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FIL-14-2004 Attachment

[Federal Register: January 21, 2004 (Volume 69, Number 13)]

[Rules and Regulations]

[Page 2825-2830]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr21ja04-1]



 

========================================================================

Rules and Regulations

Federal Register

________________________________________________________________________


 

This section of the FEDERAL REGISTER contains regulatory documents

having general applicability and legal effect, most of which are keyed

to and codified in the Code of Federal Regulations, which is published

under 50 titles pursuant to 44 U.S.C. 1510.


 

The Code of Federal Regulations is sold by the Superintendent of Documents.

Prices of new books are listed in the first FEDERAL REGISTER issue of each

week.


 

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[[Page 2825]]




 

FEDERAL DEPOSIT INSURANCE CORPORATION


 

12 CFR Part 330


 

RIN 3064-AC54


 

 

Deposit Insurance Regulations; Living Trust Accounts


 

AGENCY: Federal Deposit Insurance Corporation (FDIC).


 

ACTION: Final rule.


 

-----------------------------------------------------------------------


 

SUMMARY: The FDIC is amending its regulations to clarify and simplify

the deposit insurance coverage rules for living trust accounts. The

rules are amended to provide coverage up to $100,000 per qualifying

beneficiary who, as of the date of an insured depository institution

failure, would become the owner of the living trust assets upon the

account owner's death.


 

EFFECTIVE DATE: April 1, 2004.


 

FOR FURTHER INFORMATION CONTACT: Joseph A. DiNuzzo, Counsel, Legal

Division (202) 898-7349; Kathleen G. Nagle, Supervisory Consumer

Affairs Specialist, Division of Supervision and Consumer Protection

(202) 898-6541; or Martin W. Becker, Senior Receivership Management

Specialist, Division of Resolutions and Receiverships (202) 898-6644,

Federal Deposit Insurance Corporation, Washington, DC 20429.


 

SUPPLEMENTARY INFORMATION:


 

I. Background


 

In June 2003 the FDIC published a proposed rule to simplify the

insurance coverage rules for living trust accounts (``proposed rule'').

68 FR 38645, June 30, 2003. The FDIC undertook this rulemaking because

of the confusion among bankers and the public about the insurance

coverage of these accounts.

A living trust is a formal revocable trust over which the owner

(also known as the grantor) retains ownership during his or her

lifetime. Upon the owner's death, the trust generally becomes

irrevocable. A living trust is an increasingly popular instrument

designed to achieve specific estate-planning goals. A living trust

account is subject to the FDIC's insurance rules on revocable trust

accounts. Section 330.10 of the FDIC's regulations (12 CFR 330.10)

provides that revocable trust accounts are insured up to $100,000 per

``qualifying'' beneficiary designated by the account owner. If there

are multiple owners of a living trust account, coverage is available

separately for each owner. Qualifying beneficiaries are defined as the

owner's spouse, children, grandchildren, parents and siblings. 12 CFR

330.10 (a).

The most common type of revocable trust account is the ``payable-

on-death'' (``POD'') account, comprised simply of a signature card on

which the owner designates the beneficiaries to whom the funds in the

account will pass upon the owner's death. The per-beneficiary coverage

available on revocable trust accounts is separate from the insurance

coverage afforded to any single-ownership accounts held by the owner or

beneficiary at the same insured institution. That means, for example,

if an individual has at the same insured bank or thrift a single-

ownership account with a balance of $100,000 and a POD account (naming

at least one qualifying beneficiary) with a balance of $100,000, both

accounts would be insured separately for a combined amount of $200,000.

If the POD account names more than one qualifying beneficiary, then

that account would be insured for up to $100,000 per qualifying

beneficiary. 12 CFR 330.10(a).

Separate, per-beneficiary insurance coverage is available for

revocable trust accounts only if the account satisfies certain

requirements. First, the title of the account must include a term such

as ``in trust for'' or ``payable-on-death to'' (or corresponding

acronym). Second, each beneficiary must be either the owner's spouse,

child, grandchild, parent or sibling. Third, the beneficiaries must be

specifically named in the deposit account records of the depository

institution. And fourth, the account must evidence an intent that the

funds shall belong unconditionally to the designated beneficiaries upon

the owner's death. 12 CFR 330.10(a) and (b).

