contract and is the named beneficiary. You state that a "matured" contract is a contract that has become performable due to the death of the beneficiary. Request Letter at 2 n.3.(1)

Section 711.002 of the Health and Safety Code provides in part as follows:

(a) Unless a decedent has left directions in writing for the disposition of the decedent's remains as provided in Subsection (g), the following persons, in the priority listed, have the right to control the disposition, including cremation, of the decedent's remains . . . :

(1) the person designated in a written instrument signed by the decedent; . . .

. . . .

(g) A person may provide written directions for the disposition, including cremation, of the person's remains in a will, a prepaid funeral contract, or a written instrument signed and acknowledged by such person. The directions may govern the inscription to be placed on a grave marker attached to any plot in which the decedent had the right of sepulture at the time of death and in which plot the decedent is subsequently interred. The directions may be modified or revoked only by a subsequent writing signed and acknowledged by such person. The person otherwise entitled to control the disposition of a decedent's remains under this section shall faithfully carry out the directions of the decedent to the extent that the decedent's estate or the person controlling the disposition are financially able to do so.

TEX. HEALTH & SAFETY CODE ANN. § 711.002(a), (g) (Vernon Supp. 2000) (emphasis added).

Section 711.002 of the Health and Safety Code enables a person to control the disposition of his remains. This provision addresses changes in prepaid funeral contracts only to the extent that they govern "the disposition . . . of the person's remains." The effect of section 711.002(g) on the modification of such contracts depends on the meaning of "the disposition . . . of the person's remains."

Neither the phrase "disposition . . . of the person's remains" nor the term "disposition" are defined in chapter 711 of the Health and Safety Code. Words and phrases are to be read in context and construed according to the rules of grammar and common usage. Tex. Gov't Code Ann. § 311.011(a) (Vernon 1998). If words or phrases have acquired a technical or particular meaning, whether by legislative definition or otherwise, they shall be construed accordingly. Id. § 311.011(b). We look at this phrase in the context of section 711.002. Subsection 711.002(a) provides that, if the decedent has not left written directions, specific persons "have the right to control the disposition, including cremation, of the decedent's remains." (Emphasis added.) Subsection 711.002(g) of the Health and Safety Code states that "[a] person may provide written directions for the disposition, including cremation, of the person's remains" in a will, a prepaid funeral contract, or another signed, written instrument. (Emphasis added.) Section 711.001 of the Health and Safety Code defines "interment" as "the permanent disposition of remains by entombment, burial, or placement in a niche." Thus, "disposition" includes the burial, entombment, or cremation of the body. TEX. HEALTH & SAFETY CODE ANN. § 711.001(16) (Vernon Supp. 2000).

"Disposition" is used in the same sense in other statutes. Chapter 651 of the Occupations Code, which regulates funeral directing, defines "funeral service" as a service performed for the care and preparation of a deceased person "for burial, cremation, or other disposition." Tex. Occ. Code Ann. § 651.001(8) (Vernon 2000) (emphasis added). The statute defines additional terms in connection with preparation of the remains "for burial, cremation, or other disposition." See id. §§ 651.001(4) (funeral director); 651.001(7) (funeral merchandise) (emphasis added). Disposition of a body also includes the place of burial. See generally Frank D. Wagner, J.D., Annotation, Enforcement of Preference Expressed by Decedent as to Disposition of his Body After Death, 54 A.L.R.3d 1037 (1973). Moreover, in discussing a county's disposition of a pauper's remains, we have determined that "disposition" includes burial, cremation, or donation of the body to a medical facility. Tex. Att'y Gen. Op. JC-228 (2000) at 5. We conclude that in section 711.002(g) of the Health and Safety Code "disposition" means burial or an alternative, such as cremation, whereby human remains attain their final resting place. Accordingly, directions for disposition included in the decedent's contract for prepaid funeral services (i.e., for burial, cremation or entombment) may be modified or revoked only by a subsequent writing signed and acknowledged by the decedent. TEX. HEALTH & SAFETY CODE ANN. § 711.002(g) (Vernon Supp. 2000). Section 711.002(g) does not apply to other purchases of funeral merchandise or services that may be covered by a prepaid funeral services contract.

With respect to the first question, you ask whether it makes a difference that the contract is not fully paid and has a balance due at the time of the purchaser/beneficiary's death. Request Letter at 2. Section 711.002 provides that a person's written directions in a will, a prepaid funeral contract, or a written instrument signed and acknowledged by that person as to the disposition of his or her remains "may be modified or revoked only by a subsequent writing signed and acknowledged by such person." TEX. HEALTH & SAFETY CODE ANN. § 711.002(g) (Vernon Supp. 2000) (emphasis added). It does not authorize changes in the disposition of the person's remains merely because the prepaid funeral contract has a balance due at the time of the purchaser's death. The prepaid funeral contract is not necessarily the only source of funds to pay for the beneficiary's funeral, because funeral expenses are also claims upon a decedent's estate. TEX. PROB. CODE ANN. § 3(c) (Vernon Supp. 2000). As we have stated, however, section 711.002(g) of the Health and Safety Code does not apply to all purchases of funeral merchandise or services that may be covered by a prepaid funeral services contract. Thus, section 711.002(g) does not apply to certain changes in prepaid funeral contracts, such as the number of limousines provided for relatives of the deceased.

You next ask about the effect of section 711.002(g) on modifications of prepaid funeral contracts if the decedent is the named beneficiary but did not purchase and sign the contract. Request Letter at 2. We answer this question by reading the reference to prepaid funeral contracts in its context in section 711.002. See TEX. GOV'T CODE ANN. § 311.011(a) (Vernon 1998). Section 771.002 refers to written directions for disposition of the decedent's remains that have been signed by the decedent. See TEX. HEALTH & SAFETY CODE ANN. § 711.002(a) (Vernon Supp. 2000) (listing persons who have right to control disposition of decedent's remains "[u]nless a decedent has left directions in writing for the disposition of the decedent's remains as provided in Subsection (g)"). Such written directions may be modified or revoked only by a "subsequent writing signed and acknowledged by such person." Id. § 711.002(g). The written directions must be left by the decedent and must be as provided by subsection 711.002(g), which states that a person may provide written directions for the disposition of his or her remains "in a will, a prepaid funeral contract, or a written instrument signed and acknowledged by such person." A will is ordinarily signed by the testator in person or by another person for him by his direction. TEX. PROB. CODE ANN. § 59 (Vernon Supp. 2000). A "written instrument signed and acknowledged" by the person clearly bears the decedent's signature. In our opinion, only a prepaid funeral contract signed by the decedent is subject to the restrictions of subsection 711.002(g). In this way, we read the reference to "prepaid funeral contract" consistently with its immediate context. Moreover, a person may modify or revoke written directions for disposition of his or her remains only "by a subsequent writing signed and acknowledged by such person." TEX. HEALTH & SAFETY CODE ANN. § 711.002(g) (Vernon Supp. 2000). It is consistent with this provision to conclude that the prepaid funeral contract subject to section 711.002(g) must have been signed by the person who is the beneficiary of the contract.

You fourth question is as follows:

If the purchaser of a prepaid funeral benefits contract is the contract beneficiary, must he or she comply with the acknowledgment requirements of § 711.002(g) in order to cancel or modify the contract?

Request Letter at 2. You inquire about circumstances where the beneficiary of the prepaid funeral benefits contract has signed as purchaser so that the contract is subject to section 711.002(g) of the Health and Safety Code. The beneficiary of the contract is not required to comply with the acknowledgment requirements of section 711.002(g) in order to change any provisions of the contract except those that direct the "disposition" of the remains as defined in answer to your first question.

SUMMARY

Pursuant to section 711.002(g) of the Texas Health and Safety Code, a person may provide written directions for the disposition of his or her remains in a signed, written instrument, including a prepaid funeral contract, and these directions may be modified or revoked only in a signed writing. Section 711.002(g) applies only to changes in directions for disposition of the decedent's remains, that is, directions for burial or an alternative, such as cremation, whereby the remains reach their final resting place, and does not apply to other goods and services purchased under a prepaid funeral services contract. If the decedent is the named beneficiary but did not purchase and sign the prepaid funeral services contract, section 711.002(g) does not apply to changes of the disposition instructions found in a prepaid funeral services contract. The application of section 711.002(g) is not affected by the fact that the contract is not fully paid at the time of the purchaser/beneficiary's death.

________________________________________
Footnotes
1. Letter from Randall S. James, Commissioner, Texas Department of Banking, to Honorable John Cornyn, Attorney General of Texas (April 3, 2000) (on file with Opinion Committee).

Opinion No. 12-01

Pets may not be buried in cemeteries where humans are buried.

May 9, 2012

Deborah H. Loomis, Assistant General Counsel

Although there is no explicit Texas authority, the Texas Department of Banking ("Department") concludes that pets may not be buried in cemeteries where humans are buried.

Question Presented:

You ask, in regard to property that is dedicated as a cemetery, whether pets may be buried in a specific section of the cemetery on a controlled basis. You ask whether this is allowable under either of two scenarios. The first scenario involves a section that would allow families to inter pet remains in dedicated/platted grave spaces either with the family member or alongside them. The second scenario would allow families to inter pet remains in oversized easements located in the center of an 8 or 10 space lot. The spaces in these lots would be for sale only as part of the 8 or 10 space lot. This section would be separated from other areas of the cemetery by roadways.

Discussion:

Health and Safety Code Chapter 711 is titled, "General Provisions Relating to Cemeteries." Although Chapter 711 does not explicitly address whether pets may be buried in cemeteries, it has several provisions that explicitly address "human remains" and other provisions that only make sense when applied to humans. The definition of "cemetery" in § 711.001(2) is "a place that is used or intended to be used for interment, and includes a graveyard, burial park, mausoleum, or any other area containing one or more graves." (Emphasis added.) "Interment" is defined in § 711.001(16) as "the permanent disposition of remains by entombment, burial, or placement in a niche." (Emphasis added.) "Remains" is defined in § 711.001(28) as "either human remains or cremated remains." "Cremated remains" is defined in § 711.001(6) as "the bone fragments remaining after the cremation process, which may include the residue of any foreign materials that were cremated with the human remains." (Emphasis added.) A review of these definitions alone leads to the conclusion that a cemetery is a place for interment, and interment means only human remains. Additionally, the definition of "grave" in § 711.001(14) is "a space of ground that contains interred human remains or is in a burial park and that is used or intended to be used for interment of human remains in the ground." (Emphasis added.)

In addition to the definitions section, several other sections of Chapter 711 indicate that cemeteries are to contain only human remains. Section 711.002 governs who may make decisions about disposition and such phrases as "the decedent's surviving spouse" make it clear that only humans are considered decedents. Section 711.003, concerning records of interment, refers to "the name and age of the person interred." Section 711.004, which governs who may consent to removal of interred remains, refers to "the decedent's surviving spouse." Section 711.0105, concerning the method of removal of remains, refers to "human remains" and also mentions "next of kin." Section 711.032 prohibits discrimination by race, color or national origin, terms that apply to humans. Section 711.039, concerning rights of interment in a plot refers to "interment of the spouse's remains." Section 711.042, which grants powers to nonprofit cemetery organizations, states that they may take actions necessary to carry out their business purposes, "which include the business purposes necessarily incident to the burial and disposal of human remains. . . ."

Because the land at issue has been dedicated as a cemetery, it "shall be used exclusively for cemetery purposes. § 711.035(f). "Cemetery purpose" is defined as "a purpose necessary or incidental to establishing, maintaining, managing, operating, improving, or conducting a cemetery, interring remains, or caring for, preserving, and embellishing cemetery property." (Emphasis added.) As explained above, "remains" means human remains.

The Legislature has enacted rules on how statutes should be construed. See Government Code § 311.023. A court may consider the consequences of a particular construction. Government Code § 311.023(5). If Chapter 711 were construed to allow pets to be buried in cemeteries, there are no provisions defining what a pet is. A person could insist that he be allowed to bury a pet that others might find offensive. A court may also consider how an administrative agency has construed the statute. Government Code § 311.023(6). The Department recently informed a perpetual care cemetery that it must remove the cemetery dedication from a portion of its cemetery where pets are buried. This action demonstrates that the Department construes Chapters 711 and 7121 to provide for interment of humans alone in cemeteries.

In 1993, the Texas Attorney General published Letter Opinion No. 93-16 (1993), which held that according to Health and Safety Code § 713.027, a county commissioners court can decide whether to allow interring of non-human animals in a county cemetery. The letter opinion states as follows:

"Nothing in chapter 711 expressly prohibits the burial of non-humans. A number of provisions, however, are couched in language from which it might be reasonably inferred that burial is limited to humans. . . . Nevertheless, we are loath to infer an express prohibition in such an indirect manner."

Id. at page 1.

You submitted a memorandum from an attorney, who points out that Chapter 711 has been amended since 1993 and now the definition of "cemetery" includes having "graves," and the definition of "graves" now includes "contains interred human remains." The attorney concludes that although there is no express restriction, an argument could be made that "non-human remains is not a defined use of a grave-space." The Department is of the opinion that this argument would prevail.

We have located two cases dealing with this issue. In Shields v. Karns, 622 N.E.2d 673 (Ohio Ct. App. 1993), the court held that burials in cemeteries owned by townships and operated pursuant to a statute regulating such cemeteries are restricted to human remains. The court affirmed a trial court order requiring people to disinter their dog. The statute governing the cemetery was similar to Texas' in that it did not expressly prohibit non-human interment. The court relied on the common meaning of "cemetery" and the fact that the statute had provisions similar to Texas' in which the terms "spouse, persons, head of household" were used, which only contemplate humans. A distinguishing fact is that Ohio has a separate statute regulating pet cemeteries. Although we are aware that pet cemeteries exist in Texas, we could find no statute regulating them.

Texas does, however, have regulations governing pet burials, which are rules of the Texas Commission on Environmental Quality concerning municipal solid waste. 30 Texas Administrative Code (TAC) § 330.11 requires a person operating a pet cemetery to notify local and state officials regarding his intent to dispose of animals. 30 TAC § 330.19 requires the person to record in the county deed records a metes and bounds description of the portions of land in which the interment will take place. 30 TAC § 330.11(e)(7) requires that the pets be buried promptly and under at least two feet of soil. It also provides that only pets and service animals may be buried in a pet cemetery. (Note that Health and Safety Code § 714.001 sets depth requirements for burials of "the body of a decedent." The fact that there are separate laws for burials of "decedents" and pets is another indication that Chapter 711 only provides for burials of humans in cemeteries.)

The other case is St. Peter's Evangelical Lutheran Church v. Bean, 22 Montg. 74, 15 Pa.D. 636 (Ct. of Common Pleas of Pa. 1906). The court held that a dog could not be buried in a church cemetery and its owner could not erect a marker to the dog. The case is not useful precedent because it was decided pursuant to the rules of the church and the court made general pronouncements such as, "People have not reached that stage when they are so indifferent to the resting place of their dead that they will deposit their bodies in a graveyard that is common to man and beast." Id., 15 Pa.D. at 640. The fact that you have posed this question to us and that you believe your customers are interested in burying their pets with or near them indicates that public standards have changed. Nevertheless, the Department is of the opinion that a legislative change would be required before pets could be buried in cemeteries for humans.

Opinion No. 10-01

The Department may require persons selling the surface burial vault to obtain a permit to sell prepaid funeral benefits unless the product is delivered within 72 hours in accordance with the provisions of Title 7 Texas Administrative Code ("TAC"), Chapter 25, Section 25.8.

December 8, 2010

Charles G. Cooper, Banking Commissioner

Executive Summary

The Texas Department of Banking ("Department") may reasonably conclude that a surface burial vault ("SBV") constitutes an "outer burial container" and "funeral goods" within the meaning of Texas Finance Code, Chapter 154, and Health & Safety Code, Chapters 711, 712. The Department may require persons selling the SBV to obtain a permit to sell prepaid funeral benefits unless the product is delivered within 72 hours in accordance with the provisions of Title 7 Texas Administrative Code ("TAC"), Chapter 25, Section 25.8.

Issues Involved

The SBV is partially installed below ground with the top at the ground level. The SBV includes a surface level granite ledger memorialization top. The issue is whether the SBV is an outer-burial container and regulated as preneed funeral merchandise or funeral goods under the provisions of Texas Finance Code, Chapter 154.

Background

Texas has regulated the sale of prepaid funeral services or merchandise for fifty-five years. The original statute, which became Article 548b, Vernon's Civil Statutes ("V.C.S."), was passed by the Texas Legislature in 1955. See Acts 1955, 54th Leg., p. 1292, ch. 512.

Over the years, Article 548b, V.C.S. was amended in 1963, 1967, 1973, 1981, 1983, 1987, 1991, and 1993. In 1997, Article 548b, V.C.S. was codified as part of the Texas Finance Code. This was a nonsubstantive revision process conducted by the Texas Legislative Council that was not intended to alter the sense, meaning, or effect of the law or to resolve any existing ambiguities.

In its original form, Article 548b, V.C.S. was a much shorter version of the current law that contained no defined terms, and sought to regulate the sale of prearranged or prepaid funeral services or funeral merchandise (including caskets, grave vaults, and all other articles of merchandise incidental to a funeral service) in Texas under a sales contract providing for prepaid burial or funeral benefits or merchandise to be delivered upon the death of the contracting party. The amendments in 1967 specifically excluded grave lots, grave spaces, grave markers, monuments, tombstones, crypts, niches, and mausoleums from the regulation of funeral merchandise unless these items and articles are sold in contemplation of trade or barter for services and articles that are funeral merchandise.

On May 24, 1967, the Department issued a letter finding that the SBV product was not subject to Article 548b, V.C.S. if certain conditions are satisfied: (1) the product is permanently installed at the site designated by the purchaser, upon receipt by the seller of full payment for the merchandise, and (2) the purchaser is informed at the time of the sale that the merchandise is not subject to Article 548b, V.C.S., and that the purchaser does not enjoy the protection afforded by that statute.

