06/11/2004

Transferring Preneed CD Accounts Prior To Maturity

By: T. Scott Gilligan, OFDA General Counsel

In earlier Newsletter articles, OFDA informed its members that the Ohio Board of Embalmers and Funeral Directors will no longer permit funeral homes to deposit preneed funds into POD, CD or savings accounts unless those accounts are part of a preneed funeral trust. As a result, a number of OFDA members have begun to transfer preneed funds into the OFDA Master Trust.

Since the directive of the Ohio Board applies to all preneed funds accepted by an Ohio funeral home after July 1, 1997, many funeral homes are confronted by the question of whether they need to cash out existing CD accounts prior to maturity dates. Unless the financial institutions holding the CD accounts are willing to waive early withdrawal penalties, funeral homes cashing out these accounts could lose up to 5% of the funds in the accounts to forfeiture clauses.

Understanding that early withdrawal penalties could cause significant losses to preneed accounts, the Ohio Board of Embalmers and Funeral Directors has indicated that funeral homes need not cash out existing CD accounts prior to maturity. Rather, these CD accounts can be maintained until the next maturity date. As they mature, the CD accounts should be cashed out and the funds transferred to established preneed trusts, such as the OFDA Master Trust. Therefore, in some cases, it may take a funeral home several years to reach full compliance with the directive of the Ohio Board. Nevertheless, the Ohio Board has taken the common sense approach that the potential loss to funeral homes and funeral consumers resulting from cashing our CD accounts prior to maturity outweighs the need for immediate compliance with the Board's directive.

While the Board will allow funeral homes to maintain existing CD accounts until they mature, Ohio funeral homes should not establish new CD accounts for preneed funds nor renew CD accounts unless they are part of an established preneed trust. OFDA members with questions regarding the OFDA Master Trust should contact Bob Shank, Jr., at 800-589-6332 or 614-486-5339 or via email at bob@ofdaonline.org.