BMS Mortuary and Business Law 3 — Questions and Answers
Question 1: What is the primary purpose of a preneed funeral contract?
- To allow consumers to pre-purchase funeral goods and services at today's prices (Correct answer)
- To transfer ownership of a burial plot
- To assign life insurance proceeds to a funeral home
- To establish a trust for cemetery maintenance
Correct answer: To allow consumers to pre-purchase funeral goods and services at today's prices
A preneed funeral contract allows consumers to select and pre-pay for funeral goods and services, often locking in current prices for future delivery.
Question 2: When a funeral home receives preneed funds, most states require the funds to be:
- Placed in a state-regulated trust or insurance product (Correct answer)
- Deposited into the funeral home's general operating account
- Held in escrow by the state funeral board
- Invested in municipal bonds
Correct answer: Placed in a state-regulated trust or insurance product
State law typically requires preneed funds to be placed in a qualifying trust or used to purchase insurance to protect consumer funds until services are rendered.
Question 3: A sole proprietor funeral home owner dies intestate. What happens to the funeral home business?
- It passes through probate as part of the owner's personal estate (Correct answer)
- It automatically transfers to the senior employee
- The state funeral board assumes control
- A receiver is immediately appointed by the court
Correct answer: It passes through probate as part of the owner's personal estate
A sole proprietorship has no legal existence separate from its owner, so the business assets pass through the decedent's probate estate according to intestacy laws.
Question 4: Which business entity structure provides its owners with limited liability protection while allowing pass-through taxation?
- Limited Liability Company (LLC) (Correct answer)
- Sole proprietorship
- General partnership
- C-Corporation
Correct answer: Limited Liability Company (LLC)
An LLC shields members from personal liability for business debts while profits and losses flow through to members' personal tax returns, avoiding corporate double taxation.
Question 5: A funeral director signs an authorization for embalming without obtaining proper consent. Which legal theory most directly applies?
- Battery (unauthorized touching) (Correct answer)
- Negligence per se
- Fraud
- Defamation
Correct answer: Battery (unauthorized touching)
Performing embalming without proper authorization constitutes an intentional unauthorized touching of the body, which is actionable as battery.
Question 6: Under HIPAA, when may a funeral director access a decedent's protected health information (PHI)?
- When necessary to perform funeral and disposition-related duties (Correct answer)
- Only with the written consent of the next of kin
- Never — HIPAA protections survive death indefinitely
- Only after a 30-day waiting period post-death
Correct answer: When necessary to perform funeral and disposition-related duties
HIPAA permits covered entities to disclose PHI to funeral directors as needed for them to carry out their duties, as long as the disclosure is limited to what is necessary.
Question 7: A funeral home enters a contract with a casket supplier but later cannot perform because the warehouse burned down. Which contract defense applies?
- Impossibility of performance (Correct answer)
- Statute of Frauds
- Parol evidence rule
- Accord and satisfaction
Correct answer: Impossibility of performance
Impossibility of performance excuses a contracting party when an unforeseen event makes performance objectively impossible — such as destruction of the subject matter.
BMS Mortuary and Business Law 3
What is the primary purpose of a preneed funeral contract?