As noted, the most common form of revocable trust account is the

POD account, consisting simply of a signature card. With POD accounts,

the fourth requirement for per-beneficiary coverage does not present a

problem because the signature card normally will not include any

conditions upon the interests of the designated beneficiaries. In other

words, the signature card provides that the funds shall belong to the

beneficiaries upon the owner's death. In contrast, many living trust

agreements provide, in effect, that the funds might belong to the

beneficiaries depending on various conditions. The FDIC refers to such

conditions as ``defeating contingencies'' if they create the

possibility that the beneficiaries may never receive the funds

following the owner's death.

Living trust accounts started to emerge in the late 1980s and early

1990s. At that time, the FDIC responded to a significant number of

questions about the insurance coverage of such accounts, often times

reviewing the actual trust agreements to determine whether the

requirements for per-beneficiary insurance were satisfied. In the

FDIC's review of numerous such trusts, it determined that many of the

trusts included conditions that needed to be satisfied before the named

beneficiaries would become the owners of the trust assets. For example,

some trusts required that the trust assets first be used to satisfy

legacies in the grantor's will; the remaining assets, if any, would

then be distributed to the trust beneficiaries. Other trusts provided

that, in order to receive any benefit under the trust, the beneficiary

must graduate from college. Because of the prevalence of defeating

contingencies among living trust agreements and the increasing number

of requests to render opinions on the insurance coverage of specific

living trust accounts, in 1994 the FDIC issued ``Guidelines for

Insurance Coverage of Revocable Trust Accounts (Including ``Living

Trust'' Accounts).'' FDIC Advisory Opinion 94-32 (May 18, 1994). As

part of its overall simplification of the deposit insurance

regulations, in 1998 the FDIC revised Sec. 330.10 to include a

provision explaining the insurance coverage rules for living trust

accounts. 12 CFR 330.10(f). That provision included a definition of

defeating contingencies.


 

[[Page 2826]]


 

Despite the FDIC's issuance of guidelines on the insurance coverage

of living trust accounts and its inclusion of a special provision in

the insurance regulations explaining the coverage of these accounts,

there still is significant public and industry confusion about how the

insurance rules apply to living trust accounts. Time has shown that the

basic rules on the coverage of POD accounts are not fully adaptable to

living trust accounts. The POD rules were written to apply to

signature-card accounts, not lengthy, detailed trust documents. Because

living trust accounts and PODs are subject to the same insurance rules

and analysis, depositors and bankers often mistakenly believe that

living trust accounts are automatically insured up to $100,000 per

qualifying beneficiary without regard to any terms in the trust that

might prevent the beneficiary from ever receiving the funds. Our

experience indicates that in a significant number of cases that is not

so under existing rules. Because of the existence of defeating

contingencies in the trust agreement, a living trust account often

fails to satisfy the requirements for per-beneficiary coverage. Thus,

the funds in the account are treated as the owner's single-ownership

funds and, after being added to any other single-ownership funds the

owner has at the same institution, insured to a limit of $100,000. The

funds in a non-qualifying living trust account with more than one owner

are deemed the single-ownership funds of each owner, with the

corresponding attribution of the funds to each owner's single-ownership

accounts.

The FDIC recognizes that the rules governing the insurance of

living trust accounts are complex and confusing. Under the current

rules, the amount of insurance coverage for a living trust account can

only be determined after the trust document has been reviewed to

determine whether there are any defeating contingencies. Consequently,

in response to questions about coverage of living trust accounts, the

FDIC can only advise depositors and bankers that they should assume

that such accounts will be insured for no more than $100,000 per

grantor, assuming the grantor has no single-ownership funds in the same

depository institution. Otherwise, the FDIC suggests that the owners of

living trust accounts seek advice from the attorney who prepared the

trust document. Depositors who contact the FDIC about their living

trust insurance coverage are often troubled to learn that they cannot

definitively determine the amount of their coverage without a legal

analysis of their trust document. Also, when a depository institution

fails the FDIC must review each living trust to determine whether the

beneficiaries' interests are subject to defeating contingencies. This

often is a time-consuming process, sometimes resulting in a significant

delay in making deposit insurance payments to living trust account

owners.