The current provisions of Texas Finance Code, Chapter 154 contain relevant definitions:

Section 154.002(9) defines "Prepaid funeral benefits" as prearranged or prepaid funeral or cemetery services or funeral merchandise, including an alternative container, casket, or outer burial container. The term does not include a grave, marker, monument, tombstone, crypt, niche, plot, or lawn crypt unless it is sold in contemplation of trade for a funeral service or funeral merchandise to which this chapter applies.

Section 154.002(11) defines "crypt," "grave," "lawn crypt," "niche," and "plot" as having the same meanings assigned by Health & Safety Code, Section 711.001.

The current provisions of Health & Safety Code, Chapter 711 also contain relevant definitions:

Section 711.001(10) defines "Crypt" as a chamber in a mausoleum of sufficient size to inter human remains.

Section 711.001(15) defines "Human remains" as the body of a decedent.

Section 711.001(19) defines "Lawn crypt" as a subsurface receptacle installed in multiple units for ground burial of human remains.

Section 711.001(20) defines "Mausoleum" as a durable, fireproof structure used or intended to be used for entombment.

Section 711.001(20-a) defines "Memorial" as a headstone, tombstone, gravestone, monument, or other marker demoting a grave.

Section 711.001(21) defines "Niche" as a space in a columbarium used or intended to be used for the placement of cremated remains in an urn or other container.

Section 711.001(28) defines "Remains" as either human remains or cremated remains.

Section 711.061 contains specific requirements for lawn crypts which are to be constructed of concrete and reinforced steel or other comparably durable material and the outside top surface must be at least one and one-half feet below the surface of the ground [referencing 714.001(a)(2) which provides a criminal penalty if the outside top surface of the container of the body is less than one and one-half feet below the surface of the ground if the container is made of a impermeable material].

Title 7 TAC Section 26.4 contains specific deadlines for ordering and setting burial markers or monuments in a perpetual care cemetery. However, the terms "burial marker" and "monument" are not defined in the regulations or in the statutes.

Title 7 TAC Section 25.8 contains requirements for a prompt delivery of "funeral goods" if it is to qualify for an exemption from the permit requirements of Texas Finance Code, Chapter 154. "Funeral goods" include an alternative container, casket, or outer burial container, but not a marker. Prompt delivery is within 72 hours of sale.

In addition to state law, the Federal Trade Commission ("FTC") regulates certain aspects of the funeral industry. Title 16 Code of Federal Regulations ("CFR") Part 453. Although the FTC does not regulate prepaid funeral services and leaves the regulation of this part of the funeral industry to the states, 16 CFR Section 453.1(n) defines "Outer Burial Container" as any container which is designed for placement in the grave around the casket including, but not limited to, containers commonly known as burial vaults, grave boxes, and grave liners. The surface burial vaults sold by Surface Burial Vault Company are designed to contain a casket, and therefore would fit the federal definition of an outer burial container. The term is not defined in the Texas statutes.

Discussion

The SBV product would not qualify as a lawn crypt since it is not buried at least one and one-half feet below ground as required by the current provisions of Health & Safety Code, Sections 711.061 and 714.001(a)(2). While it might be called a mausoleum as a durable, fireproof structure used or intended to be used for entombment, or perhaps a monument, because like a headstone, tombstone, gravestone, monument, or other marker it denotes a grave, the SBV product best fits the definition of outer burial container under the federal definition.

The product is sold directly to consumers and also directly to cemeteries and funeral homes. When the product is sold, it is delivered and installed as instructed by the customer upon receipt of payment for the product. In general, these transactions would not require regulation under the provisions of Texas Finance Code, Chapter 154 because the product is paid for and promptly delivered. In like manner, if the product is sold and delivered at time of death on an at-need basis, there would not be any necessity for regulation under Chapter 154.

However, in a transaction whereby a funeral home or cemetery sells the product for future delivery at time of death, the need for regulation as a prepaid funeral contact becomes an issue. Since the SBV fits within the definitions of an "outer burial container" and "funeral goods," persons selling this product would be required to obtain a permit to sell prepaid funeral benefits under Texas Finance Code, Chapter 154, unless the product is delivered within 72 hours in compliance with the provisions of Title 7 TAC Chapter 25, Section 25.8.

Summary

The surface burial vault product described is an "outer burial container" within the federal definition and constitutes funeral merchandise and funeral goods under state law. Whenever the SBV product is sold in advance of death, and the product is not delivered and installed within 72 hours (in accordance with the provisions of Title 7 TAC Section 25.8), the transaction will be considered a sale of funeral merchandise on a preneed basis. Under these circumstances, the sale of the product should be written on a preneed contract form approved by the Department and the transaction is subject to the requirements of Texas Finance Code, Chapter 154.

Opinion No. 07-03

A cemetery must issue a conveyance document when it later sells a second right of sepulture.

July 12, 2007

Shannon Phillips, Jr., Assistant General Counsel

You ask whether an additional instrument evidencing conveyance must be signed by the appropriate officer(s) of a cemetery organization when it sells and conveys a right of second sepulture in a plot.

A "right of sepulture" is the right to use and occupy a plot for interment.  A "right of second sepulture" is the right to use and occupy a plot for a second or later interment.  It is the Department´s position that each right of sepulture in a plot that is sold and conveyed, whether first, second or later,1 is an exclusive right of sepulture.

The sale and conveyance of an exclusive right of sepulture in a plot occurs only after payment of the full purchase price of the plot.2   When full payment occurs, the appropriate officer(s) of the cemetery organization must sign a certificate of ownership or other instrument evidencing conveyance of the exclusive right of sepulture.  The purchaser then owns the exclusive right of sepulture in the plot, and not the real estate comprising the plot.3

When a second right of sepulture is sold and conveyed in a plot separately from the sale and conveyance of the first right of sepulture, upon payment of the purchase price of the second right of sepulture, the appropriate officer(s) of the cemetery organization must sign a second certificate of ownership or other instrument evidencing conveyance of the exclusive right of sepulture.

When a second right of sepulture in a plot is sold and conveyed simultaneously with the first right of sepulture, a second certificate of ownership is not required.  A single certificate of ownership must evidence all conveyances and sales made simultaneously. 

We are aware that Legal Opinion 98-30 (LO 98-30) contains a sentence that provides:  "A cemetery is not required to issue a deed for subsequent interment rights although it must record each such interment in its interment log."  However, the issue of whether a "deed" must be issued for second rights of interment was not at issue in LO 98-30 and the quoted conclusory statement was not supported by any authority or analysis.  This opinion overrules the conclusion of that sentence in LO 98-30.

If you have any questions or comments regarding this issue, please feel free to contact me.

Opinion No. 04-08

The Texas Department of Banking ("Department") may reasonably conclude that a cremation bench or boulder constitutes a "columbarium" within the meaning of Health & Safety Code, §711.001(5), and, accordingly, require perpetual care cemeteries to trust a portion of the money collected for associated interment rights and to plat these features.

November 16, 2004

Sarah Shirley, Assistant General Counsel

Questions Presented

You ask several questions regarding the applicability of Health & Safety Code, §712.028, which requires a perpetual care cemetery to deposit in trust certain amounts paid for interment rights, and Health & Safety Code, §711.034, which requires a cemetery to file a map or plat that indicates specific unique numbers assigned to a plot, crypt, lawn crypt or niche, to cremation benches and boulders.  Apparently, these alternative "features" are becoming increasingly popular for the interment of cremated remains and questions have arisen as to how they should be treated for purposes of Texas perpetual care cemetery law.

Summary Conclusion

Neither Chapter 711 nor Chapter 712 addresses cremation benches and boulders.  The Department may reasonably conclude that a cremation bench or boulder constitutes a "columbarium" within the meaning of §711.001(5) and, accordingly, require perpetual care cemeteries to trust a portion of the money collected for associated interment rights and to plat these features.

Background

It is my understanding that a cremation bench is generally made of granite or some other stone and contains niches in the bench legs or bench base into which cremains can be placed.  The benches are designed to hold two to six sets of cremains.  Cremation boulders are similarly made of stone and vary in size and weight, from "garden memorial rocks," "nature cremation rocks" or "garden stones" that may weigh from 50-95 pounds, to larger "boulders."  Cremated remains can be placed within the boulder.  Cremation sundials and wall fountains are also available.

Cremation benches and boulders are "located" in cemeteries in a number of ways.  Some cemeteries themselves locate or install them in a particular garden area of the cemetery, then include them as an interment option just as they would interment in a more traditional columbarium.  For example, an Arkansas cemetery requested and obtained the approval of the Arkansas Cemetery Board to construct eight granite cremation benches on cemetery grounds.  The cemetery was required to file a map with the Board showing the proposed location of the benches.  Other cemeteries provide that the benches may be purchased and placed in garden areas of the cemetery according to the mutual agreement of the cemetery and the property right owner as to location.  These locations, when selected, are designated by the cemetery as "cremation bench lots."  Similarly, individual boulders or memorial rocks can be purchased and placed in designated garden areas, sometimes called "rockeries."  The manner in which the benches and boulders are "installed" varies, but it appears that they are generally intended to be permanently located.

Applicability of Health & Safety Code, §712.028

We first address whether §712.028 applies to cremation benches and boulders. Section 712.028 requires a corporation that operates a perpetual care cemetery to establish a trust fund to finance the cemetery's perpetual care.  The statute specifies the amount that must be trusted for 1) ground area conveyed as perpetual care property; 2) each crypt interment right for mausoleum interment or lawn crypt interment conveyed as perpetual care property; and 3) each niche interment right for columbarium interment.  Cremation benches and boulders must fit within one of these categories in order for perpetual care fees to be required to be deposited in connection with their purchase and the related interments.

Clearly, the interment of cremains in a cremation bench or boulder is not a ground or crypt interment.  The ground on which the bench or boulder is located may arguably constitute "ground area conveyed as perpetual care property."  However, the interment of cremains in a bench or boulder is more appropriately considered to be a columbarium interment.  Section 711.001(5) defines "columbarium" as "a durable, fireproof structure, or a room or other space in a durable, fireproof structure, containing niches and used or intended to be used to contain cremated remains."  Subsection (21) in turn defines "niche" as "a space in a columbarium used or intended to be used for the placement of cremated remains in an urn or other container.

A cremation bench or boulder made of granite or similar material is durable and fireproof and contains niches1 or spaces used or intended to be used to contain cremains.  Additionally, a cremation bench or boulder is a "structure" under the Webster's definition of that term:  "something made up of a number of parts held or put together in a certain way; something constructed, especially a building or part."  If the bench or boulder is or may be used for the placement of cremains (as opposed to simply serving as a memorial), and if it is intended to be permanently located,2 the Department may consider it to be a "columbarium" and require a portion of the money collected for associated interment rights to be trusted.  This interpretation is reasonable and, further, is consistent with the statutory trust fund objectives of insuring that the cemetery discharge its duty to persons interred and to be interred and providing for cemetery maintenance for the benefit and protection of the public.

A question may exist with respect to whether a "memorial stone" that is small and may be relocated is subject to perpetual care trusting requirements.  Again, the Department may reasonably conclude that such a stone is a "columbarium," notwithstanding the fact that it is capable of being relocated, so long as cremains are intended to be permanently placed inside the stone or the stone is intended to be permanently placed in the cemetery.3

Applicability of Health & Safety Code, §711.034

Section 711.034(a)(2) provides that, in the case of a columbarium, a cemetery corporation must "make a map or plat of the property delineating sections or other divisions with descriptive names and numbers and showing a specific unique number for each . . . niche."  Under §711.034(e), the cemetery's directors, if authorized by the dedication, may resurvey and change the shape and size of the property for which the associated map or plat is filed, and may file an amended map or plat indicating any changes in a specific unique number assigned to a niche.

Cremation benches, boulders, and other alternative features the Department considers to be columbaria are subject to the platting requirements of Chapter 711.  A perpetual care cemetery that sells or offers to sell niche interment rights in such alternative features must first amend its plat or map to locate the features in the cemetery and assign each niche a unique number.4 However, a person who purchases a right of interment in a ground plot may install or locate on that plot an alternative feature that has one niche5 for cremated remains without triggering the replatting requirement.  In this situation, the unique number assigned to the ground plot will also serve as the unique number of the niche.6

For the reasons explained above, the Department may require perpetual care cemeteries to deposit into their trust funds a portion of the money collected for interment rights in alternative features such as cremation benches and boulders, and to plat such features.

Please contact me if you have any further questions.

Opinion No. 04-02

Texas Health & Safety Code §712.021(b) prevails over the Texas Trust Code with regard to the permissibility of allocating trustee expenses between principal and income.

March 29, 2004

Sarah Shirley, Assistant General Counsel

By letter dated January 6, 2004, to Russell Reese, you ask the Texas Department of Banking (Department) to clarify an apparent conflict between state law applicable to a perpetual care cemetery trust and state law applicable to trusts generally.  I write in response to your letter.

Question Presented

Section 712.021(b) of the Health & Safety Code (Code) provides that the principal of a perpetual care trust fund established pursuant to Chapter 712 of the Code may not be reduced voluntarily and must remain inviolable.  However, recent amendments to the Texas Trust Code (TTC) require that one-half of a trustee's regular compensation be paid from trust principal.  You ask the Department which provision prevails.

Summary Response

The prohibition against voluntary withdrawals from the principal of a perpetual care cemetery trust mandated by §712.021(b) of the Code prevails over recent amendments to the TTC.  Accordingly, no portion of the regular compensation due a trustee of a perpetual care cemetery trust may be paid out of trust principal.

Discussion

Section 712.021 of the Code requires a corporation that operates a perpetual care cemetery in Texas to establish a trust fund to ensure that money is available to pay for the ongoing care and maintenance of the cemetery. Under subsection (b) of that section, "the principal of the fund may not be reduced voluntarily, and it must remain inviolable."  State law regulating cemeteries has contained substantially similar language since 1934, when the Texas Legislature amended Title 26 of the Revised Civil Statutes of 1925 to authorize1 a cemetery association to establish "an irreducible fund for the general perpetual care of its cemetery".  The amendment further provided that "the principal of all funds for perpetual care shall forever remain irreducible and inviolable ...".

During its last regular session, the 78th Texas Legislature added the Uniform Principal and Income Act of Texas (UPIA) to the Texas Trust Code, effective January 1, 2004.  The UPIA, codified as new Chapter 116 of the Property Code, repeals most of the sections of the Probate Code and the TTC that previously controlled allocations of trust receipts and disbursements.  The UPIA sets out how a trustee is to allocate receipts and expenses between principal and income unless the trust instrument provides otherwise and, among other things, changes the allocation of trust administration expenses.  Under prior law, trustee compensation was either charged to income or the trustee was authorized to allocate the fees between income and principal on a just and equitable basis, depending upon the nature of the fee.  Tex. Prop. Code §113.111 (repealed).  New §116.202(a)(1), however, directs that one-half of a trustee's regular compensation be paid out of principal.

We do not believe that an irreconcilable conflict exists between the prohibition against principal withdrawals mandated by §712.021(b) of the Code and the directive of §116.202(a)(1) of the UPIA that ½ of a trustee's compensation be charged to principal.  The UPIA, which is the Texas version of the Uniform Principal and Income Act of 1997, represents a set of default rules that may be overridden by the language of the instrument creating the trust. Tex. Prop. Code §116.004 and §116.005.  As explained below, we believe that a perpetual care cemetery trust agreement, either expressly or by implication, incorporates the §712.021(b) prohibition on principal withdrawals and that, as a result, no resort to the UPIA trustee compensation allocation is necessary. 

The perpetual care cemetery trust required by §712.021 of the Code is a specific, statutory trust established to serve important consumer protection and public policy purposes.  The trust ensures that a perpetual care cemetery discharges its duty to persons interred and to be interred in the cemetery, and benefits and protects the public by ensuring that funds are available to preserve the cemetery and keep it from becoming a place of disorder or nuisance.  The subsection (b) prohibition on principal withdrawals is essential to the accomplishment of these objectives.  We believe most trust agreements between a perpetual care cemetery and its trustee include specific provisions regarding the payment of trustee fees that are consistent with §712.021(b) of the Code.  A perpetual care cemetery trust agreement that is silent with respect to the allocation of trustee fees, or that gives allocation discretion to the trustee, is presumed and will be construed to incorporate and conform to applicable state law.  Accordingly, the default rule set out in §116.202(a)(1) of the UPIA does not apply, and no irreconcilable conflict exists between that section and §712.021(b) of the Code that would alter the longstanding prohibition against the reduction of trust principal, for the payment of trustee compensation or for any other purpose.

Even if we were to find that an irreconcilable conflict exists between the provisions in question, however, we would nevertheless conclude that regular compensation due a trustee of a perpetual care cemetery trust governed by Chapter 712 of the Code may not be paid out of trust principal.  Section 311.026(b) of the Government Code provides that, if an irreconcilable conflict exists between a general provision of the law and a special provision, the special provision prevails as an exception to the general provision to the extent of the conflict unless the general provision is the later enactment and the manifest intent is that the general provision prevail.  Clearly, §712.021(b) of the Code, which concerns only statutorily mandated  perpetual care cemetery trusts, is more specific than §116.202(a)(1) of the UPIA, which applies to trusts generally.  Additionally, although §116.202(a)(1) of the UPIA is the later enactment, the legislature has not manifested its intent that the recently enacted general provision prevail.  Admittedly, in interpreting and applying the UPIA, consideration is to be given the need to promote uniformity among the states that have enacted it.  Tex. Prop. Code §116.003.  However, the UPIA itself contemplates and authorizes trust terms that differ from its provisions.  For that reason, and in light of the purposes served by the §712.021(b) prohibition on withdrawals and the integral part the prohibition plays in Texas' comprehensive regulation of funds collected for the perpetual care of cemeteries, we cannot read the UPIA's reference to uniformity or any other UPIA provision as demonstrating a "manifest intent" by the legislature that the later enacted, general §116.202(a)(1) prevail over §712.021(b) of the Code.

