                         The Attorney             General of Texas

MARK WHITE
Attorney General                            my 8, 1981

                   Honorable Robert E. Stewart             Opinion No.   EN-336
                   Commissioner
                   Department of Banking                   Re: Whether the Department of
                   2801 North Lamar                        Banking should approve the release
                   Austin, Texas 78705                     Of monies held in a tNSt account
                                                           by the trust department of a bank
                                                           that are in excess of 100% of the
                                                           amounts paid by purchasers       of
                                                           prepaid ftmeral benefits   to the
                                                           seller   under the provisions    of
                                                           article 5484 V.T.C.S.

                   Dear Commissioner Stewart:

                         You have asked our opinion whether the Department of Banking should
                   approve the release of monies held in a trust account by the trust
                   department of a bank pursuant to the provisions of article 548b, V.T.C.S.
                   That statute vests authority in the Department of Banking to regulate the
                   sale of prepaid ftmeral contracts

                          As we understand the facts as you have related them to us, a cemetery
                   corporation   has designated the trust department      of a bank to be the
                   custodian trustee of 100% of all monies collected by the corporation from
                   the sale of prepaid funeral contracts.   The terms of the trust require that
                   cash or the cash equivalent of 100% of all amounts collected from all
                   unmatured and tmcancelled funeral contracts sold by the corporation be
                   maintained in the fund at all times.        The corporation has advised the
                   department that from time to time it will request that monies held in the
                   trust find by the tnmtee bank in excess of 100% of the amounts paid by the
                   purchasers of prepaid ftneral contracts be released to the corporation which
                   is also the seller of the prepaid contracts    According to the terms of the
                   tNSt agreement between the corporation and the bank, any such release of
                   ftmds must have the prior approval of the Department of Banking.

                         Consequently you inquire whether you cm approve such a release after
                   YOU  are notified that the trust fmtds remaining do not total lees than the
                   total of 100% of all monies collected by the corporation from purchasers of
                   all unfulfilled and tmcancelled prepaid funeral contracts and, futher, that
                   only such sums exceeding such total are released to the corporation seller.
                   We conclude that this question should be answered in the negative.

                                                 p. 1093
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Honorable Robert E. Stewart      - Page Two         bS+336)




        As originally enacted by the legislature   in 1955, section 5 of article 548b provided
that:

              . . . all funds collected under contracts for prepaid funeral
              benefits . . . shall be placed in a state or national bank, or
              building and loan association . . . to be held in a trust ftmd in
              this State for the use, benefit and protection of purchasers of
              such contracts.

Acts 1955, 54th Leg., ch. 512, at 1293.

      Any withdrawal of fuuis from the trust account was strictly controlled such that
in no event could more funds be withdrawn from the trust account than were originally
placed into the find under any one contract, other than through the payment of
accrued interest on those funds.

      The statute was upheld against constitutional       attack in Palkner v. Memorial
Gardens Association, 298 S.W. 2d 934 (Tex Civ. App. - Austin 1957, writ rePd n.r.e.l.
Appellees, sellers of prepaid funeral contracts, contended that the statute would put
them out of business because it required that 811 ftmds collected be placed in trust
without any recognition for the expenses incurred by the seller. The court rejected
this complaint saying it was a matter for the legislature. The court held that although
the legislature saw fit to impose on the business a regulation that seemed onerous to
the seller, the statute was not unconstitutional   because the legislature was authorized
to impose such regulations in the public Interest.

      In 1963, the statute was amended to provide, inter alia, that when a contract
matured if there were not sufficient funds available to equal 100% of the amount paid
under the contract, the seller could make up the difference by withdrawing funds
accumulated on other contracts which were In excess of 100% of the amounts paid in
on those other contracts   Acts 1963, 58th Leg., ch. 496, at 1304.

      In addition, the purchaser or his estate was entitled at maturity to withdraw a
proportionate pert of the interest earned on all funds in trust when the total funds on
deposit including accrued interest exceeded 100% of the amounts paid in on all
contracts    The seller was precluded from receiving any accrued interest.