 

II. The Proposed Rule


 

In the proposed rule issued in June 2003, the FDIC identified and

requested comments on what it believed to be two viable alternatives to

address the confusion surrounding the insurance coverage of living

trust accounts.

The first alternative provided for coverage up to $100,000 per

qualifying beneficiary named in the living trust irrespective of

defeating contingencies (``Alternative One'').

The FDIC would identify the beneficiaries and their ascertainable

interests in the trust from the depository institution's account

records and provide coverage on the account up to $100,000 per

qualifying beneficiary. As with POD accounts, under Alternative One

insurance coverage would be provided up to $100,000 per qualifying

beneficiary limited to each beneficiary's ascertainable interest in the

trust.

Alternative One expressly required that the deposit account records

of the institution indicate the ownership interest of each beneficiary

in the living trust. The information could be in the form of the dollar

amount of each beneficiary's interest or on a percentage basis relative

to the total amount of the trust assets. The FDIC requested specific

comments on how such a recordkeeping requirement should be satisfied

when a trust provided for different levels of beneficiaries whose

interests in the trust depend on certain conditions, including the

death of a ``higher-tiered'' beneficiary. In the proposed rule the FDIC

noted that Alternative One generally would result in an increase in

deposit insurance coverage because, unlike under the current rules,

beneficiaries would not be required to have an unconditional interest

in the trust in order for the account to qualify for per-beneficiary

coverage.

The second alternative in the proposed rule provided, in essence,

for a separate category of ownership for living trust accounts,

insuring such accounts up to $100,000 per account owner (``Alternative

Two''). An individual grantor would be insured up to a total of

$100,000 for all living trust accounts he or she had at the same

depository institution, regardless of the number of beneficiaries named

in the trust, the grantor's relationship to the beneficiaries and

whether there were any defeating contingencies in the trust. The

coverage for a living trust account would be separate from the coverage

afforded to any single-ownership accounts or qualifying joint accounts

the owner might have at the same depository institution. Where there

were joint owners of a living trust account, the account would be

insured up to $100,000 per grantor. Such accounts also would be

separately insured from any joint accounts either grantor might have at

the same insured depository institution. In the proposed rule the FDIC

noted that Alternative Two likely would result in reduced coverage for

owners of living trusts naming more than one qualifying beneficiary

because per-beneficiary coverage would be eliminated.


 

III. Comments on the Proposed Rule


 

The FDIC received forty-three comments on the proposed rule.

Thirty-seven comments were from banks and savings associations and six

were from state and national depository institution trade associations.

Twenty-five comments were in favor of Alternative One or a modified

version of that alternative and sixteen were in favor of Alternative

Two. Two comments discussed the characteristics of both alternatives

without expressing a preference for either one. Many of the comments on

the proposed rule praised the FDIC for attempting to simplify and

clarify the living trust rules. All the comment letters are available

on the FDIC Web site, http://www.fdic.gov/regulations/laws/federal/propose.html

.


 

Seventeen comments expressed support for Alternative One as

proposed. In general, those commenters said Alternative One would

provide more coverage for depositors than Alternative Two and would be

more in line with the current coverage available for POD accounts. As

such, depositors would not have to place their money with more than one

institution or through deposit brokers to obtain full insurance

coverage on their deposits. Along these lines, two commenters mentioned

that Alternative One would assist depositors in estate-planning efforts

by allowing them to place a sizable portion of their assets at one

insured institution. Several comments lauded the certainty provided by

Alternative One. One stated that ``[Alternative One] provides the

amount of coverage and the clarity and understanding of living trust

accounts that our customers deserve.'' Another argued that it would be

inequitable to treat POD accounts and living trust accounts differently

because they both


 

[[Page 2827]]


 

are in the owner's control during his or her lifetime and may be

modified at any time prior to the owner's death.