In closing, we note that subsection (d), another subsection of §712.021 of the Code, provides that a perpetual care trust fund and its trustee are governed by the TTC.  We do not believe, however, that subsection (d) warrants the conclusion that the UPIA provision in question prevails.  Since 1947, statutory provisions requiring and regulating perpetual care cemetery trusts have included a similar reference to the TTC.  No question existed with respect to the allocation of trustee compensation, however, until the recent enactment of the UPIA.  In light of this legislative history, and for the reasons set out above, we cannot conclude that subsection (d) renders meaningless the specific and unequivocal statutory prohibition against reducing the principal of a perpetual care trust.

Based on the foregoing, we conclude that §116.202(a)(1) of the UPIA does not prevail over §712.021(b) of the Code.  Accordingly, regular compensation due a trustee of a perpetual care cemetery trust governed by Chapter 712 of the Code may not be paid out of trust principal. If you have any questions, please do not hesitate to call.

Opinion No. 01-04

An out-of-state, federal savings bank with trust powers may engage in fiduciary activities in this state with respect to perpetual care cemetery trusts and prepaid funeral benefit trusts created under Texas law if the bank establishes a physical Texas presence through a branch or representative trust office.

Sarah Shirley, Assistant General Counsel

May 30, 2001

By letter dated January 5, 2001, you ask the Department of Banking ( the "Department") to grant [****] Bank (the "Bank") a "variance" from Health & Safety Code §712.021(a) and Finance Code §154.253, which require the trustee of a perpetual care cemetery trust to be located in Texas and a trustee of a prepaid funeral benefit trust to have its main office or a branch in Texas, respectively.

Summary of Opinion

An out-of-state, federal savings bank with trust powers may engage in fiduciary activities in this state with respect to perpetual care cemetery trusts and prepaid funeral benefit trusts created under Texas law if the bank establishes a physical Texas presence through a branch or representative trust office.

Background

In your letter, you advise the Department that a Texas perpetual care cemetery corporation has approached you "to see if the Bank could assist his company in setting up a perpetual care trust."  Apparently, the corporation wishes to transfer its perpetual care cemetery trust funds from the current trustee to the Bank.  You have provided additional details about the proposed trust activities during our several telephone conversations.  Although your letter mentions only activities as trustee of a perpetual care cemetery trust, you advise that the Bank also wishes to serve as the trustee of prepaid funeral benefit trusts.  You also advise that the Bank has its principal office in [City], [State], and does not currently have an office in Texas.

Analysis

In our opinion, an out-of-state, federal savings bank with trust powers may engage in fiduciary activities in this state without qualification in all but a few circumstances.  With respect to acting as a fiduciary for prepaid funeral benefits and perpetual care trust funds under Texas law, fiduciary relationships that would not exist but for Texas law, an out-of-state federal savings bank may only do so if it establishes a physical Texas presence through a branch or representative trust office.1

Health & Safety Code §712.021(a), pertaining to perpetual care trust funds, requires a corporation that operates a perpetual care cemetery in Texas to have a trust fund established with a trust company or bank with trust powers that is located in this state.  Health & Safety Code §712.028 requires that the cemetery corporation "deposit" specific amounts collected from the sale of perpetual care property into the trust fund, and §712.029 establishes requirements pertaining to the timing of and accounting for "deposits."

Finance Code §154.253 requires that money paid or collected on prepaid funeral benefits contracts be "deposited" into either an insured, interest bearing account with a financial institution that has its main office or a branch in Texas, or in trust with a financial institution that has its main office or a branch located in this state and is authorized to act as a fiduciary in Texas.

Health & Safety Code §712.021(a) and Finance Code §154.253 are not banking statutes.  In the context of these statutes, the word "deposit" is not used in the same manner as in banking statutes because the term includes a contribution to a trust, which is not a "deposit" transaction.  Finance Code §154.253 permits either a deposit account or a trust account, and refers to both forms of account as "deposits."  Similarly, we believe the terms "located," "main office," and "branch" are not used in the same manner as in banking statutes when referring to trust accounts, but simply require that the funds be received by the fiduciary institution in Texas subject to Texas law.  A physical Texas location, such as a branch or representative trust office, will therefore satisfy the requirements of Health & Safety Code §§712.021, 712.028, and 712.029, and Finance Code §154.253.  We believe this interpretation accomplishes the purposes for which the office location requirements were enacted - to ensure that Texas-based perpetual care trust funds and prepaid funeral benefit trust funds are received and receipted for in Texas and are subject to and dealt with in accordance with Texas law.

Accordingly, the Bank may act as trustee of perpetual care cemetery trust funds or prepaid funeral benefit trust funds in Texas if it establishes a branch or representative office in this state to engage in prepaid funeral benefits and perpetual care cemetery-related fiduciary activities, and complies with applicable provisions of Texas law and the Department's rules.  Certain Texas laws impose minimal requirements.  Specifically, the Bank must register with the Texas Secretary of State, pursuant to Finance Code §201.102, and, if establishing a representative trust office, must comply with the requirements of [Finance Code §187.202].

Once the required registrations have been completed with the Secretary of State and the Savings and Loan Commissioner, any Texas perpetual care cemetery corporation or prepaid funeral benefits contract seller that desires to use the Bank as trustee should contact Ms. Sheila Armstrong of the Department's Special Audits Division for specific instructions regarding how to proceed with the deposit or transfer of trust funds, inasmuch as the requirements vary somewhat depending upon whether the funds in question are prepaid funeral benefits funds or perpetual care funds.  In either event, the Department will require that the Bank, prior to receiving any of these trust funds, execute and return to the Department an acknowledgment affirming its agreement to, among other things, receive and provide a receipt for trust funds at its Texas branch or representative trust office, and comply with and be bound in all respects by the requirements of Health & Safety Code Chapter 712 and Finance Code Chapter 154 applicable to fiduciaries, specifically including those pertaining to the protection of perpetual care cemetery funds and prepaid funeral benefits funds.

Opinion No. 00-08

A prepaid funeral benefits contract must include a beneficiary designation as one of its required terms and the purchaser must designate an individual person as beneficiary at the time the contract is executed. A purchaser is not prohibited from acquiring more than one funeral benefits contract, each of which names the purchaser as beneficiary.

August 10, 2000

Sarah J. Shirley, Assistant General Counsel

Chapter 154 and related rules in 7 T.A.C. Chapter 25 require that a prepaid funeral benefits contract include a beneficiary designation as one of its required terms and that the purchaser of a prepaid benefits contract designate a beneficiary at the time the contract is executed. Additionally, the named beneficiary must be an individual person. Finally, Chapter 154 does not prohibit a purchaser from purchasing more than one funeral benefits contract, each of which names the purchaser as beneficiary.

Questions Presented

You advise that a question has arisen as to whether a prepaid funeral benefits contract must include a beneficiary designation, and are concerned that Tex. Fin. Code, Chapter 154 (Code), which governs the regulation of prepaid funeral benefits contracts, and the department rules adopted to enforce and administer that chapter, may not provide a sufficient basis for the imposition of such a requirement. You therefore ask whether a beneficiary must be designated in a prepaid benefits contract. You also ask whether the named beneficiary may be an estate, company or association rather than a specific individual, and whether Chapter 154 prohibits a purchaser of a prepaid funeral benefits contract from designating himself or herself as beneficiary in more than one contract.

Summary Response

Chapter 154 and related rules in 7 T.A.C. Chapter 25 require that a prepaid funeral benefits contract include a beneficiary designation as one of its required terms and that the purchaser of a prepaid benefits contract designate a beneficiary at the time the contract is executed. Additionally, the named beneficiary must be an individual person. Finally, Chapter 154 does not prohibit a purchaser from purchasing more than one funeral benefits contract, each of which names the purchaser as beneficiary.

Discussion

A. Designation of Beneficiary

Subchapter D of Chapter 154 sets out the general statutory provisions applicable to contracts used to sell prepaid funeral benefits. Section 154.151(a) establishes the requirement that the department approve a sales contract form prior to its use. Section 154.151(b) sets out the basic contract requirements. Under that subsection, a prepaid funeral benefits contract must 1) be in writing; 2) state the name of the funeral provider or other person primarily responsible for providing the specified services; and 3) state the details of the benefits to be provided.1 Neither subchapter D nor any other provision of Chapter 154 expressly requires that the contract include a beneficiary designation as one of its terms.

Notwithstanding the absence of specific language in Chapter 154 requiring the designation of a contract beneficiary, we conclude that the imposition of such a requirement is statutorily authorized. The death of the beneficiary is the event that triggers the seller or provider´s duty to provide the contracted-for services. The identity of the beneficiary must thus be known; arguably, no enforceable contract exists if no beneficiary is designated in the contract. Furthermore, Chapter 154 includes several specific references to the "beneficiary named in the contract." Sections 154.207 and 154.262, which pertain, respectively, to the withdrawal of benefits payable under an insurance-funded contract and the withdrawal of money under a trust-funded contract, both provide for the withdrawal of benefits or funds after the beneficiary named in the contract dies. These provisions clearly contemplate and, we believe, require that a beneficiary will be designated in the contract.

Additionally, numerous Chapter 154 provisions depend for their effectiveness upon the purchaser´s designation of a beneficiary. For example, §154.156(b)(1) provides that a purchaser´s irrevocable waiver of his right to cancel a prepaid benefits contract does not affect his right to change the contract beneficiary. Section 154.301, which deals with abandoned prepaid benefits contracts, establishes certain criteria for determining when money paid under a contract is considered abandoned for purposes of the State´s unclaimed property laws. Under subsection (b)(1) of that section, money held in a depository under a fully-paid contract is presumed abandoned if, among other things, the seller has not known the existence or location of the beneficiary of the contract for at least three years and at least ninety years have elapsed since the beneficiary´s date of birth. See also §154.301(b)(2) of the Code (amount due under contract that has not been paid in full presumed abandoned if, in addition to other requirements, seller has not known existence and location of contract beneficiary during three preceding years). Additionally, §154.411, §154.412 and §154.414 of the Code authorize the Commissioner to order restitution and take enforcement actions against persons who unlawfully retain money entrusted to them that belongs to the beneficiary under a prepaid funeral contract. See §154.411 (restitution); §154.412 (seizure of prepaid funeral money and records); §154.414 (liquidation of business and affairs of person following seizure of money and records). Finally, §154.053 directs sellers of prepaid funeral benefits to maintain, and make available for department inspection, those records that the department requires to be maintained and examined in order determine compliance with the statute and to protect the interests of the beneficiaries.

The foregoing statutory provisions would either be rendered meaningless, or compliance with them made at the very least difficult, if the contract purchaser did not name a contract beneficiary in the prepaid benefits contract. Indeed, the entire scheme for the regulation of the preneed sale of funeral services and merchandise would be seriously frustrated. We conclude that, when read as a whole, Chapter 154, both directly and by implication, requires that a prepaid funeral benefits contract include a beneficiary designation as one of its terms and that the purchaser of a prepaid benefits contract designate a beneficiary at the time the contract is executed.

We also conclude that the department´s rule governing prepaid funeral benefits contracts, as currently written, requires the purchaser to designate a beneficiary in a preneed contract. As you know, pursuant to its authority under §154.051(b)(5) of the Code to adopt reasonable rules concerning any matter relating to the enforcement and administration of Chapter 154, the department has adopted 7 T.A.C. §25.2. This section describes the information that must be included in a prepaid funeral benefits contract. As you have noted, §25.2 does not expressly require the designation of a beneficiary, although the current department-approved contract forms do include a space for the contract beneficiary´s name.

Even though §25.2 does not set out an individually numbered paragraph establishing beneficiary designation as information that must be included in the contract, the department´s rules require the designation of a beneficiary. Section 25.2(a)(9), pertaining to the provider´s agreement, requires a statement in the contract that the provider agrees to provide the described benefits or their equivalent at the agreed upon price, at an undetermined future date dependent upon the death "of the person designated by the purchaser to receive the prepaid funeral benefits." Pursuant to §25.2(a)(11), the contract must describe the purchaser´s financial obligations if the contract price is not paid in full "on the death of the person designated by the purchaser to receive the benefits." Section 25.2(b) provides that no contract submitted to the department for approval shall designate more than one person to receive funeral benefits under the contract. Additionally, §25.1(a) defines a "prepaid funeral benefits contract" as a contract entered into for the purpose of "the furnishing or delivery of prepaid funeral benefits in connection with the final disposition of a human corpse at a time determinable by the death of such person." In order for the cited provisions and definition to have meaning and be effective, the purchaser must designate a beneficiary in the contract at the time it is executed.

B. Designation of Individual Person as Beneficiary

As stated previously, §§154.207 and 154.262 of the Code, which pertain, respectively, to the withdrawal of benefits payable under an insurance-funded contract and the withdrawal of money under a trust-funded contract, provide for the withdrawal of benefits or funds "after the beneficiary named in the contract dies." Each of these sections conditions withdrawal upon presentation to the insurance company or the depository, whichever is applicable, of a certified copy of the death certificate. Compliance with the death certificate requirement is possible only if the designated beneficiary is an individual person. Accordingly, we conclude that the named beneficiary may not be an estate, company or association.

C. Designation of Same Person as Beneficiary in Separate Contracts

In responding to your third question, we first note that, under Chapter 154, the department regulates the sellers of prepaid funeral benefits. Neither Chapter 154 nor the department´s rules attempt to govern contract purchasers, and do not prohibit a purchaser from purchasing more than one prepaid funeral benefits contract and designating himself or herself the beneficiary in each contract.2 Accordingly, we conclude that an individual´s purchase of separate contracts with identical beneficiary designations does not violate Chapter 154. Conversely, we find that the seller of a prepaid funeral benefits contract does not violate Chapter 154 if he sells more than one contract to an individual and that individual designates the same person as beneficiary in each contract.

Opinion No. 99-37

Usage of a perpetual care cemetery plot is restricted to its platted purposes and a plot owner must obtain the cemetery´s consent to make changes that require replatting. However, if a cemetery replats to allow a plot owner to build a private mausoleum, the cemetery has conveyed mausoleum interment rights for perpetual care to the owner and will be required to adjust the associated deposits to the perpetual care fund.

August 4, 1999 (revised May 11, 2000)

Everette D. Jobe, General Counsel

As you are aware, upon sale of burial rights in a perpetual care cemetery, the cemetery corporation seller must deposit a portion of its sales proceeds into a perpetual care trust fund, the calculation and amount of which will vary according to whether the burial rights pertain to a ground plot or to a crypt or niche, such as in a mausoleum or columbarium. You have asked a number of questions regarding platting of cemetery property and calculation and timing of required perpetual care trust fund deposits under various scenarios involving a combination of ground plots and a mausoleum.

Construction of a Private Mausoleum on Plots Dedicated for Ground Burial

First, you pose a scenario in which a purchaser asks the cemetery corporation to construct a private mausoleum1 on perpetual care ground plots he previously purchased. At the time of purchase, the cemetery corporation calculated and deposited an amount into its perpetual care trust fund based upon the statutory rate applicable to sales of ground plots. You ask (A) whether the cemetery corporation must replat the lots as a mausoleum, and (B) how the amount that should be deposited in the perpetual care trust fund should be calculated. You also ask whether the result would be the same if the purchaser hires a third-party contractor to build his private mausoleum on his previously purchased ground plots.

Usage is Restricted by Plat. Pursuant to Health & Safety Code §711.034, a cemetery organization (including a perpetual care cemetery corporation) must formally dedicate its cemetery property and prepare and file its declaration with the county clerk, together with a cemetery plat that subdivides the property into legal and uniquely numbered plots or other burial facilities such as crypts, lawn crypts, and niches. Provided the dedication instrument reserves authority on the board of directors to make changes in planned usage of cemetery property, Section 711.034(e) requires the organization to file an amended plat if any change is made in the usage in the manner specified in the statute. This authority is exclusive; a purchaser of cemetery plots may not further subdivide the plots without the consent of the cemetery organization. A conversion in anticipated use of cemetery property from multiple ground burial plots to a mausoleum situs will require the cemetery organization to replat the cemetery to reflect the new use, regardless of who constructs the mausoleum, and file the revised plat with the county clerk.2

Use Conversion is Possible. A purchaser who buys plots in a perpetual care cemetery acquires the exclusive right to use the plots for ground burial, see Health & Safety Code §711.038. Specifically, absent special rights or privileges specified in the filed plat or declaration of dedication, a purchaser will not possess the right to build a mausoleum on plots dedicated for ground burial. However, if the legal documentation controlling operation and use of the cemetery permits, or can be appropriately amended, nothing in the Health & Safety Code would preclude a cemetery organization from agreeing to prepare and file an amended plat for the purpose of permitting construction of a private mausoleum on land previously platted and sold for ground burial.3

Additional Deposits to Perpetual Care Trust Fund May Be Required. The amount of a required deposit in the perpetual care trust fund varies depending on the platted use of cemetery property sold for interment purposes. The cemetery corporation bears the statutory responsibility for making the deposit. Health & Safety Code §712.028(a) provides as follows:

(a) A corporation shall deposit in its fund an amount that is at least:

(1) the greater of:

(A) $1.50 a square foot of ground area conveyed as perpetual care property; or

(B) 10 percent of the total purchase price of that ground area;

(2) the greater of:

(A) $90 for each crypt interment right for mausoleum interment or lawn crypt interment conveyed as perpetual care property, or $50 for each crypt interment right if that crypt is accessible only through another crypt; or

(B) five percent of the total purchase price of that crypt interment right; and

(3) the greater of:

(A) $30 for each niche interment right for columbarium interment conveyed; or

(B) 10 percent of the total purchase price of that niche interment right.

