4000 - Advisory Opinions
Insurance Coverage of Revocable Trust Accounts
March 8, 1988
Claude A. Rollin, Attorney
This is in response to your letter of February 29, 1988 to Mr. Fredric Karr wherein you seek clarification of the rules governing deposit insurance of revocable trust accounts. Mr. Karr has transferred to a different section within the FDIC and no longer responds to deposit insurance inquiries. Therefore, your letter has been referred to me for a response.
Section 330.3 of the FDIC rules and regulations, 12 C.F.R. § 330.3, provides separate deposit insurance, up to $100,000 per beneficiary, for qualifying testamentary (revocable) trust accounts. In order to qualify for such separate insurance coverage, the account must evidence an intention that upon the death of the owner (usually the depositor who establishes the account), the funds will pass to a named beneficiary. In addition, the named beneficiary must be the spouse, child or grandchild of the owner. If these requirements are met, a qualifying testamentary trust account is deemed to exist and it will be insured, up to $100,000 per beneficiary, separately from any other individual or joint accounts of the owner or the beneficiaries. If a revocable trust account is established without an intent to have the funds pass to a named beneficiary upon death of the owner, then the account would not be deemed a testamentary trust account and thus would not be entitled to the separate deposit insurance provided for such accounts. Instead, the funds would be deemed to belong to the owner of the account, would be added to any accounts held by the owner in an individual capacity, and the total would be insured up to $100,000. Moreover, to the extent that any beneficiary of a testamentary trust account does not meet the required degree of kinship (spouse, child or grandchild), such beneficiary's interest would be added to any individual accounts of the owner and the total would be insured up to $100,000.
In answer to the question posed in your letter, there is no requirement that testamentary trust accounts be established pursuant to a written trust agreement. In fact, testamentary trust accounts may be established by simply designating an account as a "Totten" trust or a "payable-on-death" account. In short, a written agreement is not required to obtain the separate deposit insurance provided for testamentary trust accounts.
Nonetheless, I have reviewed the "Revocable Trust Agreement" which you submitted with your letter. I am of the opinion that execution of that agreement would lead to disqualification of a revocable trust account from the separate insurance coverage provided for testamentary trust accounts. The agreement provides that, upon the death of the settlor (trustor), the funds in the account revert to the estate of the settlor. This agreement does not evidence the required intention that, upon the death of the settlor, the funds will belong to a named beneficiary. In fact, the agreement explicitly negates such an intention by creating a reversionary interest in settlor. Therefore, it is my opinion that if the subject agreement were executed the revocable trust account would not qualify for the separate insurance coverage provided for testamentary trust accounts. The funds in the account would then be treated as the settlor's own funds, they would be added to any other individual accounts maintained by the settlor, and the total would be insured up to $100,000.