4000 - Advisory Opinions
Insurance Coverage For Revocable Trust Accounts
July 31, 1990
Adrienne George, Attorney
I am writing in response to your letter to Jeff Kopchik dated July 12, 1990.
From that letter, and from our telephone conversation of July 24, 1990, it appears that you hold several jumbo certificates of deposit (hereinafter "CD's") in various *** banks and savings and loan associations. In each bank (or savings association) you have a $100,000 CD in one account, and a second account to catch the interest from the CD account. The CD accounts have been given titles that reflect their trust nature--e.g., *** *** "Living Trust Agreement 42988" or *** Living Trust Agreement *** ***" Trustee, PA Trust Account." The interest-catching accounts bear various titles including *** Trustee for *** ***, Trustee for *** (your son and daughter) and ***.
You ask three questions with regard to these accounts: (1) are they properly titled; (2) in addition to proper titling, must the beneficiaries be listed by name and, if so, where; and (3) might there be some danger that the FDIC would aggregate the CD account and the interest-catching account in each institution for insurance purposes, insuring the entire amount up to a maximum of $100,000, and, if so, is there some way to avoid this?
First, the accounts appear to be properly titled. Section 330.8(a) of the FDIC's new regulations, which become effective on July 29, 1990, states that the title of revocable trust accounts must use "commonly accepted terms such as, but not limited to, in trust for,' as trustee for,' payable-on-death to,' or any acronym therefor" to indicate the trust owner's intention that, upon his death, the funds will belong to his spouse, child or grandchild (such beneficiaries are called "qualifying beneficiaries"). 12 C.F.R. § 330.8(a) (1990). Although a title in the form of the *** "Living Trust Agreement" does not precisely contain any of the terms in the above list, it nevertheless does fall within the permissible range of titles, because it connotes the trust nature of the account. (The regulation, after all, states that the title is to use such terms as the ones it lists, but that one is not limited to the listed terms.)
Second, in addition to proper titling, the new regulations require that all beneficiaries of the trust account be listed by name "in the deposit account records of the insured depository institution." 12 C.F.R. § 330.8(a). Although the most common place to list the beneficiaries is on the signature card, the definition of "deposit account records" includes far more than signature cards:
(d) "Deposit account records" means account ledgers, signature cards, certificates of deposit, passbooks, corporate resolutions authorizing accounts in the possession of the insured depository institution and other books and records of the insured depository institution, including records maintained by computer, which relate to the insured depository institution's deposit taking function, but does not mean account statements, deposit slips, items deposited or cancelled checks.
12 C.F.R. § 330.1(d). Thus, you could actually list your beneficiaries in any of these places. In addition, if you put a copy of your revocable trust on file with each bank or savings association, that, too, would be considered to be in the deposit account records of that institution. However, there is a danger with this last method: so that trusts will not have to be updated each time a new qualifying beneficiary (child or grandchild) is born, or each time the trust's owner marries (producing a new qualifying beneficiary, the new spouse), most trusts do not mention their beneficiaries by name (e.g., *** ***); instead, most trusts refer to their beneficiaries only by the class to which they belong (e.g., spouse, child, grandchild). For this reason, unless your trust mentions each of your beneficiaries by name, having your trust on file with a given institution, though perhaps useful for other purposes, would not fulfill the requirement that all beneficiaries be listed "in the deposit account records."
Finally, you ask whether, in each bank or savings association, the CD account would be separately insured from the interest-catching account. This would depend on who the beneficiaries of each account are.
Under the FDIC's rules, deposits are insured according to the "right" or "capacity" in which they are held. The terms "right" and "capacity" refer to the manner in which the accounts are held, such as jointly-owned accounts, trust accounts or individually-owned accounts. All accounts (including savings or checking accounts and CD's) owned by a depositor in the same right and capacity within the same insured institution will be added together and insured up to $100,000 (although, where there are multiple qualifying beneficiaries of a trust account, the maximum insurance coverage can far exceed $100,000). Deposits maintained in different rights and capacities are separately insured up to $100,000.
For example, assume that a husband and wife co-own a joint account and that each owns a trust account with one beneficiary, their daughter. In this case, the joint account will be separately insured up to $100,000, and each trust account will be separately insured up to $100,000--for a maximum of $300,000 of insurance. Note, however, that if the father owned two trust accounts, each having the same beneficiary, his daughter, these two accounts would be viewed as being held in the same right and capacity (since they would have the same settlor or owner--the father--and the same beneficiary--the daughter), and so these accounts would be added together and insured up to $100,000. This aggregation of accounts would also take place even if one account was a simple payable-on-death account (Father POD to Daughter), and the other trust account was governed by a lengthy revocable trust document, in which the father also named several other beneficiaries, including his daughter. In this case, if the bank or savings association went into default, the claims agent would calculate the amount the daughter would receive under the payable-on-death account upon her father's death and the amount she would receive under the written revocable trust, add those two amounts together and insure that sum for up to $100,000.
The same aggregation would take place between the CD account and the interest-catching account at each of your banks or savings associations. For simplicity's sake, let's look at *** *** interest in the two accounts at a single bank. (As you know, each bank or savings association is treated separately for insurance purposes. Thus, there would be no aggregation of accounts between institutions, though there would be between branches of the same institution.)
Suppose that *** has a $100,000 interest in the *** *** Living Trust (which corresponds to the CD account) and a $100,000 interest in the interest-catching account (suppose that this is the account entitled *** Trustee for *** Trustee for ***. In this case, if the bank were to fail, the claims agent would aggregate *** $100,000 interest from the CD account and her $100,000 interest from the interest-catching account and insure the whole amount for up to $100,000.
However, if you were to change the interest-catching account into some form of ownership other than a revocable trust account--say, a joint account, a single ownership account or an irrevocable trust account--these two accounts would not be aggregated.
From our last conversation, it sounds as if you would like to change the interest-catching account into a joint account with your son. If you do so, please note that the new regulations require that (1) all co-owners of the funds be natural persons; (2) each co-owner personally sign a deposit account signature card; and (3) each co-owner possess withdrawal rights on the same basis. 12 C.F.R. § 330.7(c). If these steps are taken, the interest-catching joint account will be separately insured from the CD revocable trust account.
I hope that this information will be useful to you. If I can be of any further help, I can be reached at (202) 898-3859.