If a cemetery corporation permits an owner to build a mausoleum on his plots, the cemetery has conveyed interment rights for perpetual care to him, and the cemetery must deposit the appropriate amount into its perpetual care trust fund. The amount to be deposited for sale of interment rights in a private mausoleum constructed on previously purchased burial plots, whether built by the cemetery corporation or a third party, is the amount calculated under §712.028(a)(2), applied to the purchase price of the mausoleum , i.e., the total purchase price of all the crypt interment rights in that mausoleum, less the amount of the deposit previously made in connection with sale of the burial plots for the ground area on which the mausoleum is constructed, as calculated under §712.028(a)(1). Under Health & Safety Code §712.029, the contract for the right to construct the private mausoleum (being the original purchase agreement for the sale of interment rights in the mausoleum) must separately state the amount of perpetual care to be paid. Because of the complexity of this transaction, a cemetery corporation would be well-advised to thoroughly document all aspects of this transaction in writing.

Perpetual Care Deposits for Properly Platted, Cemetery Constructed Mausoleums

You also asked how to compute required perpetual care trust fund deposits if a cemetery corporation plats land to be used exclusively for private mausoleums that it will construct and sell, i.e., land not previously platted and sold for ground burials. In this scenario, construction of mausoleums and sale of interment rights is solely within the cemetery corporation´s control, and the amount of the required deposit into the perpetual care trust fund will be the greater of the sum required by Health & Safety Code §712.028(a)(2)(A) or by §712.028(a)(2)(B).

Summary

(1)  A cemetery organization is responsible for the correct platting of cemetery uses and must replat to show any new uses.

(2)  When a purchaser buys plots in a perpetual care cemetery, the purchaser has bought nothing more than the right of interment for ground burial and must obtain the cemetery corporation´s consent to make changes that require replatting.

(3)  If a cemetery corporation allows the owner of perpetual care ground burial plots to build a private mausoleum on his plots (or if the cemetery corporation builds it for him), the cemetery has conveyed mausoleum interment rights to the owner and must deposit an incremental additional amount in its perpetual care trust fund to the extent the deposit required by Health & Safety Code §712.028(a)(2) exceeds the amount previously deposited in connection with the prior sale of the burial plots, as calculated under Health & Safety Code §712.028(a)(1).

(4)  The perpetual care due on a mausoleum built on property initially platted for mausoleum use is the greater of the sum required by Health & Safety Code §712.028(a)(2)(A) or by §712.028(a)(2)(B).

Opinion No. 99-35

A seller of an insurance-funded prepaid funeral benefits contract may not accept money with respect to the contract until the contract has been executed by all parties to the agreement except the insurance company.

August 26, 1999

Loren E. Svor, Assistant General Counsel

By letter dated April 21, 1999, you requested our opinion regarding a sales practice of [*****] ("Seller"), described further below. Seller holds a permit to sell insurance-funded, prepaid funeral benefits contracts in Texas. In summary, a seller may not accept a payment with respect to a prepaid funeral benefits contract until the contract has been executed by all parties other than an insurance company issuing coverage. Seller´s current practice plainly involves accepting payment before the contract is fully executed and consequently is proscribed by Finance Code, Chapter 154.

Facts

In your letter, you describe Seller´s practice as follows:

1.   In an initial visit, an agent of Seller collects the information necessary to complete a prepaid funeral benefits contract;

2.   At that time, an application for the insurance policy that ultimately will fund the contract is executed by the purchaser, and the initial deposit on the policy is collected; and

3.   Within 30 days, the contract is completed and signed by an officer of Seller. The completed contract is then signed by the purchaser and the funeral provider in a second visit.

Analysis

One of the stated purposes of Finance Code, Chapter154, is to "limit the manner in which a person may accept funds in prepayment of funeral services to be performed in the future." Tex. Fin. Code §154.001(1). One such limitation is that a person must hold a permit issued by the Department pursuant to Chapter154 to:

(1) sell prepaid funeral benefits, or accept money for prepaid funeral benefits, in this state under any contract; or

(2) solicit an individual´s designation of prepaid funeral benefits to be provided out of a fund, investment, security, or contract, including a contract or policy of insurance authorized, and sold under a license issued, by the Texas Department of Insurance, to be created or purchased by that individual at the suggestion or solicitation of the seller.

Tex. Fin. Code §154.101. The statute further specifies that a prepaid funeral benefits sales contract must (a) be in writing; (b) state the name of the provider of the benefits specified in the contract; and (c) state the details of the benefits to be provided. Tex. Fin. Code §154.151; see also 7 TAC §25.2.1 Further, if the contract is not sold by a funeral provider, the provider designated in the contract must be a party to the contract, and must agree in the contract to provide the specified benefits. Id. Finally, the purchaser must be given a copy of the contract at the conclusion of a discussion of prepaid funeral benefits if prepaid funeral merchandise or benefits are purchased. The contract may be lacking only execution by the insurer. 7 TAC §25.6.

Seller is permitted to sell prepaid funeral benefits only under a contract, which must be in writing, to which the provider is a party, which specifies in detail the benefits to be provided, and which contains the provider´s agreement to provide the benefits. We believe that the sale of prepaid funeral benefits occurs when the purchaser tenders the initial payment to Seller. According to Seller, that occurs at the first meeting after a discussion of the transaction. Accordingly, an executed prepaid funeral benefits contract meeting the requirements of statute and rule must exist prior to that time in order for Seller to have accepted payment under the contract. In addition, a copy of the contract executed by all parties except the insurer—i.e., the seller, purchaser, and provider—must be given to the purchaser at the conclusion of the meeting at which prepaid funeral benefits are discussed and purchased. Seller´s procedures, as outlined above, do not meet statutory requirements.

Seller´s argument to the contrary consists only of a parsing of the language of Tex. Fin. Code §154.202, which reads, "[a]n insurance-funded prepaid funeral benefits contract must be executed in conjunction with the application for the issuance of the policy." According to Seller, the phrase "in conjunction with" has no temporal component, meaning only that the contract and insurance application must "work in coordination," and this requirement is met even though the contract is not executed, and a copy given to purchaser, until up to 30 days after the initial payment is received. We disagree. Assuming arguendo that Tex. Fin. Code §154.202 is vague as to when, in relation to the insurance application , the contract must be executed, it is not permissible to resolve the vagueness in a manner that results in a direct conflict with a properly promulgated rule of the agency charged with administering the statute. Cf. State v. McKinney, 803 S.W.2d 374, 376 (Tex. App.-Houston [14th Dist.] 1990)(Statutes dealing with same matter should be construed in harmony, if possible). Seller´s interpretation of §154.202 would directly contradict 7TAC§25.6, which requires that a copy of the executed contract be provided to the purchaser at the conclusion of a discussion of prepaid funeral benefits at which such were purchased. No such conflict results if "in conjunction with" is interpreted to mean "contemporaneous with"; i.e., the contract and the application for insurance which will fund the contract must be executed together. Moreover, this interpretation is supported by the only judicial interpretation of the phrase that we can locate. Texas Emp. Ins. Ass´n v. Pierson, 135 S.W.2d 550 (Tex. Civ. App-Amarillo 1940) dealt with a challenge to a disability award predicated upon the combined effect of two separate injuries. The statute under which the award was made required that both the injuries and the incapacities have been "concurrent." The court found this requirement was not met, noting "[t]he common acceptation of the word �concurrent´ requires the construction of that word as used in the statute to mean that the injuries were in conjunction with each other; that they were joint and simultaneous." Id. at 553.(Emphasis added).2

On a related matter, we note that Seller´s contract, which we reviewed preparatory to responding to your inquiry, does not appear to be in compliance with the statutory requirement discussed above. Specifically, in part IV, paragraph C, the contract states "[p]urchaser and provider make [Seller] an offer to contract by signing the Contract and forwarding it together with a down payment to [Seller]. The signing of the Contract by an authorized representative of [Seller] constitutes an acceptance of the offer. The Parties agree that the time of contracting shall be deemed to occur at the time [Seller´s] authorized representative signs the Contract . . . " As previously discussed, a contract executed by all parties except the insurance company issuing the insurance contract must be in place before Seller can accept payment under the preneed contract. The statute does not provide for payment to be received as part of an "offer." Seller´s contract should be appropriately modified.

Opinion No. 99-28

A federal savings bank may not serve as depository trustee of a Texas prepaid funeral trust if the bank has no office in Texas.

May 19, 2000

Everette D. Jobe, General Counsel

By letter received June 24, 1999, you ask several questions relating to whether [***] FSB (the "Bank"), a federal thrift institution chartered under the Home Owners' Loan Act, 12 U.S.C. §§1461 et seq. ("HOLA"), may serve as trustee under a Texas prepaid funeral benefits contract trust agreement governed by Texas Finance Code Chapter 154.  Please accept my apologies for our delay in responding to your request.  We were critically understaffed in the Legal Division a few months ago and are only now reducing the backlogged work that developed.

Question Presented

You first ask whether a corporate trustee must be chartered in Texas to be eligible to serve as trustee under a Texas prepaid funeral benefits contract trust agreement governed by Finance Code Chapter 154.  You also ask whether Texas law requires such a trustee to have depository powers, and whether an out-of-state corporate trustee may serve as trustee if all trust operations occur outside Texas.

Summary of Response

Your individual questions are answered in greater detail below.  In general response to your inquiry, however, Texas law requires prepaid funeral benefits trust funds to initially be deposited with a financial institution that has its main office or a branch located in this state.  Consequently, the Bank, as an out-of-state financial institution, may not serve as trustee for a Texas prepaid funeral benefits trust unless the Bank establishes a branch in Texas and complies with Texas Revised Civil Statutes art.342a-9.004 [now Finance Code §187.004]1 and Finance Code §201.102.

Discussion

To answer your questions, we first examine the provisions of the Texas Finance Code relevant to the deposit of trust-funded prepaid funeral benefits.  Finance Code §154.253(a), which governs the deposit of money paid or collected under a prepaid funeral benefits contract, provides that:

Not later that the 30th day after the date of collection, the money, other than money retained as provided by §154.252, shall be deposited: (1) in a financial institution that has its main office or a branch in this state in an interest-bearing account insured by the federal government; or (2) in trust with a financial institution that has its main office or a branch located in this state and is authorized to act as a fiduciary in this state, to be invested by the financial institution as trustee in accordance with this subchapter.[Emphasis added.]

Texas law is thus clear: prepaid funeral benefits trust funds must initially be entrusted to a financial institution with its main office or a branch located in this state.  The holder of a Texas prepaid funeral benefits permit who fails to deposit trust funds in a financial institution with its main office or a branch located in Texas violates Finance Code §154.253(a), and is subject to regulatory sanctions under Finance Code Chapter 154, including permit cancellation and the imposition of criminal penalties.2  To be eligible to serve as a trustee of a prepaid funeral prepaid funeral benefits trust fund under Texas law, therefore, the Bank must have its main office or a branch located in this state.

According to your letter, the Bank's principal place of business is in New Jersey.  Consequently, the Bank can satisfy the requirements of Finance Code §154.253(a) and serve as trustee only if it maintains a branch in Texas.  Finance Code §31.002(a)(8) and Revised Civil Statutes art.342a-9.001(a)(3) [now Finance Code §187.001(a)(3)] define "branch," with certain exceptions not relevant here, as a "location of a bank, other than the bank's main office, at which the bank engages in the business of banking." Further, for interstate banking and branching purposes, Finance Code §201.001(a)(8) provides that "branch" has the meaning assigned to the term "domestic branch" by section 3(o), Federal Deposit Insurance Act.3  We have found no published judicial decisions under federal law, and no meaningful written guidance, interpreting the term "domestic branch."  The section 3(o) definition of "domestic branch" is, however, in relevant part, identical to the definition of "branch" in the National Bank Act4.  As used in the National Bank Act, the term has been extensively interpreted, both in case law and agency guidance.  The meaning of "branch" has been held to be open-ended, "to include" a bank facility "at which deposits are received, or checks paid, or money lent."5  Engaging in one or more of these core banking functions is clearly one of the indicia of a branch,6 but the absence of these functions does not necessarily mean that a national bank office is not a branch.7

You advise that the Bank intends to engage only in marketing activities in Texas.  It does not propose to engage in any core banking functions in this state or conduct any fiduciary activities.  Indeed, it does not even intend to establish a facility or physical location or presence in Texas.  All of its trust operations will occur outside of this state.  On the basis of the facts presented in your letter regarding the Bank's proposed activities, we conclude that the Bank would not be a financial institution with its main office or a branch located in this state, as required by Texas law.

We next consider whether the Bank may serve as trustee of a Texas prepaid funeral benefits trust under federal law, even though it does not meet the requirements of Texas law.  The Bank is a federal thrift chartered under HOLA as a limited purpose trust institution without depository powers.8  The scope of trust powers of a federal thrift is defined by HOLA section 5(n),9 and is determined by the laws of the state in which the thrift is located.  For purposes of HOLA section 5(n), the Office of Thrift Supervision ("OTS") considers a federal thrift to be "located"10 in each state in which it either operates a brick and mortar trust office or maintains a fiduciary presence that is the functional equivalent of a brick and mortar office — a so-called "de facto trust office."11  To determine whether a federal thrift operates or maintains an actual or de facto trust office, the OTS has examined the nature of the activities the thrift performs in the state,12 and has concluded that marketing activities alone do not locate a thrift in a state for trust purposes.13  Further, the OTS has determined that an association is not located in a state if, with respect to fiduciary activities, no documents will be executed on behalf of the association in the state, no investment advice will be provided, no investments will be made, and no new trust accounts will be approved.14

Because the Bank does not intend to engage in any fiduciary activities in this state, and all of its trust operations would occur outside Texas, the Bank would not be considered to be "located" in Texas within the meaning of HOLA section 5(n), according to OTS interpretation.  The scope of the Bank's authority to market its fiduciary services in Texas would therefore be determined by the laws of New Jersey, the state in which the Bank is domiciled, and would depend to a large extent upon what fiduciary activities the State of New Jersey permits a Texas corporate fiduciary to conduct in New Jersey.15  The Bank's authority to act in a fiduciary capacity is entirely derivative of and equivalent to the fiduciary capacities a New Jersey state bank, trust company or other corporate fiduciary may exercise under New Jersey law, the state in which the Bank is located.16  New Jersey state banks, trust companies and other corporate fiduciaries may not serve as trustee of a Texas prepaid funeral benefits trust unless such an entity lawfully establishes a branch in the State of Texas.  The Bank is likewise limited.

To summarize our response to your primary inquiry, we conclude that the Bank may not serve as trustee of a Texas prepaid funeral benefits trust unless it lawfully establishes a branch in the State of Texas,17 subject to compliance with Finance Code §201.102.

We turn now to your remaining questions, whether a corporate trustee must be chartered in Texas to serve as a trustee of a Chapter 154 prepaid funeral benefits trust, and whether such a trustee must have depository powers.  Finance Code §154.253(a) does not require a corporate trustee to be chartered in this state in order to serve as trustee of a prepaid funeral benefits trust.  Nor does it necessarily require a corporate trustee to possess general depository powers to serve in that capacity.  A permit holder is to deposit trust funds either "in an interest-bearing account insured by the federal government" under Finance Code §154.253(a)(1), or "in trust" under Finance Code §154.253(a)(2).  The receiving institution is held to the standard of a fiduciary in both instances, whether it accepts the funds as a depository or as trustee.18

As discussed above, the OTS has issued opinion letters relating to the interstate trust activities of federal thrifts, including fiduciary activities related to prepaid funeral benefits contract trust services.  Although the OTS has concluded that HOLA section 5(n) preempts state laws that impede federally authorized activities, including incidental trust activities of out-of-state thrifts, in our opinion such OTS determinations are incorrect and, in any event, are not relevant to this matter.

The OTS has recognized the complex interplay between federal and state regulations pertaining to interstate trust operations, and has acknowledged the applicability of state laws that further a vital state interest.19  The provisions of Texas Finance Code Chapter 154 pertaining to the deposit of prepaid funeral benefits trust funds clearly do so.  When the Texas Legislature enacted Chapter 154, it recognized not only the public need for an opportunity to arrange and pay for funerals in advance of death, but also the state's interest in and need to protect the public from the potential abuses inherent in prepaid arrangements.  For that reason, the stated purposes of Chapter 154 specifically include limiting the manner in which a person may accept funds in prepayment of future funeral services, and providing all necessary safeguards to protect the prepaid funds and to assure that the funds will be available to pay for the prearranged services. Finance Code §154.001(1), (3).

As part of Texas' comprehensive statutory scheme for the authorization and regulation of prepaid funeral services, the legislature established trust-funded prepaid funeral benefits contracts as one method by which consumers could arrange and pay for funeral services in advance of death.  In order to safeguard these statutorily created trust funds and ensure their availability to pay for the prearranged services at death, the legislature deemed it necessary to limit where a Texas prepaid funeral benefits contract permit holder could deposit them.  The legislature wanted to make sure that prepaid funeral benefits trust funds collected from Texas citizens were initially trusted (or deposited under a trust arrangement) under a fiduciary agreement or deposit contract governed by Texas law, and that such funds were within reach of a Texas court.  Finance Code §154.253(a) achieves these statutory objectives by requiring the trustee of a prepaid funeral benefits trust, whether based in Texas or elsewhere, to initiate or create the fiduciary relationship at an office or branch in this state.  Section 154.253(a) thus furthers the state's interest in preserving and protecting prepaid funeral benefits trust funds and the accomplishment of the purposes for which Chapter 154 was enacted.  The provision, which constitutes a key component of this state's statutory scheme for the regulation of prepaid funeral services, clearly serves a vital state interest.

Moreover, Finance Code §154.253(a) does not, in our opinion, impede the ability of the Bank to serve as a trustee in Texas or to engage in incidental trust activities.  The Texas Legislature recently enacted legislation that permits out-of-state trust institutions, such as the Bank, to establish branch locations and to engage in fiduciary activities in this state.  Accordingly, the Bank can serve as a trustee under prepaid funeral benefits contract trust agreements simply by establishing a branch in Texas.