Eight of the twenty-five commenters who supported Alternative One,

however, expressed concerns about certain aspects of the alternative

and asked the FDIC to modify Alternative One before finalizing it. One

state financial institution trade association voiced strong opposition

to ``any requirement for financial institutions to: Obtain any part of

a trust document; provide a certification of trust existence; and

specifically identify a qualifying beneficiary's interest in trust

assets or relationship to the grantor(s).''

A national depository institutions trade group cautioned that the

proposed recordkeeping requirements might jeopardize the protections

afforded under certain state laws for financial institutions in dealing

with trusts. It cited ``compelling practical reasons'' against the

proposed recordkeeping requirements in Alternative One, noting that:

[sbull] Unlike POD accounts, for which the only document is the

institution's account--opening record, living trusts can be lengthy,

complicated documents that identify multiple tiers of beneficiaries.

[sbull] It is often difficult for bankers to get information from

accountholders who may be confused by the complexity and terminology of

their living trust documents.

[sbull] Living trusts can be amended or revoked at any time and

depository institutions should not be expected to repeatedly contact

their customers to determine whether their account information is

current.

[sbull] Customers might perceive such recordkeeping requirements as

an invasion of privacy.

Two other trade associations and several depository institutions

echoed these views.

Many of the commenters in favor of Alternative One without the

proposed recordkeeping requirements suggested that the FDIC continue

its current practice of ascertaining the existence of living trust

beneficiaries and kinship information at the time an institution is

closed. In addition to making the same points on the recordkeeping

requirements as those noted above, another national trade association

representing community banks said ``we do not see how the FDIC can

avoid the time-consuming process of reviewing trust agreements when a

bank failure occurs.''

Sixteen comments were in favor of Alternative Two. Generally, the

consensus among these comments was, as expressed by one community

banker, ``[Alternative Two is] easier [than Alternative One] to explain

to the depositor and for the bank to keep track of.'' Another community

banker described the option as ``straightforward.'' A common point made

by several commenters was that, because of the simplicity of

Alternative Two, depositors would be able to make an informed decision

in placing living trust funds with depository institutions. Another

community banker noted that Alternative Two would be the ``simplest,

easiest and cleanest method'' of insuring living trust deposits and

added that ``[w]e are not lawyers nor tax accountants and we should not

have to `dive' into someone's trust papers and try to decide how many

beneficiaries, the relationships (of the parties) and if there are

contingencies in the trust.''

Three commenters who favored Alternative Two suggested that under

Alternative Two the insurance coverage for living trust accounts be

increased to $200,000 to address the reduction in coverage some

depositors might experience as a result of the rule change. (This is

not a viable option for the FDIC because it would take an act of

Congress to increase the basic deposit insurance amount.)

A large regional bank commented that Alternative Two ``appears to

be the fairest treatment of these accounts as it treats them more like

individual accounts. Since revocable accounts are generally used for

the primary benefit of one, or sometimes two individuals, this seems

more in line with policy of FDIC insurance than Alternative One.''

Many comments in support of Alternative Two acknowledged that

Alternative One also offered advantages to depositors and would be an

improvement over the current rule, but noted that Alternative One would

place an added burden on financial institutions by imposing new

recordkeeping requirements and would place institutions in the position

of requesting information from depositors that they likely would be

unwilling or unable to provide for privacy and other reasons. One

medium-sized institution favored Alternative Two because ``we wouldn't

have to track the names of the trust beneficiaries and their various

interests.'' A community banker voiced support for Alternative Two,

saying it would be ``easier to understand by the customer and bank

personnel.'' She noted that customers would have the option to open POD

accounts to obtain separate per-beneficiary POD coverage.


 

IV. The Final Rule


 

A. General Explanation


 

Upon considering the comments on the proposed rule, the FDIC has

revised the current living trust account rules to provide for insurance

coverage of up to $100,000 per qualifying beneficiary who, as of the

date of an institution failure, would become entitled to the living

trust assets upon the owner's death. This is a modified version of

Alternative One in the proposed rule, based in part on a comment from a

community banker that living trust coverage be based on beneficiaries

``without death related contingencies.'' Under the final rule, coverage

will be determined on the interests of qualifying beneficiaries

irrespective of defeating contingencies. A beneficiary whose trust

interest is dependent on the death of another trust beneficiary,

however, will not qualify.

