North Carolina Funeral Law Practice Exam

Except for which type of account, preneed funds should not be deposited into a funeral home's bank accounts?

1. Certificate account

2. Clearing account

3. Trust account

4. Operating account

The correct answer is: Clearing account

Preneed funds refer to money that is paid in advance for funeral services and products. These funds are managed under specific legal guidelines to ensure they are used solely for the purposes intended by the consumer. A clearing account should not be used for preneed funds because it primarily serves as a temporary holding area for transactions before the funds are moved to their final destination. Essentially, a clearing account is not designated for long-term retention of funds, making it inappropriate for preneed funds that should be safeguarded for future funeral services. In contrast, other types of accounts, such as trust accounts, are specifically designed to hold funds securely and earn interest over time, ensuring that the money is available when needed for the services prearranged by the consumer. Certificate accounts might also be suitable if they comply with state regulations regarding how preneed funds should be stored. Operating accounts are typically used for everyday business expenses and should not contain preneed funds as they do not provide the same level of protection or segregation required for those funds.