Finally, as a general rule, the OTS addresses specific provisions of state law on a case by case basis when considering preemption questions.  An OTS preemption ruling with respect to another state's statute relating to prepaid funeral benefits contract trust services does not compel the conclusion that Finance Code §154.253(a) is preempted as well.

This opinion is limited to the facts and circumstances set forth in your letter.  Any change in those facts or circumstances may result in a different opinion.

Opinion No. 99-22

A trust company may employ a third party to provide ministerial or administrative services with respect to customer accounts, and the location of the servicer will not be considered a branch of the trust company, provided that the services do not include the exercise of fiduciary powers except as otherwise explicitly permitted by Texas law.

July 22, 1999

Loren E. Svor, Assistant General Counsel

By letter dated May 28, 1999, you described a proposed arrangement under which [***] Corporation (the "Service Corp.") would provide a variety of "back office" services related to custodial accounts maintained with [***] Trust Company (the "Company").  Service Corp. and the Company are affiliated through common ownership by the [****].  You have asked for our assurances that Service Corp. would not be deemed to be a branch of the Company by virtue of the proposed activities on behalf of the Company.  It is our opinion that the Company may contract with Service Corp. to provide the indicated ministerial or administrative services related to custodial accounts without the location of Service Corp. being considered a branch of the Company because these activities do not constitute engaging in the "trust business."

As outlined in your letter, the Company desires to expand its services to customers who are heavily invested in mutual funds.  This type of account is transaction intensive, and the existing volume of such business does not justify the level of in-house staffing necessary to maintain it.  The Company wishes to contract with Service Corp., an affiliate already servicing such accounts as part of its business, to provide the back office support necessary to administer its existing accounts of this type, and to allow expanded activity in this area without the necessity of hiring personnel in-house, at least until the volume of business would justify such a resource allocation.  The Company believes that the arrangement would be less costly than handling these functions in-house and that, in fact, it may not be possible to hire sufficient satisfactory personnel given the tight local labor market.  The Company further believes that the proposed cost is similar to or less than what would be charged by a unrelated third-party servicer.

Analysis

A state trust company is required to obtain the acquiescence or approval of the Banking Commissioner for any additional offices at which it engages in the "trust business." See Texas Trust Company Act ("TCA") (V.T.C.S. Art. 342a-1.001 et seq.) §§3.201 and 3.2031 [now Finance Code §§182.201 and 182.203]; see also 7 TAC §21.1(a)(2).  "Trust business" is defined as "the business of a company holding itself out to the public as a fiduciary for hire or compensation to hold or administer accounts." TCA §1.002(a)(50)2 [now Finance Code §§181.002(a)(49)].  The Texas Trust Code (Tex. Prop. Code, Subtitle B) provides that a trustee may engage third-parties to provide certain services with respect to fiduciary accounts in the course of performing fiduciary duties.  For example, a trustee may employ attorneys, accountants, agents and brokers as reasonably necessary to the administration of the trust estate. Tex. Prop. Code §113.008.  A state trust company that is serving as a trustee, or serving as a custodian of an IRA account, may employ an affiliate to provide "brokerage, investment, administrative, custodial, or other account services" with respect to a trust. Tex. Prop. Code §13.053(f); See Opinion No. 98-15 (July 27, 1998), citing Transamerican Leasing Co. v. Three Bears, Inc., 586 S.W.2d 472, 476 (Tex. 1979)(trustee may give authority to others to carry ministerial or administrative acts to effectuate discretionary decision).

Our understanding is that Service Corp. would provide the following services to the Company and its customers invested in mutual funds:

�  Processing new accounts, withdrawals form the accounts, and customer investment directions (including account termination or transfer);

�  Preparation of account and financial statements for customers;

�  Reconciling accounts at the request of the Company or a customer, and otherwise responding to customer inquiries with respect to the accounts;

�  Originating ACH /direct electronic debiting and crediting with respect to the accounts;

�  Preparation of tax documents for the accounts;

�  Communication and coordination with mutual fund and annuity providers that have sold investment to customers;

�  The processing of checks from investment providers for credit to customer accounts;

�  Providing clerical staff, services, and filing services which may be requested by the Company or which are necessary to perform these duties; and

�  Other services of a similar nature.

Service Corp. may engage in activities authorized by law and in the scope of authority as an agent of a state trust company without being considered to be engaging in the trust business. TCA §3.022(1) [now Finance Code §182.021(1)].  It follows that the Company may designate Service Corp. as an agent to perform such activities without Service Corp.'s location becoming an additional office of the Company.  All of the activities described can be permissibly delegated pursuant to applicable law. See Tex. Prop. Code §113.008.3  Consequently, the proposed activities would not result in Service Corp.'s office being considered an additional office, or branch, of the Company.

Other matters.

Please note that 7 TAC §17.21 specifies the records that must be maintained by a state trust company, and further requires the prior approval of the Department if any of the records are maintained at a location other than the home office of the trust company.  The rule should be reviewed to determine that all such records with respect to the accounts to be administered by Service Corp. either will be available at the Company's home office, or that prior approval for a deviation is obtained.  We would also suggest that paragraph 2.02 of the proposed contract, which requires Service Corp. to provide only records adequate "to enable [the Company] to identify and monitor accounts and assets" be amended to require, in addition, any records required by rule, or by the Department for another reason.

A contract for the provision of incidental services such as described above should have, for safety and soundness and regulatory reasons, provisions covering indemnification, regulatory access to records, and immediate termination upon regulatory prohibition of the relationship.  The contract you have submitted satisfactorily addresses these areas.

This opinion is limited to the factual situation which you presented and to the issue of whether Service Corp. would be considered a branch of the Company under the proposed contract.  We presume that the Company has performed proper due diligence in the selection of the servicer and will provide the necessary oversight of the servicer's activities. Of course, any aspect of the relationship remains subject to criticism on safety and soundness grounds.

Opinion No. 99-09

A foreign corporation, qualified to do business in Texas as a limited liability company, can be a Texas perpetual care cemetery corporation and operate a perpetual care cemetery in this state.

May 5, 1999

Everette D. Jobe, General Counsel

By letter dated March 5, 1999, you requested an opinion whether your client, a domestic corporation that intends to reorganize as a foreign corporation (the "Corporation") and qualify to do business as a limited liability company in Texas, can continue to operate a perpetual care cemetery in this state. We conclude that it may do so. You also requested an opinion whether the Corporation´s existing licenses must be re-issued. Based on your representations regarding the filing of assumed name certificates, we conclude not.

By letter to you dated January 27, 1998, we concluded that it is permissible for perpetual care cemetery corporations to be incorporated in foreign jurisdictions, noting the lack of any explicit restriction on locus of incorporation in the applicable statutes, particularly Texas Health & Safety Code, Chapter 712 and related chapters. In reaching that conclusion, we distinguished the concept of organization from the concept of incorporation, as those concepts are somewhat ambiguously used in Chapter 712. To restate and elaborate our prior conclusion, we noted that the term "corporation" is defined in Health & Safety Code, Section 712.001(b)(3), as "organized under this chapter ... to operate one or more perpetual care cemeteries in this state." However, a corporation may not notify the Department of its intent to "organize" under Chapter 712 unless its articles of incorporation have first been filed with the Secretary of State, see Health & Safety Code, Section 712.0031(a).

We further observe that the Texas Legislature could have required a corporation to "incorporate" in this state but did not do so, and other methods exist for "filing" articles of incorporation with the Secretary of State. With regard to a foreign corporation, its articles of incorporation may be filed with the Secretary of State as an attachment to its application for a certificate of authority to do business in Texas, see, e.g., Texas Business Corporation Act ("TBCA"), Part Eight. However, our prior letter did not address any methodology for satisfying the pre-organization requirement of Health & Safety Code, Section 712.003(a), to file articles of incorporation with the Secretary of State.

In exploring methods of implementing our prior conclusion, you discovered that, after reorganization, the Corporation may not obtain authority to transact business in this state under the TBCA if any one of its purposes is to operate cemetery companies.1 However, the Corporation may obtain a certificate of authority under the Texas Limited Liability Company Act ("TLLCA"),2 which does not have this restriction. The issue that you have raised is whether this alternate form of qualification to do business in Texas in any way alters our prior conclusions. We conclude that this procedural detail does not affect the continuing validity of our prior conclusions.

A foreign cemetery corporation wishing to operate a perpetual care cemetery in Texas may apply for a certificate of authority under TLLCA, Article 7.01(a),3 and may "file" its articles of incorporation as an attachment to its application with the Texas Secretary of State. Assuming the filed articles of incorporation meet the statutory requirements of Health & Safety Code, Section 712.003(a), the Department will accept a certificate of authority issued by the Secretary of State to the Corporation under TLLCA, Article 7.01(a), as evidence of eligibility to "organize" under Health & Safety Code, Chapter 712, to operate one or more perpetual care cemeteries in this state.

In your letter, you stated that qualification as a limited liability company will require the Corporation to adopt an assumed name with "LLC" or "LC" in its name, but that the Corporation will simultaneously file additional assumed name certificates to conduct business using its actual name and all other names under which the Corporation currently does business in Texas, including names reflected in licenses issued by this Department. Because the reorganization is by a merger transaction, all rights and obligations of the predecessor domestic corporation will be transferred to the successor by operation of law. In our view, filing assumed name certificates to "revive" the corporate names reflected on licenses issued by this Department will negate any need to re-issue those licenses in a new name.

However, for our records we request that the Corporation file a notice of intention under Health & Safety Code, Section 712.0031(a), incorporating any prior notice by reference. Pursuant to Health & Safety Code, Section 712.0031(c), the Banking Commissioner may "instruct" the Secretary of State to "cancel the corporation´s charter" if an informationally complete notice of intent to operate a perpetual care cemetery in this state is not filed with the Department within 30 days after the corporation files its articles of incorporation with the Secretary of State. With regard to a foreign corporation, the Department interprets this provision as authority to instruct the Secretary of State to cancel the corporation´s certificate of authority in the event statutory application requirements are not met.

Opinion No. 99-07

A "family cemetery" is a type of private cemetery owned for the benefit of and devoted to the burial of the members of a family, or relatives bound by family or similar personal ties, to the exclusion of the public. An individual may establish an exempt family cemetery with a crematory as long as it is 10 acres or less and both the cemetery and crematory are used for family, not general business, purposes.

April 16, 1999

Sammie K. Glasco, Assistant General Counsel

In your letter dated March 3, 1999, you ask whether an individual may establish a nonperpetual care, family cemetery, and then construct a crematory on the cemetery property. The answer to this question is "yes," as long as the cemetery is 10 acres or less and both the cemetery and the crematory are used for family purposes only. In addition, you asked several questions about the provisions of Texas Health and Safety Code ("Code"), Chapters 711 and 712, all suggesting that you are interested in placing a public, "for profit" crematory in a family cemetery. We will attempt to answer all of your questions in this letter, however, this Department does not have regulatory authority over the portions of Chapter 711 which do not pertain to perpetual care cemeteries.

First, Chapter 711 of the Code is a general provision relating to all cemeteries in the state of Texas, profit or nonprofit and perpetual care or not. Chapter 712 pertains to perpetual care cemeteries only. All cemeteries established after September 1, 1993, must be perpetual care unless exempt under the provisions of §711.021(g) or its mirror provision in §712.002 of the Code.

The provisions of Chapter 712 of the Code, as stated above, apply only to perpetual care cemeteries. Section 712.002(1) of the Code specifically exempts family cemeteries that are "ten acres or less" from the provisions of Chapter 712 relating to perpetual care cemeteries. Your first and primary question is whether an individual may establish a "nonperpetual" care, family cemetery, and then construct a crematory on the site. By "nonperpetual," we assume you mean a cemetery exempt from the provisions of Chapter 712.1

There is nothing in the Code precluding an individual from forming a cemetery for family purposes. The term "family cemetery" is not defined in either the Code or does not appear to be defined by Texas case law. However, a legal treatise on the subject based on a composite of the laws of various American jurisdictions defines a family cemetery as a type of private cemetery owned for the benefit and "devoted to the burial of the members of a family, or relatives bound by family or similar personal ties, to the exclusion of the public."2 This definition is consistent, in our opinion, with the use of this term in the Code. A family cemetery is nonperpetual in the sense that family cemeteries are expressly exempt from the provisions of Chapter 712 of the Code. There are no statutory prohibitions against constructing a crematory in a family cemetery as long as the provisions of §711.006 of the Code are followed. Therefore, we are of the opinion that an individual may establish a family cemetery with a crematory, exempt from the provisions of Chapter 712, as long as it is ten acres or less and both the cemetery and crematory are used for family, not general business, purposes.

Your next question is whether an individual may establish a nonperpetual profit-making family cemetery. A family cemetery is not generally considered a "for profit" entity. But, again, there are no Texas cases directly on point. Most of the exemptions in §711.021(g) and §712.002 apply to nonprofit entities and organizations. In your letter, you noted that family cemeteries are not designated as "nonprofit" under the exemptions. This is true. The purpose of a family cemetery, in our opinion, is to allow an individual or group of individuals to provide a final resting place for family members because of their familial bond, a purpose seemingly inconsistent with a profit motive. Family cemeteries may be either associations or corporations but they may not deal with the general public. While we have our doubts regarding the legitimacy of a profit motive in connection with operating a family cemetery, the question of whether an individual may establish a "for profit" family cemetery would best be directed to your personal attorney.

You also ask whether a landowner could lease land to a family cemetery and derive income, not from the sale of lots, but from a separate lease agreement with a crematory corporation. Alternatively, you ask whether a landowner could donate the land and operate the cemetery and crematory as a nonprofit entity. Further, you ask whether, under this second scenario, legal nonprofit status is required. As stated before, a crematory that deals with the general public may not be erected on family cemetery property. Subject to this restriction, we have no opinion as to the efficacy of the first lessee-lessor relationship described. In answer to your alternative question, a family cemetery and crematory located thereon may operate as a nonprofit corporation or corporations and still be exempt from the provisions of Chapter 712 of the Code, as long as both the cemetery and crematory are operated for family purposes. The question of whether legal nonprofit corporate status is required would best be directed to your personal attorney or accountant.

Your final question is whether §711.006(c)(3), providing that a crematory must dispose of unclaimed human remains by "permanent interment of the cremated remains in a plot" means that the plot must be in the same cemetery in which a crematory is located. You ask whether the plot could be in another cemetery. As stated above, this Department does not have regulatory authority over Chapter 711 except to the extent that the provisions relate to the perpetual care provisions in Chapter 712. In this context, we are of the opinion that the term "plot" under §711.006(c)(3) of the Code refers to a plot in the cemetery where the crematory is located. §711.006(a) of the Code provides that a "crematory may be constructed, established, or maintained only in a burial park having a columbarium, plot or mausoleum equipped for the interment of cremated remains." Thus, under §711.006(c)(3) unclaimed remains from a crematory located in a family cemetery would have to be buried or interred in "a plot" in the family cemetery. Delivery to another plot would be governed either by Subsections 711.006(c)(1) or (c)(2), which provide for delivery as directed by the contracting funeral establishment or as directed by the person who contracted for the cremation.

In summary, we are of the opinion that a crematory located in a family cemetery must be devoted to the cremation needs of the members of the family for ultimate interment in the family´s cemetery, to the exclusion of the public. If not, the exemption for a family cemetery under §§711.021(g) and 712.002 of the Code is not available. We are further of the opinion that a crematory located in an exempt family cemetery must be used solely for family purposes. Finally, if an exemption for a family cemetery is not available, the organizer of the cemetery must obtain authorization to operate a cemetery business from the Banking Commissioner pursuant to Chapter 712 of the Code and 7 Texas Administrative Code, §26.1.

This opinion is limited to the facts and circumstances set forth in your letter March 3, 1999. Any change in those facts or circumstances may result in a different opinion. Please call us should you have questions or comments.

Opinion No. 98-48

Cemetery deeds must be issued within a reasonable time after the contract is paid.

December 9, 1998

D´Ann Johnson, Assistant General Counsel

You have asked whether a cemetery must issue a deed for cemetery plots when the contract for sale is paid in full. In our opinion, a cemetery must issue the deed within a reasonable time after the contract is paid.

Texas Health and Safety Code §711.038 regarding the sale of plots states the following:

(a) A cemetery organization may sell and convey the exclusive right of sepulture in a plot:

(1) after a map or plat and a certificate or declaration of dedication are filed as provided by Section 711.034;

(2) subject to the rules of the cemetery organization and the restrictions in the certificate of ownership or other instrument of conveyance; and

(3) after payment in full of the purchase price of the plot.

(b) A certificate of ownership or other instrument evidencing the conveyance of the exclusive right of sepulture by a cemetery organization must be signed by the president or vice-president and the secretary or other officers authorized by the cemetery organization.

(c) A conveyance of the exclusive right of sepulture must be filed and recorded in the cemetery organization´s office.

(d) A plot or a part of a plot that is conveyed as a separate plot by a certificate of ownership or other instrument may not be divided without the consent of the cemetery organization.

(e) A person is not required to be licensed to sell a plot in a dedicated cemetery.

The statute clearly states that a cemetery organization may sell an exclusive right of sepulture in a plot. The use of the terms "exclusive right of sepulture" indicates a limited right of possessing control or use of a specific plot. Conveyance instruments are utilized to show title and the right of exclusive possession to property. Even the definition of "plot owner" requires the exclusive right of sepulture. According to Texas Health & Safety Code §711.001(26):

"Plot owner" means a person:

(A) in whose name a plot is listed in a cemetery organization´s office as the owner of the exclusive right of sepulture; or

(B) who holds, from a cemetery organization, a certificate of ownership or other instrument of conveyance of the exclusive right of sepulture in a particular plot in the organization´s cemetery.