For example, an account for a living trust providing that the trust

assets go in equal shares to the owner's three children upon the

owner's death would be eligible for $300,000 of deposit insurance

coverage. If the trust provides that the funds would go to the children

only if they each graduate from college prior to the owner's death, the

coverage would still be $300,000, because defeating contingencies will

no longer be relevant for deposit insurance purposes. Another example

is where a trust provides that the owner's spouse becomes the owner of

the trust assets upon the owner's death but, if the spouse predeceases

the owner, the three children then become the owners of the assets. If

the spouse is alive when the institution fails, the account will be

insured up to a maximum of $100,000, because only the spouse is

entitled to the assets upon the owner's death. If at the time of the

institution failure, however, the spouse has predeceased the owner,

then the account would be eligible for up to $300,000 coverage because

there would be three qualifying beneficiaries entitled to the trust

assets upon the owner's death.

In developing the final rule the FDIC was guided by two interwoven

objectives: To simplify the existing rules and to provide coverage

similar to POD account coverage. The FDIC believes the final rule

achieves these objectives because it is reasonably straight-forward and

because, as with POD accounts, coverage is based on the actual

interests of qualifying beneficiaries. The final rule is similar to

Alternative One but provides coverage based on qualifying beneficiaries

who have an immediate interest in the trust assets upon the grantor's

death. This concept is the


 

[[Page 2828]]


 

same as the coverage theory applicable to POD accounts: To provide

coverage based on the interests of the beneficiaries who will receive

the account funds when the owner dies, determined as of the date of the

institution failure. Alternative One could have allowed for potentially

open-ended coverage in some situations, particularly where a trust

provided for tiered, or sequential, beneficiaries whose interests in

the trust depend on whether ``higher-tiered'' beneficiaries predecease

them.

Moreover, Alternative One would have required that a depository

institution's deposit account records indicate the name and

ascertainable interest of each qualifying beneficiary in the trust. The

FDIC was persuaded by a majority of comments contending that requiring

institutions to maintain records on the names of living trust

beneficiaries and their interests in the respective trusts would be

unnecessary and burdensome. The FDIC agrees with the industry

assessment of that proposed requirement because the grantor of a living

trust might during his or her lifetime change the trust beneficiaries

and modify the terms of the trust. Requiring the grantor to inform a

depository institution of these changes and requiring depository

institutions to maintain records on such information is impractical and

unnecessarily burdensome. Hence, a key feature of the final rule is

that it requires no recordkeeping requirement other than an indication

on a depository institution's records that the account is a living

trust account. Upon an institution failure, FDIC claims agents would

identify the beneficiaries and determine their interests by reviewing

the trust agreement obtained from the depositor. At that time

depositors would attest to their relationship to the named

beneficiaries.

In the final rule the FDIC has eliminated an unnecessary

recordkeeping requirement. Specifically, the names of living trust

beneficiaries will no longer have to be recorded in the deposit account

records of an insured institution in order for the account to qualify

for the deposit insurance provided for living trust accounts. The

removal of this recordkeeping requirement supports the ongoing efforts

of the FDIC and the other federal banking regulators, under the

Economic Growth and Regulatory Paperwork Reduction Act (``EGRPRA''), to

eliminate unnecessary regulatory requirements. Detailed information

about the EGRPRA project is available at http://www.egrpra.gov.


 

The FDIC believes deposit insurance coverage under the final rule

would match the coverage many depositors now expect for their living

trust accounts. Generally, depositors believe that living trust

coverage is essentially the same as POD account coverage. In other

words, insurance is based on the number of qualifying beneficiaries

with an ownership interest in the account, regardless of any

conditions, or contingencies, affecting those interests. The final rule

will match those expectations because it provides coverage more closely

aligned with POD coverage than the former rules. The FDIC believes the

final rule will provide bankers and depositors with a better

understanding of the living trust account deposit insurance rules and

will help to eliminate the present confusion surrounding the coverage

of living trust accounts.


