4000 - Advisory Opinions
Insured Coverage for Revocable Testamentary Trust Accounts
November 27, 1987
Claude A. Rollin, Attorney
This is in response to your letter of November 11, 1987 wherein you request a legal opinion on the extent to which FDIC insurance coverage would be afforded to your clients' revocable living trust accounts.
Your letter indicates that your clients, a husband and wife, are serving as the settlors, trustees and beneficiaries of a revocable living trust. You further indicate that the husband and wife wish to obtain certificates of deposit in the name of the trust and want to know how those accounts will be characterized for deposit insurance purposes.
It is clear that your clients' accounts would not be classified as trust accounts under section 330.10 of the FDIC rules and regulations, 12 U.S.C. § 330.10, since the trust in question is revocable. In order to qualify for the separate insurance coverage afforded by that section, it is necessary to establish an irrevocable trust, since "trust interests" are defined, in 12 C.F.R. § 330.1(c)(4), as interests in an "irrevocable express trust''.
Your clients' accounts would also not be classified as testamentary trust accounts under § 330.3 of the FDIC rules and regulations, 12 U.S.C. § 330.3, since that section does not provide for trusts wherein the settlors are also the beneficiaries. To qualify as a testamentary trust account under that section, the account holder(s) must name beneficiaries that are within the qualifying degree of kinship (spouse, child or grandchild). In this case, since your clients have named themselves as the beneficiaries of their account, the required degree of kinship does not exist.
While your clients' accounts do not qualify for separate deposit insurance under our trust rules, it appears that they would qualify for separate insurance coverage as "joint accounts" under section 330.9 of the FDIC rules and regulations, 12 U.S.C. § 330.9. Since your clients jointly own the deposits and have equal rights of withdrawal, the accounts would be classified as joint accounts for deposit insurance purposes. The fact that the accounts are not held in any of the capacities listed in section 330.9-- i.e., as tenants with right of survivorship, as tenants by the entireties, as tenants in common, or by husband and wife as community property--does not disqualify the accounts from being characterized as joint accounts. That list is not all-inclusive but is merely illustrative of the types of accounts that would be classified as joint accounts.
Since the accounts in question qualify as joint accounts, they would be aggregated and insured up to $100,000, separately from any individual accounts of the co-owners. This holds true regardless of whether or not the accounts, set-up as individual accounts, actually consist of funds which are deemed community property under state law.