The conveyance of the property is mandatory, Texas Health & Safety Code §712.038(c). Our interpretation is consistent with the contract between the cemetery and the consumer, in which the seller agrees to convey the interment spaces when the contract is paid in full. Moreover, perpetual care deposits are tied to the conveyance of plots, Texas Health & Safety Code §712.028(a)(1)(A) ($1.50 a square foot of ground conveyed as perpetual care property) (emphasis added). The Annual Report requires the principal officers of the cemetery to verify, under oath, the amount of ground conveyed, Texas Health & Safety Code §712.041. Failure to file a statement of funds in accordance with Texas Health & Safety Code §712.041 can subject the cemetery to civil money penalties.

Because the conveyance of the property is required by statute and contract, the question turns to when the cemetery must issue the conveyance instrument. The statute does not specify a time for the conveyance, but it does specify a time for the perpetual care deposits to be made on conveyed property. We conclude a reasonable time in which the conveyance instrument should be issued can be measured by the time within which the perpetual care deposit must be made. According to Texas Health & Safety Code §712.029, a corporation shall deposit funds not later than the 20th day after the end of the month in which the original purchase agreement has been paid in full. The cemetery should issue the conveyance instrument at or before the expiration of the time limit to make perpetual care deposits.

Opinion No. 98-42

The advance sale of floral tributes under contract to be delivered to the funeral of a person not presently deceased constitutes the sale of "prepaid funeral benefits".

December 10, 1998

Jeffrey L. Schrader, Assistant General Counsel

Your letter of November 19, 1998 has been referred to me for a response. You have asked whether the advance sale of floral tributes to be used in connection with a funeral ceremony or memorial service would constitute the sale of "prepaid funeral benefits" under §154.002(8), Texas Finance Code [now §154.002(9)].

In your letter you state that you represent a Texas floral business that would like to offer floral products on a pre-need basis to purchasers of prepaid funeral benefits contracts. The floral products would be sold by funeral establishments or prepaid funeral benefits sales counselors and would allow purchasers to choose a floral selection as part of the total "package" of items purchased. You state that the price of the floral products purchased would be the current market price for such items, but that your client would commit to deliver the floral arrangements at some future date when requested. You point out that the customers purchasing the floral arrangements would have complete latitude to select the date when the purchased floral arrangements would be delivered. Although it is believed that purchasers generally would intend for the floral arrangements to be delivered for the funeral ceremony or memorial service they have arranged, there would be no such limitation. You state that your client is bonded to back up its commitment to deliver the floral arrangements at a future date.

The term "prepaid funeral benefits" is defined under Texas law as follows:

"Prepaid funeral benefits" means prearranged or prepaid funeral or cemetery services or funeral merchandise, including an alternative container, casket, or outer burial container. The term does not include a grave, marker, monument, tombstone, crypt, niche, plot, or lawn crypt unless it is sold in contemplation of trade or barter for funeral services and funeral merchandise to which this Act applies.1

Accordingly, under the statute "prepaid funeral benefits" are either prepaid "funeral services" or "funeral merchandise." In order to determine whether the advance sale of floral tributes to be used in connection with a funeral ceremony or memorial service would constitute the sale of prepaid funeral benefits it is first necessary to determine whether the advance sale of such items would constitute the sale of funeral merchandise.

The pre-need sale of funeral merchandise is defined under Texas law as "goods sold or offered for sale on a pre-need basis directly to the public for use in connection with funeral services."2 Accordingly, an item is considered funeral merchandise only if it is sold or offered for sale on a pre-need basis for use in connection with funeral services. Texas law defines the pre-need sale of funeral services as follows:

"Funeral services" or "services" means services sold or offered for sale on a pre-need basis that may be used to

(A) care for and prepare deceased human bodies for burial, cremation, or other final disposition; and

(B) arrange, supervise, or conduct the funeral ceremony or the final disposition of deceased human bodies.3

Because the statute includes services to "arrange, supervise, or conduct the funeral ceremony" within the definition of funeral services, the definition of funeral merchandise includes goods sold or offered for sale on a pre-need basis for use in connection with funeral ceremonies. Accordingly, floral tributes sold or offered for sale on a pre-need basis for use in connection with funeral ceremonies would constitute funeral merchandise under the statute, and such sales would constitute the sale of "prepaid funeral benefits" under §154.002(8) of the Texas Finance Code [now §154.002(9)].

In order to determine whether the sale of a particular item would constitute the pre-need sale of funeral merchandise, the inquiry is on the product offered and the use for which it is sold, not on the person or entity selling the item. Chapter 154, Texas Finance Code, does not distinguish funeral merchandise sold or offered for sale by "funeral providers" from funeral merchandise sold or offered for sale by other "sellers," including floral businesses. Nor does the statute draw a distinction between funeral merchandise sold directly by a funeral provider and funeral merchandise sold by a funeral provider as an agent for a third party. The determinative factor is whether the goods are sold or offered for sale on a pre-need basis directly to the public for use in connection with funeral services.

Opinion No. 98-30

Deposits to perpetual care fund are required for second interment rights in crypts or niches.

September 8, 1998

Sharon Gillespie

You have asked a number of questions regarding both perpetual care cemeteries and prepaid funeral benefits that this opinion addresses.

1. Additional interments. First you ask if the interment of cremains in a previously deeded single crypt, niche, or ground plot requires the trusting of perpetual care funds if no additional property is sold and no sales charge is assessed, but an opening and closing fee is charged. Second, you assume the identical facts except that a sales charge is assessed for the second right of interment. In that the laws with respect to crypts and niches and those relating to ground plots differ, the discussion for each will be treated separately.

a. Ground Plots. In related Opinion No. 97-29, the Department notes that, for plots sold after September 1, 1993, a perpetual care cemetery corporation must deposit 10 percent of the total purchase price into a perpetual care cemetery fund if 10 percent of "the total purchase price" of the ground area sold for perpetual care is greater than $1.50 a square foot of that ground area. Texas Health & Safety Code (the Code), §712.028(a)(1). The opinion concluded that "[s]ince all sales of interment rights [in a ground plot] contribute to the total purchase price, deposits are required on �second rights of interment´ (and on any other multiple, e.g., three or four, of such rights) . . . ."

As a consequence, in connection with second rights of interment, if no additional property is conveyed after the first conveyance of a ground plot and no sales charge is assessed, no additional perpetual care funds must be trusted. However, perpetual care funds must be trusted with respect to any and all sales of additional interment rights, and preneed funds must be trusted for openings and closings where fees are assessed on a preneed basis. Insofar as no additional ground area is conveyed on the facts stated, any potential problem with "free spaces" prohibited by §711.052(c) of the Code is averted. The "plot" in such case cannot be free because, on the facts, it has been paid for, even if second interment rights have not.

b. Crypts and Niches. Section 712.028(a)(2) and (3) of the Code establishes formulas different from the "ground area" formula to determine the amount of the perpetual care fund deposit for crypts and niches respectively: in both cases, the formula is based on "each . . . interment right." For example, the perpetual care crypt deposit is "the greater of (A) "$90 for each crypt interment right . . . , or $50 for each crypt interment right if that crypt is accessible only through another crypt; or (B) five percent of the total purchase price of that crypt interment right . . . ." The initial sale of a niche or crypt includes the right of one interment of a body or cremains. However, because the trusting formula for niches and crypts is based on "each . . . interment right," the interment of an additional body or cremains requires the trusting of perpetual care funds regardless of whether a sales charge is assessed.

Funds must be trusted at the statutory rate in effect for the type of interment, i.e., niche or crypt, on the date subsequent interments are conveyed. As an example, $90 perpetual care must be trusted with respect to a crypt under §712.028(2) of the Code. If a subsequent interment of an urn is made in that same crypt, an additional $30 in perpetual care is due for a niche interment under §712.028(3). A cemetery is not required to issue a deed for subsequent interment rights although it must record each such interment in its interment log.

As with ground plots, funds must be trusted with respect to openings and closings of crypts and niches where fees are assessed on a preneed basis.

c. Prior Burial. You have inquired again as to whether the fact that there has (or has not) been a prior burial in a plot, niche, or crypt impacts trust fund requirements. As stated in Opinion No. 97-29 dated September 22, 1997, "[w]hether second rights of interment were sold before or after September 1, 1993, the status of a plot as an existing burial site is irrelevant: each of the two versions of the controlling statute sets out the terms of deposit, and the existence of a burial at the time of sale is neither implied nor stated as a factor." The same is true with respect to crypts or niches. See §711.028(a)(2) and (3) of the Code. Therefore, the fact that there has or has not been a prior burial is irrelevant to requirements pertaining to trust fund deposits.

2. Platting of Niches. You have also asked if multiple burials in the same niche would, in and of itself, result in platting that is not legally sufficient under Chapter 711 of the Code. The answer is no. The platting requirement of §711.034 with respect to niches reads as follows: "(a) A cemetery organization that acquires property for interment purposes shall . . . (2) in the case of a mausoleum or a crematory and columbarium, make a map or plat of the property delineating sections or other divisions with descriptive names and numbers and showing a specific unique number for each crypt, lawn crypt, or niche." As a consequence, platting applies to the niche itself, not to the remains within the niche. Therefore, platting is not required to reflect each individual burial related to a niche.

3. Interment in a Grave Marker. Grave markers are excluded from the definition of "prepaid funeral benefits" under Tex. Rev. Civ. Stat. art. 548b, §1(b)(9) (1997). As a consequence, no perpetual care is due with respect to markers that are constructed to house cremains.

Opinion No. 98-17

An exception to documentation requirements is appropriate with respect to withdrawal of prepaid funeral trust funds upon cancellation of a defaulted contract for non-payment.

June 22, 1998

Randall S. James, Deputy Banking Commissioner

By letter dated June 11, 1998, you have asked for an exception under 7 TAC §25.11(f)(3)1 to the Department´s recordkeeping requirements. Specifically, you have asked for an exception to the documentation requirement for withdrawal of prepaid funeral trust funds when a purchaser´s default in payment on a prepaid funeral contract results in cancellation of that contract. You have indicated that the specific contract in issue contains a provision that the contract may be canceled for non-payment.

As an alternative to the required documentation, you have suggested that the following documentation could suffice as "evidence of department withdrawal approval" under 7 TAC §25.11(c)(4): (a) a certified letter from the seller to the purchaser notifying the purchaser that the contract has been canceled for nonpayment under the terms of the contract and enclosing the cancellation refund to the purchaser; (b) the green certified mail card for the notice letter signed by the purchaser or the purchaser´s successor in interest; (c) evidence of payment of the cancellation benefit, e.g., a copy of the payment check made payable to the purchaser or a copy of the check stub, as required by 25.11(c)(4)(B); and (d) a copy of this letter.

Section 25.11(c)(4)(A) requires that the canceled contract file include the purchaser´s original notice of cancellation. Since, in this case, the purchaser will not complete a notice of cancellation form, good cause exists for an exception to this recordkeeping requirement under §25.11(f)(3). The exception you have asked for is reasonable and appropriate; therefore, on the facts given, you may satisfy the Department´s recordkeeping requirements by maintaining the records you propose, on the condition that all such documentation must be maintained in the proper canceled contract file for inspection by the Department on examination of the seller´s books and records.

Opinion No. 98-15

A prepaid funeral funds trustee may hire and compensate a prepaid funeral permit holder for marketing and other services rendered to the trustee.

July 27, 1998

Everette D. Jobe, General Counsel

By letter dated March 12, 1998, you inquired whether a trustee of prepaid funeral funds may hire and compensate a prepaid funeral permit holder for marketing and other services "rendered to the trustee." You represent *** Association ("Association"), a 501(c)(6) trade association, and its for-profit subsidiary, *** Services, Inc. ("Services"). Services proposes to be licensed to sell trust-funded, prepaid funeral benefits and to allow qualifying members of the Association to sell prepaid funeral contracts under its "master" permit. The proposed structure of the arrangements between Services and the funeral establishments utilizing its permit are the subject of the Services permit application and are not addressed in this letter.

Services has tentatively arranged for a national bank to serve as trustee of the trust it establishes as a permit holder. Services proposes that the trustee will contract with Services and others to provide various marketing and other services to the trustee, including various administrative and recordkeeping services. The permissibility of the proposed compensation arrangements is the primary subject of your inquiry.

Facts

Services proposes to withdraw, out of the earnings of the trust, an annualized amount equal to 1.25% of the trust estate for the purpose of paying the trustee´s fee, an amount you assert is both "reasonable and necessary" as required by Finance Code §154.261(a)(1). The trustee proposes to subcontract part of the services "traditionally provided by a trustee" to the permit holder (investment direction and marketing), paying for these services with "its own funds and not with trust funds" at the annualized rate of 0.55% of the trust fund. The trustee also proposes to subcontract with ***, Inc. ("Provider"), at the annualized rate of 0.55% of the trust fund to perform administrative and recordkeeping duties. Alternatively, the trustee will annually pay Services 1.10% for marketing, administrative, and recordkeeping services, and Services will subcontract out a portion of the work to Provider for 0.55%. Over time, as the relative responsibilities of the parties change or as the size of the trust increases, the amounts received by Provider and Services may change, with Services receiving a larger percentage as it takes over more of the recordkeeping requirements. Services is not receiving additional funds from the trust in its capacity as a permit holder, but is instead receiving the funds from the trustee (and not from the trust) as a service provider to the trustee.

In addition, Services proposes to retain responsibility for directing investments, and has tentatively arranged for *** Fund to serve as investment advisor. *** Fund will pay Services 0.25% for marketing services. This payment constitutes part of *** Fund´s 12b-1 fee.1

Analysis

A reasonable and necessary trustee´s fee may be withdrawn from a prepaid funeral benefit trust, Finance Code §154.261(a)(1). We agree that the proposed trustee´s fee of 1.25% annually is reasonable in amount in comparison to trustee fees for other prepaid funeral benefits trusts in this state.

You have proposed that the trustee delegate certain of its functions to Services and compensate Services from the trustee´s own funds (and not from the trust) for services rendered. Under Texas law, a trustee may not delegate discretionary power to another in the absence of an explicit grant of authority in the governing trust instrument, but may delegate ministerial acts to implement the trustee´s discretionary decisions. Transamerican Leasing Co. v. Three Bears, Inc., 586 S.W.2d 472, 476 (Tex.1979). If discretionary power is delegated by the trustee to another and the delegation is not authorized by the trust instrument, the trustee is personally responsible for the actions taken. Republic Nat. Bank & Trust Co. v. Bruce, 130 Tex. 136, 105 S.W.2d 882, 884-85 (1937).

Marketing Services

Because the trustee´s compensation from a prepaid funeral benefits trust is expressed as a percentage of the fund balance and will increase as the fund balance increases, a trustee of a prepaid funeral benefits trust can be expected to advertise and market its services separate and apart from the actions of a permit holder in marketing prepaid funeral contracts. Consequently, the trustee may pay its advertising and marketing expenses from its own funds, and may hire and compensate a permit holder for marketing services provided to the trustee. Such marketing services, paid for out of the trustee´s own funds, are not fiduciary in nature; the competence of the service provided is a matter of concern only to the trustee provided the amount of the trustee´s fee charged to the trust is both reasonable and necessary. The trust may not be charged for marketing activities.

Administrative and Recordkeeping Duties

We believe administrative and recordkeeping duties are ministerial in nature and may be delegated by the trustee to others compensated by the trustee from its own funds. Further, a trustee is not prohibited from hiring and compensating a permit holder for services provided to the trustee. However, the trustee´s decisions with regard to delegation are themselves matters of fiduciary judgment and responsibility falling within the sound discretion of the trustee. The trustee remains ultimately responsible and will be held accountable for the competence of the service provided and adherence to applicable federal and state statutes, rules, and regulations.

Investment Direction

Your letter states that Services proposes to "retain responsibility for directing investments." That responsibility is the trustee´s by statute. Pursuant to Finance Code §154.253(a)(1) and (2), a permit holder, among other options, may deposit collected funds with a bank or trust company ("corporate trustee") in this state "to be invested by the [corporate trustee] in accordance with this subchapter." Finance Code §154.256 imposes a prudent investor standard on the corporate trustee in administering assets held in a prepaid funeral benefits trust. Statutory responsibility for investment decisions is thus irrevocably placed on the trustee, and in our view that responsibility cannot be abrogated by the trust agreement.

We believe the trustee may utilize others for investment assistance, and is not prohibited from hiring and compensating from its own funds a permit holder for investment services. Services may serve as agent and/or advisor and be compensated by the trustee from its own funds, but the investments ultimately made are the sole responsibility of the trustee. The trustee remains personally responsible and will be held accountable for decisions made regarding the investment and disposition of the assets held in the trust and for adherence to applicable federal and state statutes, rules, and regulations.

12b-1 Fees

Rule 12b-1, 12 C.F.R. § 270.12b-1, was issued by the Securities and Exchange Commission in 1980 pursuant to section 12(b) of the Investment Company Act of 1940 (15 U.S.C. § 80a-1 et seq.). The Rule permits mutual funds to use fund assets to sell or distribute fund shares, and to compensate third parties in connection with such sale or distribution.

Fees paid by a mutual fund to a fiduciary pursuant to Rule 12b-1 for investments by, or services performed for, fiduciary accounts conflict with the trustee´s duty of loyalty. See, generally, Restatement (Third) of Trusts, P.I.R., § 170 (1990). In a typical 12b-1 transaction, the fiduciary enters into a contract with a specific mutual fund to receive compensation as a result of investing fiduciary funds in that mutual fund; in these situations, the fee generally is calculated as a percentage of the amount of trust assets invested by the bank in the fund. The 12b-1 program thus contains a built-in incentive to continue the investment in the particular fund, over other forms of investment.

The Office of the Comptroller of the Currency has specifically adopted this position in its Banking Circular 219 (1986) with respect to national bank fiduciaries, stating that "receipt of 12b-1 fees by bank fiduciaries is subject to 12 C.F.R. § 9.12(a)." That provision states:

[u]nless lawfully authorized by the instrument creating the relationship, or by court order or by local law, funds held by a national bank as fiduciary shall not be invested in stock or obligations of, or property acquired from ... individuals ... or organizations in which there exists such an interest, as might affect the exercise of the best judgment of the bank in acquiring the property....