 

B. Treatment of Non-Qualifying Beneficiaries


 

The treatment of non-qualifying beneficiaries under the final rule

will be the same as under the current POD rules. Interests of non-

qualifying beneficiaries in a living trust will be insured as the

owner's single-ownership (or individual) funds. As such, those

interests will be added to any other single-ownership funds the owner

holds at the same institution and insured to a total of $100,000 in

that account-ownership capacity. For example, assume a living trust

provides that the grantor's assets shall belong equally to her husband

and nephew upon her death. A living trust account with a balance of

$200,000 held for that trust would be insured for at least $100,000

because there is one qualifying beneficiary (the grantor's spouse) who,

upon the institution failure, would be entitled to the funds upon the

grantor's death. Because the nephew is a non-qualifying beneficiary,

the $100,000 attributable to him would be insured as the grantor's

single-ownership funds. If the grantor has no other single-ownership

funds at the institution, the full $200,000 of the living trust account

would be insured--$100,000 under the grantor's revocable trust

ownership capacity and $100,000 under the grantor's single-ownership

capacity. If, however, the grantor also has a single-ownership account

with a balance of, say, $20,000, the $100,000 of the living trust

account attributable to the nephew would be added to that amount and

the combined amount, in the grantor's single-ownership capacity, would

be insured to a limit of $100,000, leaving $20,000 uninsured. This

result and calculation methodology is the same as under the current

rules for POD accounts.


 

C. Treatment of Life-Estate and Remainder Interests


 

Living trusts sometime provide for a life estate interest for

designated beneficiaries and a remainder interest for other

beneficiaries. The final rule addresses this situation by deeming each

life-estate holder and each remainder-man to have an equal interest in

the trust assets. Insurance is then provided up to $100,000 per

qualifying beneficiary. For example, assume a grantor creates a living

trust providing for his wife to have a life-estate interest in the

trust assets with the remaining assets going to their two children upon

the wife's death. The assets in the trust are $300,000 and a living

trust account is opened for that full amount. Unless otherwise

indicated in the trust, the FDIC would deem each of the beneficiaries

(all of whom here are qualifying beneficiaries) to own an equal share

of the $300,000; hence, the full amount would be insured. This result

would be the same even if the wife has the power to invade the

principal of the trust, inasmuch as under the final rule defeating

contingencies are no longer relevant for insurance purposes.

Another example would be where the living trust provides for a life

estate interest for the grantor's spouse and remainder interests for

two nephews. In that situation the method for determining coverage

would be the same as that indicated above: Unless otherwise indicated,

each beneficiary would be deemed to have an equal ownership interest in

the trust assets and coverage would be provided accordingly. Here the

life-estate holder is a qualifying beneficiary (the grantor's spouse)

but the remainder-men (the grantor's nephews) are not. As such

(assuming an account balance of $300,000), the living trust account

would be insured for at least $100,000 because there is one qualifying

beneficiary (the grantor's spouse). The $200,000 attributable to the

grantor's nephews would be insured as the grantor's single-ownership

funds. If the grantor has no other single-ownership funds at the same

institution, then $100,000 would be insured as the grantor's single-

ownership funds. Thus, the $300,000 in the living trust account would

be insured for a total of $200,000 and $100,000 would be uninsured. The

FDIC believes this is a simple, balanced approach to insuring living

trust accounts where the living trust provides for one or more life

estate interests.


 

[[Page 2829]]


 

V. Effective Date


 

The final rule will become effective on April 1, 2004, the

beginning of the first calendar quarter following the publication date

of the final rule. The final rule will apply as of that date to all

living trust accounts unless, upon a depository institution failure, a

depositor who established a living trust account before April 1, 2004,

chooses coverage under the previous living trust account rules. For any

depository institution failures occurring between January 13, 2004, and

April 1, 2004, the FDIC will apply the final rule if doing so would

benefit living trust account holders of such failed institutions.


 

VI. Paperwork Reduction Act


 

The final rule will simplify the FDIC's regulations governing the

insurance of living trust accounts. It will not involve any new

collections of information pursuant to the Paperwork Reduction Act (44

U.S.C. 3501 et seq.). Consequently, no information has been submitted

to the Office of Management and Budget for review.