       The statute as amended In 1967 now reads so as to allow the seller to elect to
secure funis collected from the sale of prepaid funeral contracts through contracts of
Insurance with companies licensed In Texas in lieu of placing them In the traditional
trust accounts.     Since the 1967 amendments, if the seller elects to place the fund5
collected in a tnmt account, it can withdraw part of the ftmds on deposit within the
limitations established by section 5 of the act. Those limitations are as follows:

                  1. The ftmeral home (or other entity collecting the funds)
              may use any amounts in excess of one hundred percent of the
              contract price which may have accumulated at maturity to
              make up the difference on another contract which, at maturity,
              does not have ftmds available equal to one hundred percent of
              its contract price.

                                          p. 1094
Honorable Robert E. Stewart   - Page Three     (M+336)




               2. The seller may withdraw fmds art of the accrued
           interest or income at any time to pay reasonable and necessary
           charges ma& by the trustee financial institution or to pay taxes
           incurred by the account.

                3. Upon maturity of the contract and full performance by
           the seller or upon proper cancellation prior to maturity, the
           seller may additionally   withdraw a specified proportionate
           amount of the accrued interest or income of the contract.

Of course, finds in the account may be released upon maturity in fulfillment      of the
contract.  These are the only circumstances under which the seller is permitted   by the
statute to withdraw funds which are placed in trust accounts.

       Although it has been suggested that section la of the act allows the Department
of Banking to permit the release of trust monies in excess of one hundred percent of
the contract price, we do not construe section la to provide such authority per se.
Article 5484 section la, provides, in pertinent part:

           No organization covered by this Act shall solicit by any means
           whatsoever the designation by an individual of funeral services
           or merchandise which he desires to be provided to be paid out of
           any ftmd, investment, security, or contract, to be created or
           purchased by or for such an individual at the suggestion or
           solicitation    of the organization, unlgs such a ftmd is to be
           created by a contract of insurance with an insurance company
           licensed in Texas, or unless such ftnd, investment, security, or
           contract     shall have been spproved by the Department        as
           safeguarding the right and interests of the individual, his heirs
           and assigns, to substanbally the same or greater degree as is
           provided with respect to funds regulated by section 5 hereof.
           (Emphasis added).

This section permits approved deviations from the terms of the act which are equal to
or greater than the safeguards provided by statute.     Therefore, section la cannot be
used to allow additional instances under which funds in excess of one hundred percent
of a prepaid funeral. services contract price may be withdrawn by the provider of
services tmless the deviation is found by the Department of Banking to provide
safeguards that are substantially the same or greater than those provided with respect
to funds regulated by section 5. Legislative intent to protect the principalsum of the
prepaid funeral service contract is evidenced by section 5 of the Act.

       We believe that the legislative history and present language of the statute
clearly reveal the legislative intent that funds collected from purchasers of prepaid
funeral contracts are to be protected by the requirements imposed by the statute or by
substantially the same or more stringent requirements as approved by the Department
of Banking. The statute taken as a whole clearly contemplates that, where a seller
elects to place the finds in a trust account as opposed to an insurance contract, those
fmds are to remain on deposit and neither the principal fmds nor the income they


                                     p. 1095
                                                                                       .    c




Honorable Robert E. Stewart   - Page Four        (14+336)




produce may be withdrawn except in the limited instances and for the particular
purposes specified in the statute.   Where a statute provides for specific exceptions to
its basic provisiorw and terms, the intent is clear that no other exceotions a~~lv.
                                                     72 S.W. 2d 303 (Tex. 1678); State v.
                                                    te v. Richards, 301 S.W. 2d 597
                                                    seller choosing to operate under the
plan provided by section 5 of article 548b may withdraw funds from the trust accounts
only under the specific instances set forth in that section. The seller has the option of
submitting an alternative plan to the Banking Board which plan may be approved if it
provides substantially the same or greater protection than that provided by the section
5 requirements.

                                    SUMMARY

               The Department of Banking should not approve the release
           of monies held in a trust account at times and for purposes not
           permitted by section 5 of article 548b, V.T.C.S., tmless the
           Department    of Banking finds such deviations from the act
           provide safeguards that are substantially the same or greater
           than those provided in section 5.

                                          vcTYtlw


                                             MARK      WHITE
                                             Attorney General of Texas

JOHN W. FAINTER, JR.
First Assistant Attorney General

RICHARD E. GRAY III
Executive Assistant Attorney General

Prepared by Catherine Fryer
Assistant Attorney General

APPROVED:
OPINION COMMDTEE

Susan L. Garrison, Chaiman
Jon Bible
Catherine Fryer
Rick Gilpin
Jim Moellinger
Bruce Youngblood




                                       p. 1096