Property Code § 113.053(g) was added to Texas law in 1993 and, among other matters, authorizes receipt of 12b-1 fees by a corporate trustee. Subject to the prudent investor standard, a corporate trustee may in the exercise of discretion invest fiduciary funds in a mutual fund containing otherwise permissible investments, even if the corporate trustee or an affiliate provides services to the mutual fund and receives compensation for those services, "if the compensation is disclosed by prospectus, account statement, or otherwise."

Because the trustee, a national bank, has the statutory responsibility to invest the prepaid funeral benefit funds at issue, we believe the trustee cannot evade the implications of 12 C.F.R. § 9.12(a) by delegating investment decisions to another, in this case Services, who will receive the 12b-1 fees from *** Funds. Consequently, neither the trustee nor Services can receive 12b-1 fees unless appropriate disclosure of the compensation is made as required by Property Code § 113.053(g).

We believe initial disclosure is best accomplished by specific authority for the practice in the governing instruments. In the context of a prepaid funeral benefits "master" trust such as that proposed by Services, parties in interest include the purchasers of prepaid funeral contracts and the funeral providers dependent on the trust for the revenue necessary to perform the prepaid funerals. Consequently, we would expect disclosure and authorization of the 12b-1 program in the prepaid funeral benefit contracts, any contracts between Services and its funeral providers, and in the trust agreement creating the trust. We further believe that both 12 C.F.R. § 9.12(a) and Property Code § 113.053(g) require that Services disclose fully 12b-1 fees received in periodic statements to the income beneficiaries, at least annually, as a separate line item which states in dollars and cents the total amount of such fees attributed to the account since the previous report.

This opinion is limited to the facts and assumptions set out herein. Any change in those facts, assumptions, or parties to the transaction may result in a different opinion.

Opinion No. 98-03

A municipality that acquires and operates an existing perpetual care cemetery is exempt from perpetual care cemetery regulation.

January 26, 1998

Sharon S. Gillespie, Assistant General Counsel

You have inquired as to whether a municipality can acquire a licensed perpetual care cemetery to operate as a perpetual care cemetery exempt from state regulation under Chapter 712 of the Texas Health & Safety Code (hereinafter, the "Code"). Chapter 713 of the Code provides the answer to your question.

Section 713.001(a) authorizes "[t]he governing body of a Type A general-law municipality [to] . . . purchase . . . and regulate a cemetery." This broad authority extends to the purchase of a licensed perpetual care cemetery. Furthermore, under §713.002, "[a] municipality that owns or operates a cemetery or has control of cemetery property may act as a permanent trustee for the perpetual maintenance of the lots and graves in the cemetery."  Section 713.003(a) also provides that the municipality may "adopt reasonable rules to receive a . . . grant from any source. . . ." Since the City has the authority to acquire, regulate, and maintain a cemetery (without limitation on the kind of cemetery) as well as the authority to receive and administer funds from any source (which would include trust funds of an existing, licensed perpetual care cemetery), it may purchase a licensed perpetual care cemetery and operate it under the exemption from state regulation granted to community cemeteries. See §712.002.

In reviewing documents pertinent to the licensed cemetery, the Department has noted that Paragraph XVIII of the "[*****] Cemetery Perpetual Care Trust Fund" agreement provides that "[a]ny statutory or contractual successor to the Trustor shall become a party to this Agreement in the Trustor´s place and stead . . . and such successor shall succeed to all obligations, benefits, and privileges of the Trustor as contained herein."  Paragraphs VI and IX of this agreement specifically pertain to the maintenance of the perpetual care cemetery trust fund. In our opinion, the City, as successor trustor, must fully perform the contractual obligations of [*****] Cemeteries set out in this agreement.

To avert possible confusion regarding the transfer of cemetery ownership and the role of various parties, the Department suggests that the City notify existing plot owners that the City is acquiring the [*****] Cemetery and that the State will no longer regulate the cemetery or oversee the trust funds established for its maintenance.

Opinion No. 97-41

A gratuitous program to offer funeral coverage for the minor lineal descendants of a prepaid funeral contract holder is not a "prepaid funeral benefit".

May 12, 1998

Sammie K. Glasco, Assistant General Counsel

This letter is in response to your letter of December 15, 1997, which was addressed to both this Department and to the Texas Department of Insurance ("TDI"). In your letter, you made a request on behalf of both [*****] and [*****], for a determination whether a program that [*****] is interested in offering to its customers is in full compliance with Texas insurance and prepaid funeral contract laws. I apologize for the delay in this response.

The proposed program is as follows. [*****] would provide coverage for the funeral of a minor (defined as under the age of 21 years) child, grandchild, or great-grandchild of an insurance funded prepaid funeral contract holder if the minor child died during the lifetime of the contract holder. The program would be offered at no cost to the contract holder and would not affect the premium charged on the insurance policy funding the contract, although the contract holder would have to be current in his or her premiums in order to be eligible for the benefit. Also, the program would not impact the underlying prepaid funeral contract.

I have been notified by Ms. Caroline Scott, General Counsel of TDI, that TDI has no objection to the proposed program and that the plan is, in fact, an authorized program. This Department has no objection to the program and does not consider it generally within the purview of Chapter 154 of the Texas Finance Code. However, because of this Department´s role in approving the form of sales contracts for prepaid funeral benefits pursuant to Texas Finance Code, §154.152, we would prefer that this program be offered as a gratuitous commitment or premium outside of the basic sales contract, as suggested in your letter.

Opinion No. 97-39

The Department may rescind approval of an erroneously approved form contract.

December 11, 1997

Sharon Gillespie, Assistant General Counsel

As you are aware, the Department erroneously approved, and ultimately rescinded approval, of a prepaid funeral contract in use by [*****]. This contract, in effect, disallows premium payments after the death of a purchaser/beneficiary. As a result, you have inquired about the Department´s statutory authority to rescind contract approval and the statutory authority upon which the determination to rescind was based.

The clear intent of Chapter 154 of the Texas Finance Code (hereinafter, the Code) is to provide funding for funeral expenses that are established on a prepaid basis. Unlike contracts which expire on the death of one party, the prepaid funeral contract does not expire. It is statutorily contemplated that the funeral home will perform the funeral, the subject matter of the contract after a contract purchaser/beneficiary has died. Likewise, by virtue of contracts written by the funeral industry and approved by the Department, both the industry and the Department historically have acknowledged that the purchaser´s bargain may be fulfilled after his death: if the purchaser/beneficiary has kept the contract in good standing paying all premiums as due, the purchaser´s representative may pay any sums due and owing under the contract after the purchaser has died. If this were not allowed, the regulatory framework of the Code would be frustrated, in part, as purchaser/beneficiaries often die before they completely pay for their contracts.

If the seller elects to solicit cancellation of the contract, it may do so; in this event, however, the estate will be entitled to reimbursement as provided pursuant to the Code §154.155.

Although it is unfortunate the Department approved a contract with an inaccurate provision, the State is not bound by mistakes of this nature. See, e.g., numerous cases cited in 60 Tex.Jur.3d §146 (1988). The law is also clear that parties cannot contract to violate the law. As a consequence, provisions in a prepaid funeral contract which do not allow for payment under the contract after the beneficiary´s death are void.1

The seller should contact the Department to determine the most efficient manner for making the necessary correction.

Opinion No. 97-38

Non-mutual fund investments of prepaid funeral benefit trust should be evaluated and reconciled at least quarterly to ensure compliance with investment limits.

December 23, 1997

Jerry G. Sanchez, Assistant General Counsel

Your letter dated November 11, 1997, addressed to Stephanie Newberg, Director of the Special Audits Division, has been forwarded to me for response. You have requested an opinion as to whether an investment account consisting of prepaid funeral benefit trust funds must be "rebalanced" monthly to ensure full compliance with the investment limitations of Tex. Fin. Code §154.258, and 7 T.A.C. §§25.51 et seq, and whether market fluctuations during periods between will be considered a violation of law.

Tex. Fin. Code §154.257(a) requires a trustee to "at least annually" review the adequacy and implementation of the investment plan. 7 T.A.C. §25.58(a) requires a permit holder to annually file with the Texas Department of Banking (the "Department") its written investment plan and a written statement from the trustee detailing all investments not in compliance with the applicable investment limitations.

7 T.A.C. §25.55(b)(2) requires a trustee to determine "at least quarterly" that a trust fund´s pro rata share of any type of investment or a particular issue of an investment in the mutual fund portfolio is not in excess of applicable investment limits by reason of being combined with the trust fund´s pro rata share of that type of investment or particular issue of an investment held by all other mutual funds in which the trust funds are invested and with the trust fund´s own direct investment holdings. The frequency of a trustee´s evaluations of non-mutual fund trust investments are not specifically addressed by statute or rule.

You indicate that monthly "rebalancing" of a trust fund´s investments is not efficient and that an annual "rebalancing" in conjunction with the annual update of the investment plan would be appropriate. However, the investment limitations are designed to prevent investments in securities of a single maker or obligor or a relatively small group of such persons who are financially interdependent, and to promote diversification of investments in order to reduce risks. In light of these important policy considerations, annual reconciliations (or "rebalancing") of a trust fund´s investments in conjunction with the annual update of the investment plan is not appropriate. We conclude that a trustee must conduct at least quarterly evaluations and reconciliations of non-mutual fund trust investments to ensure its investments do not exceed the applicable investment limitations. Regarding mutual fund trust investments, because federal law requires a registered investment company (mutual fund) to report only semi-annually, the Department has previously concluded that timely evaluation of mutual fund semi-annual reports will satisfy the requirements of 7 T.A.C. §25.55(b)(2), which requires quarterly reviews, if the mutual fund at issue only prepares and distributes semi-annual reports. During required quarterly or semi-annual evaluations, if investments which are noncompliant because of market fluctuations are reconciled and redistributed to comply with the applicable investment limitations, violations of law will not be cited.

Also, the trustee must maintain written documentation adequate to demonstrate that it is timely reviewing and "rebalancing" all of its trust fund investments to ensure compliance with the applicable investment limitations. This written documentation must be provided to the permit holders for the Department´s review at their examinations. Failure to comply with these requirements will result in violations of law.

This opinion is limited to the facts and circumstances set forth in your letter, dated November 11, 1997, and any change in those facts or circumstances may result in a different opinion.

Opinion No. 97-35

Cemetery merchandise from third parties may be included in a prepaid funeral benefit contract if the contract price is guaranteed.

December 12, 1997

Sammie K. Glasco, Assistant General Counsel

This letter is in response to your letter of October 30, 1997, to Everette Jobe, General Counsel. In your letter, you stated that [Company A], one of [Company B]´s affiliates, had been informally told by Special Audits examiners that certain items of cemetery merchandise, otherwise excluded from the definition of "prepaid funeral benefits," were permissible on a prepaid funeral benefit contract only if the funeral provider owned or controlled the source of the product. For example, under this analysis, a grave marker or headstone could be included as a contract item in a prepaid funeral benefit contract only if the funeral provider owned or controlled the company that was to supply the grave marker or headstone.

I have consulted with the Special Audits Division and find that a clarification is needed. The statement in your letter is not a correct summary of when cemetery services and merchandise also constitutes prepaid funeral benefits services and merchandise. I hope this letter corrects the misunderstanding.

Tex. Fin. Code §154.002(8) [now Finance Code §154.002(9)], as effectively amended by Acts 1997, 75th Leg., R.S., ch. 1389, §1, provides that:

"Prepaid funeral benefits" means prearranged or prepaid funeral or cemetery services or funeral merchandise, including an alternative container, casket, or outer burial container. The term does not include a grave, marker, monument, tombstone, crypt, niche, plot, or lawn crypt unless it is sold in contemplation of trade or barter for funeral services and funeral merchandise to which this Act applies. (Emphasis added).

A grave, marker, monument, tombstone, crypt, niche, plot or lawn crypt must be considered "prepaid funeral benefits" if offered as an element of a contract for the sale of prepaid funeral benefits services or merchandise. By its inclusion in a contract, such merchandise is considered "sold in contemplation of trade or barter for funeral services and funeral merchandise to which this Act applies." No statutory or regulatory requirement limits the inclusion of the above delineated cemetery services and merchandise to circumstances in which the funeral provider owns or controls the supplier or dealer of the cemetery merchandise or service.

In a related issue that I understand was also discussed with Special Audits examiners, all elements of merchandise and services in a prepaid funeral benefits contract, including cemetery services and merchandise, must be provided to the purchaser at a price no higher than that set out in the contract. 7 T.A.C. §25.2(a)(9) provides, in pertinent part, that all prepaid funeral benefit contracts submitted to this Department for approval must contain a "provider´s agreement." A provider´s agreement is a statement in which a provider agrees "to furnish the described prepaid funeral benefits specified in the contract, or their equivalent in quality, for a price not to exceed the contract price (emphasis added)." Thus it is clear that if cemetery services and merchandise are considered prepaid funeral benefit services and merchandise because of the operation of [Finance Code §152.002(9)], above, then the purchaser may not be charged more than the contract price for all merchandise and services that are elements of the contract.

Opinion No. 97-29

Deposits to perpetual care fund are required on second rights of interment sales.

September 22, 1997

Sharon S. Gillespie, Assistant General Counsel

By letter dated August 5, 1997, you have asked the Department for an opinion on three issues: first, you have inquired as to whether perpetual care cemetery deposits are required on "second rights of interment," i.e., for a second burial in the same plot; second, you have asked if you must make deposits on the second sale of plots previously sold if there have been no burials at the time of the second sale; and third, you have asked whether deposits are required not only on present and future sales of second rights, but also on past sales.

The answer to all three questions is found in section 712.028(a) of the Texas Health & Safety Code. Since September 1, 1993, section 712.028(a) has read as follows:

A corporation shall deposit in its fund an amount that is at least:

(1)  the greater of:

(A)  $1.50 a square foot of ground area conveyed as perpetual property; or

(B)  10 percent of the total purchase price of that ground area; . . .

This provision clearly provides that, if 10 percent of "the total purchase price" of the ground area sold for perpetual care is greater than $1.50 a square foot of that ground area, the corporation must deposit 10 percent of the total purchase price into a perpetual care cemetery fund. The operative word is "total." Since all sales of interment rights contribute to the total purchase price, deposits are required on "second rights of interment" (and on any other multiple, e.g., three or four, of such rights) sold on or after September 1, 1993.

Prior to September 1, 1993, section 712.028(a) simply required a deposit based on the square footage of ground area conveyed as perpetual care property: "[a] perpetual care cemetery shall deposit in the fund an amount that is at least . . . $1.50 a square foot of ground area disposed of or sold as perpetual care property." As a consequence, the amount of deposits for second rights of interment sold prior to September 1, 1993, are determined exclusively by the square footage formula. Since, in these circumstances, the ground area of the plot has been previously sold, the amount required to be deposited at the time of the second sale has been calculated and deposited already, and no further deposit is required.

Whether second rights of interment were sold before or after September 1, 1993, the status of a plot as an existing burial site is irrelevant: each of the two versions of the controlling statute sets out the terms of deposit, and the existence of a burial at the time of sale is neither implied nor stated as a factor. Likewise, neither version of the statute makes exception to the deposit requirements; and, as a consequence, a corporation must make required deposits not only on present and future sales of second rights, but also on past sales since September 1, 1993.

This opinion is limited to the basic facts and assumptions set out herein. Any change in these facts or assumptions may result in a different opinion.

Opinion No. 96-23

Prepaid funeral benefit trust funds may be invested without limit in certain mortgage related securities, subject to prudent fiduciary judgment.

September 17, 1996

Everette D. Jobe, General Counsel

By letter dated June 18, 1996, you requested whether investment of prepaid funeral benefit trust funds in a mutual fund known as the Adjustable Rate Mortgage Portfolio, sponsored by [*****] (the "Fund") would be in compliance with Article 548b, Texas Civil Statutes (the "Act") [now Texas Finance Code, ch. 154]. You stated in your letter that the portfolio of the Fund contained "only securities that can be held without limitation by federally insured banking institutions." You enclosed a copy of the prospectus of the Fund, dated March 1, 1996, for our review.

Section 5A of the Act [now Finance Code §154.258] generally limits investment of prepaid funeral trust funds in investments specifically set out in the [Code]. However, §5A(11) of the Act [now Finance Code §154.258(a)(11)] authorizes investment in "any other investment approved in writing by the Department." Based on this authority, the Department hereby authorizes a prepaid funeral benefit trust to invest in the Fund without limit, subject only to the exercise of prudent judgment in light of the trustee´s fiduciary duties to the trust.

The fact that the portfolio contains only securities that can be held without limitation by federally insured banking institutions is not in itself determinative, since a bank is not subject to a strict fiduciary duty in the investment of its own funds, unlike a trustee investing trust funds. The Department has reviewed the prospectus and notes that investment of trust funds in some of the securities in the Fund´s portfolio are not authorized in the [Code] beyond strict limits, primarily debt securities secured by pools of federally insured residential mortgages ("mortgage related securities"). However, we conclude that state law restrictions on investment in such mortgage related securities are preempted by federal law that treats most residential mortgage backed securities as United States securities for investment limit purposes.

Pursuant to 15 U.S.C. §77r-1(a)(1), "[a]ny person, trust, corporation, partnership, association, business trust, or business entity created pursuant to or existing under the laws of the United States or any State shall be authorized to purchase, hold, and invest in" specified mortgage related securities "to the same extent that such person, trust, corporation, partnership, association, business trust, or business entity is authorized under any applicable law to purchase, hold or invest in obligations issued by or guaranteed as to principal and interest by the United States or any agency or instrumentality thereof." The ability of a state to restrict these investments is addressed 15 U.S.C. §77r-1(c):

The provisions of subsection (a) of this section shall not apply with respect to a particular person, trust, corporation, partnership, association, business trust, or business entity or class thereof in any State that, prior to the expiration of seven years after Oct. 3, 1984, enacts a statute that specifically refers to this section and either prohibits or provides for a more limited authority to purchase, hold, or invest in such securities by any person, trust, corporation, partnership, association, business trust, or business entity or class thereof than is provided in subsection (a) of this section.

Thus, Congress specifically reserved a seven year period during which the states could enact legislation overriding the federal preemption. Texas did not act. Thus, this Department will treat the mortgage related securities identified in 15 U.S.C. §77r-1(a) as "obligations issued by or guaranteed as to principal and interest by the United States or any agency or instrumentality thereof." The Fund´s investment objectives stated in the prospectus are therefore viewed as limited solely to securities that can be held without limitation by prepaid funeral trusts. Pursuant to 7 T.A.C. §25.53(b), prepaid funeral trusts can invest without limitation in the Fund.

Although this opinion waives potentially applicable investment limits as required by federal law, fiduciary duties must be observed, see Texas Civil Statutes, Article 548b, §5A(c) [now Finance Code §154.256], and 7 T.A.C. §25.52. A trustee under the [Code] must monitor an investment in the Fund to gauge exposure to interest rate risk or other investment risk, and must reduce or eliminate the investment if such risk creates unwarranted exposure. The trustee must also carefully monitor the Fund to ensure that its investment objectives and restrictions do not change.

This opinion is limited to facts and circumstances set forth in your letter and any facts or assumptions set forth herein, including the specific investment objectives and limitations set forth in the Fund´s prospectus. Any change in those facts, circumstances, assumptions, or the parties to the transaction may result in a different opinion. Although this letter authorizes an investment in the Fund under the [Code], this letter should not be construed or used as an endorsement of the Fund or any other investment.

Opinion No. 96-06

An unincorporated, non-profit association of plot owners operating a "perpetual care" cemetery is exempt from regulation but should not advertise as perpetual care.

March 22, 1996

Jerry G. Sanchez, Assistant General Counsel

Your letter dated March 4, 1996, to Mr. Everette Jobe, has been forwarded to me for response. You requested an opinion regarding the [Cemetery Association´s] exemption from the provisions of the Texas Health and Safety Code (the "Code"), Chapter 712. [Cemetery Association] is a non-profit, unincorporated association comprised of relatives of veterans, including veterans of the War for Texas Independence and the U.S. Civil War, who are interred in the [Cemetery Association] Cemetery, located in [*****] County, Texas.

First, you inquired as to whether [Cemetery Association] may operate an unincorporated association and still be exempt from Chapter 712 of the Code. Under §712.002(2), "an unincorporated association of plot owners not operated for profit" is eligible for exemption from Chapter 712 of the Code. Therefore, assuming that [Cemetery Association] operates as a non-profit unincorporated association of plot owners, it will be exempt from Chapter 712 of the Code.

Second, you inquired as to whether [Cemetery Association] may enter into an irrevocable trust agreement appointing [bank A] its successor or assigns, as trustee to utilize the income of the association´s funds for the perpetual maintenance of the cemetery. This is acceptable. Additionally, because perpetual care cemeteries are subject to Chapter 712 of the Act, The Texas Department of Banking (the "Department") recommends that you utilize another term such as "Maintenance Fund" or "Eternal Care Fund" in naming the trust account, as opposed to "Endowment Care" or "Perpetual Care Fund."1 Also, in order to provide flexibility, the Department recommends that [Cemetery Association] include in its trust agreement a provision allowing for amendment of the trust instrument.

Third, you inquired as to whether [Cemetery Association´s] trust agreement may exclude specific references to Chapter 712 of the Code. This is permissible if [Cemetery Association] will be operating as a non-profit, unincorporated association. Additionally, [Cemetery Association] should not advertise or represent to the general public that it provides perpetual or endowment care.2 Also, contracts utilized by [Cemetery Association] should not indicate that it is subject to the laws of Texas pertaining to perpetual care cemeteries.

This opinion is limited to the facts and circumstances set forth in your letter dated March 4, 1996, and any change in those facts and circumstances may result in a different opinion.

Opinion No. 95-61

A successor trustee is not liable for improper investments made by the prior trustee but is obligated to take reasonable action to correct the breach of trust once discovered.

November 28, 1995

Sharon Gillespie, Assistant General Counsel

You have asked the Department of Banking (the "Department") for assurance that [*****] Bank, a successor trustee, will not be held liable for improper investments made by the prior trustee. Section 114.002 of the Texas Property Code sets out the rule for liability in such situations:

A successor trustee is liable for a breach of trust of a predecessor only if he knows or should know of a situation constituting a breach of trust committed by the predecessor and the successor trustee:

(1) improperly permits it to continue;

(2) fails to make a reasonable effort to compel the predecessor trustee to deliver the trust property;1 or

(3) fails to make a reasonable effort to compel a redress of a breach of trust committed by the predecessor trustee.

Under this standard, once a successor becomes aware of a breach of trust, e.g., as in this instance, of improper investments, the successor becomes obligated to take reasonable action to correct the breach.

I am aware that you have been working closely with the Department and the Attorney General's Office to resolve the problems with the subject investments. Furthermore, it is my understanding that it would be imprudent at this time to convert the trust property to permissible investments. Instead, you are steadily improving the liquidity of the trust assets, which, in the view of our staff, is the proper way to handle them. It is also my understanding that to pursue the predecessor trustee, who is in bankruptcy, would be futile. On these facts, if no additional breach of trust occurs and you continue to manage the property in the prudent manner that you have in the past, the Department is satisfied you will fully discharge the obligation imposed on you as a successor trustee under §114.002.

Opinion No. 95-19

Perpetual care cemetery may be located within extended territorial jurisdiction of municipality of less than 5,000.

April 11, 1995

Sharon Gillespie, Assistant General Counsel

You have inquired as to whether it is permissible to locate a perpetual care cemetery within the extended territorial jurisdiction of a municipality having a population of less than 5,000. With limited exceptions, Tex. Health & Safety Code Ann., §711.008 forbids the establishment or operation of a cemetery or use of land for a cemetery within a city that has a population of 5,000 or more. However, as you noted, §711.008 is silent with respect to the location of a cemetery within the boundaries of a municipality of less than 5,000 residents.

Pursuant to rules of statutory construction, the express mention of a particular class, i.e., in this case, municipalities with populations exceeding 5,000 residents, amounts to an express exclusion of all other classes, i.e., municipalities with populations of less than 5,000. See Peterson v. Calvert, 473 S.W.2d 314, 317 (Tex. Civ. App.-Austin 1971, writ ref´d). As a result, it can be said the Legislature did not intend to prevent cemeteries from locating within the boundaries of municipalities that have fewer than 5,000 residents; it has, in essence, excluded this class of municipalities from those it has chosen to regulate with respect to cemetery location.

As defined in §711.001(24), a "perpetual care cemetery" is a "cemetery." Therefore, use of the term "cemetery" in §711.008 includes cemeteries which are perpetual care. Accordingly, a cemetery-whether perpetual care or otherwise-may locate inside the city limits of a municipality with a population of less than 5,000.

Opinion No. 95-07

County-owned and operated paupers' cemetery is exempt from regulation if not advertised as perpetual care.

March 8, 1995

Sharon Gillespie, Assistant General Counsel

You have asked whether a paupers´ cemetery owned and operated by [*****] County is subject to the perpetual care cemetery laws of this state and what other laws, if any, [*****] County must follow in establishing a paupers´ cemetery.

Except as provided in section 711.021(g)(4) of the Texas Health & Safety Code (the "Code," hereafter referenced by section number only), "[a]n individual, corporation, partnership, firm, trust, or association may not engage in a business for cemetery purposes in this state unless the person is a corporation organized for those purposes." In addition, "[a]ny cemetery that begins its initial operations on or after September 1, 1993, shall be operated as a perpetual care cemetery in accordance with Chapter 712," except as provided in §711.021(g)(4). Section 711.021(g)(4) provides that §711.021 does not apply to a public cemetery belonging to a county. As a consequence, a public county cemetery such as you have described is neither required to incorporate nor required to operate as a perpetual care cemetery. With these exceptions, most of the other provisions of Chapter 711 would be applicable (or potentially applicable) to this cemetery.  (As you have described the paupers´ cemetery, §§711.022-711.024, pertaining to a nonprofit cemetery corporation organized by plot owners, and §§711.038-711.040, which relate to the sale of plots, would not apply.)

Although a county is not required to operate a county public cemetery as a perpetual care cemetery, should [*****] County choose to operate the described cemetery as perpetual care, it would be exempt from Chapter 712 if the cemetery can be characterized as a "community cemetery." Section 712.002. However, if the cemetery is not held out to the public as providing perpetual care under the definition in section 712.007(c), the Department does not believe that it would be a perpetual care cemetery even though it in fact provides services that could be described in this manner. From the facts you submitted, it does not appear that [*****] County wishes to hold this cemetery out as providing perpetual care; and, therefore, it is unnecessary to elaborate further on this point.

Opinion No. 94-89

Perpetual care cemetery corporations may merge.

January 3, 1995

Sharon Gillespie, Assistant General Counsel

By letters dated November 22 and December 19, 1994, you have inquired as to whether or not [*****], can legally merge multiple Texas cemetery corporations into a single Texas cemetery corporation. The merging corporations operate perpetual care cemeteries for profit; the resulting corporation will do the same.

Chapter 712 of the Texas Health & Safety Code (the "Code"), which relates to perpetual care cemeteries, clearly permits a corporation chartered on or after September 1, 1993, to operate more than one perpetual care cemetery in this state.1 As a consequence, the only issue that must be resolved is whether or not the corporations subject of your inquiry can legally merge.

Although the Code does not provide for mergers, the Texas Business Corporation Act (the "Act") does. See TEX. BUS. CORP. ACT ANN. art. 5.01-5.16 (Vernon 1980 & Vernon Supp. 1995). Article 9.14 of the Act reads, in pertinent part, as follows:

if any domestic corporation was heretofore or is hereafter organized under or governed by a statute . . . that contains no provisions in regard to some of the matters provided for in this Act . . . then the provisions of this Act shall apply to the extent that they are not inconsistent with the provisions of such other statute . . . .

Perpetual care cemetery corporations operated for profit are organized under §712.001(a)(3) of the Code. The Code neither provides for mergers of these cemetery corporations nor contains provisions inconsistent with the merger provisions of the Act. As a consequence, the merger provisions of Article 9.14 are applicable to such cemetery corporations; and, therefore, they are legally permitted to merge.

Your letter dated December 22 indicates [*****] will comply with specific Code provisions pertaining to minimum capital and to record keeping and management of a common trust fund.2 Although your correspondence fails to mention §712.004(b) of the Code (relating to the creation and funding of trust accounts for each cemetery operation)3 or to existing trust funds of the merging corporations, you have verbally indicated [*****] will comply with all applicable Code provisions including §712.004(b) and that the trust account(s) established under §712.004(b) will include all trust funds existing at the time of merger. Failure to preserve existing trust funds for the purposes set in §712.021(f) would violate §712.021(b) of the Code.4

Opinion No. 94-82

Neither trustor nor trustee is empowered to revoke separate, irrevocable, prepaid funeral trusts and commingle or pool those trust assets into a new, single trust.

November 18, 1994

Sammie K. Glasco, Assistant General Counsel

This letter is in response to your facsimile transmittal of October 14, 1994, in which you asked for clarification of the Texas Department of Banking´s (the "Department") policy reasons for stating that [*****] Funeral Plan may not commingle the assets of trust funds for individual trusts that are now grouped under a single permit number. I will address the general policies that we have developed in this regard.

The Department´s position is that each trust created under §5 of Article 548b (the "Act") [now Texas Finance Code, ch. 154, subch. F] is irrevocable and must remain inviolate until the trust purposes are accomplished. The purposes of a particular trust are accomplished once all the contracts related to a particular trust mature or all contracts have been canceled as provided by [Finance Code, ch. 154]. Neither the trustor nor the trustee may unilaterally revoke separate, irrevocable trusts and commingle those trust assets into a new, single trust. In fact, the [Code] authorizes unilateral revocation in only one instance - the conversion under [Finance Code §154.204], with the Commissioner´s approval, from a trust funded prepaid funeral benefits plan to an insurance funded prepaid funeral benefits plan. However, in that instance the [Code] specifically provides that each affected contract holder must be notified of the proposed conversion in writing and has the right to decline the conversion. This procedure is consistent with general trust law, which requires consent of the beneficiaries before an irrevocable trust may be terminated.

A permit holder who manages several pre-existing trusts under a consolidated permit may create a new trust for all proceeds from contracts executed after obtaining the consolidated permit. Further, funds of pre-existing trusts may be invested in a common trust fund or mutual fund under §5A(d)(10) of the Act [now Finance Code, §154.258(a)(10)]. These common trusts funds may not, of course, contain investments other than those specifically authorized by [Finance Code, §154.258], and the trustee should exercise care not to violate a fiduciary duty by selling higher quality investments in order to generate the funds for investment in a "pooled" fund. Further, all state and national banks and trust companies that elect to establish and maintain common trust funds must comply with 12 C.F.R. §9.18, which provides, in pertinent part, that "all participations . . . shall be on the basis of a proportionate interest in all assets." Each common trust fund participant purchases a proportionate interest in common trust fund assets, usually in cash, based on the value of the assets of the fund on valuation day. Withdrawals are similarly valued. Common trust funds are investment vehicles only and are quite different from a merger or combination of separate trusts in which the proportionate interest of the holders of prepaid funeral benefits contracts in one trust may decline to the benefit of contract holders of another trust that has not performed as well.

The dominant theme running through [Finance Code, ch. 154] is to safeguard and protect the rights and interests of the individuals who have purchased prepaid funeral benefits contracts. In our opinion, a trust company or other authorized fiduciary is bound to strictly follow the dictates of [Finance Code, ch. 154] and could possibly be open to some legal exposure if trust assets are manipulated in a manner that is not specifically authorized by [Finance Code, ch. 154].

Opinion No. 93-08

Sale of a grave lot or marker is not subject to regulation unless the sale is incidental to a funeral service and offered as part of a prepaid funeral benefits contract.

October 1, 1993

Sammie K. Glasco, Assistant General Counsel

I have been asked to respond to your letter of September 23, 1993 to Ms. Ann Graham, former General Counsel of the Texas Department of Banking, by Everette Jobe, who is the current General Counsel.

Article 548b of Vernon´s Texas Civil Statutes [now Texas Finance Code, ch. 154] regulates the sale of prepaid funeral services or funeral merchandise, i.e. prepaid funeral benefits. "Prepaid funeral benefits" may include "cemetery services." However, Article 548b, Section 1(b)(9) [now Finance Code, §154.002(9)], provides, in part, that the term "prepaid funeral benefits" does not include "a grave, marker, monument, tombstone, crypt, niche, plot, or lawn crypt unless it is sold in contemplation of trade or barter for funeral services and funeral merchandise to which this Act applies." Therefore, it is my view that [Finance Code, ch. 154] does not apply to "cemetery services" unless such services are incidental to a funeral service and offered as a part of a prepaid funeral benefits contract.

You stated in your letter that the [church or religious organization] owns and operates several cemeteries within the boundaries of the [church or religious organization]. In my opinion, [Finance Code, ch. 154] does not apply to cemetery owners and operators unless they sell prepaid funeral benefits as defined in the [Code]. This would include cemetery owners and operators exempt from regulation under Section 712.002 of the Health and Safety Code.

Opinion No. 93-06

An out-of-state, federal savings bank with trust powers may engage in fiduciary activities in this state with respect to perpetual care cemetery trusts and prepaid funeral benefit trusts created under Texas law if the bank establishes a physical Texas presence through a branch or representative trust office.

Municipal cemetery operated as perpetual care and exempt from regulation may be advertised as perpetual care.

August 23, 1993

Sammie K. Glasco, Assistant General Counsel

Your letter of August 15, 1993 has been referred to me for response concerning your question whether the City of [*****] may use the term "perpetual care" in connection with its municipal cemetery without violating applicable law. It is my view that use of the term "perpetual care" by a municipal cemetery is not contrary to any law or regulation administered by the Texas Department of Banking (the "Department").

At the time [*****´s] ordinance was adopted on February 10, 1987, municipal cemeteries were governed by articles 969c to 969c-2 of Tex. Civ. Stat. Ann., as amended. These provisions allowed cities or towns to serve as permanent trustees for the "perpetual care and upkeep of the lots and graves." These cities and towns were required to place deposited funds in a "permanent and perpetual trust fund." Articles 969c to 969c-2 were repealed by Acts 1989, 71st Leg., ch. 678, effective September 1, 1989. Title 8, Subchapter C, Chapter 713 of the Tex. Health & Safety Code Ann. ("Chapter 713") was concurrently adopted.

Municipal establishment of perpetual care cemeteries is presently governed by Chapter 713. Section 713.002 provides, in part, that a type A, general law municipality may act as permanent trustee for the perpetual maintenance of a cemetery if the municipality adopts an ordinance stating, "the municipality´s willingness to act as a trustee. When the ordinance . . . is adopted and the trust is accepted, the trust is perpetual". Section 713.005 authorizes the municipality to receive gifts and deposits for care and provides that acceptance of a deposit "is a perpetual trust for the designated grave or burial lot". Chapter 713 specifically authorizes municipalities to establish perpetual care trusts and receive deposits.

For purposes of this opinion, I assume that [*****] is a municipality of the type designated in Chapter 713 and that the ordinance as adopted complies with the law. Based on these assumptions, it is my opinion that the use of the term "perpetual care" in relationship to the cemetery trust established by ordinance by [*****] does not violate or conflict with code provisions concerning perpetual care cemetery corporations under Chapter 712 of the Health and Safety Code, as regulated by this Department. Municipal cemeteries are specifically exempted from the incorporation provisions of the Health and Safety Code. [See Section 711.021(g)(4)]. Finally, Chapter 713 and its predecessor statute specifically authorize municipalities to act as trustees of perpetual care trusts.