 

VII. Regulatory Flexibility Act


 

The FDIC certifies that the final rule will not have a significant

economic impact on a substantial number of small businesses within the

meaning of the Regulatory Flexibility Act (5 U.S.C. 605(b)). The

amendments to the deposit insurance rules will apply to all FDIC-

insured depository institutions, including those within the definition

of ``small businesses'' under the Regulatory Flexibility Act. The final

rule eliminates an existing requirement for all FDIC-insured

institutions to designate living trust beneficiaries in deposit account

records. This change in recordkeeping will result in a marginal

reduction in time and effort for depository institution staff which

will not significantly affect compliance costs. The rule imposes no new

reporting, recordkeeping or other compliance requirements. Accordingly,

the Act's requirements relating to an initial and final regulatory

flexibility analysis are not applicable.


 

VIII. The Treasury and General Government Appropriations Act, 1999--

Assessment of Federal Regulations and Policies on Families


 

The FDIC has determined that the final rule will not affect family

well-being within the meaning of section 654 of the Treasury and

General Government Appropriations Act, enacted as part of the Omnibus

Consolidated and Emergency Supplemental Appropriations Act of 1999

(Pub. L. 105-277, 112 Stat. 2681).


 

IX. Small Business Regulatory Enforcement Fairness Act


 

The Office of Management and Budget has determined that the final

rule is not a ``major rule'' within the meaning of the relevant

sections of the Small Business Regulatory Enforcement Fairness Act of

1996 (``SBREFA'') (5 U.S.C. 801 et seq.). As required by SBFERA, the

FDIC will file the appropriate reports with Congress and the General

Accounting Office so that the final rule may be reviewed.


 

List of Subjects in 12 CFR Part 330


 

Bank deposit insurance, Banks, banking, Reporting and recordkeeping

requirements, Savings and loan associations, Trusts and trustees.


 

0

For the reasons stated above, the Board of Directors of the Federal

Deposit Insurance Corporation hereby amends part 330 of chapter III of

title 12 of the Code of Federal Regulations as follows:


 

PART 330--DEPOSIT INSURANCE COVERAGE


 

0

1. The authority citation for part 330 continues to read as follows:


 

Authority: 12 U.S.C. 1813(l), 1813(m), 1817(i), 1818(q), 1819

(Tenth), 1820(f), 1821(a), 1822(c).


 

0

2. Section 330.10(f) is revised to read as follows:



 

Sec. 330.10 Revocable trust accounts.


 

* * * * *

(f) Living trust accounts. (1) This section also applies to

revocable trust accounts held in connection with a formal revocable

trust created by an owner/grantor and over which the owner/grantor

retains ownership during his or her lifetime. These trusts are usually

referred to as living trusts. If a named beneficiary in a living trust

is a qualifying beneficiary under this section, then the account held

in connection with the living trust is eligible for the per-qualifying-

beneficiary coverage described in paragraph (a) of this section. This

coverage will apply only if, at the time an insured depository

institution fails, a qualifying beneficiary would be entitled to his or

her interest in the trust assets upon the grantor's death and that

ownership interest would not depend on the death of another trust

beneficiary. If there is more than one grantor, then the beneficiary's

entitlement to the trust assets must be upon the death of the last

grantor. The coverage provided in this paragraph (f) shall be

irrespective of any other conditions in the trust that might prevent a

beneficiary from acquiring an interest in the deposit account upon the

account owner's death.


 

(Example 1: A is the owner of a living trust account with a deposit

balance of $300,000. The trust provides that, upon A's death, her

husband shall receive $100,000 and each of their two children shall

receive $100,000, but only if the children graduate from college by

age twenty-four. Assuming A has no other revocable trust accounts at

the same depository institution, the coverage on her living trust

account would be $300,000. The trust names three qualifying

beneficiaries. Coverage would be provided up to $100,000 per

qualifying beneficiary regardless of any contingencies.)

(Example 2: B is the owner of a living trust account with a deposit

balance of $200,000. The trust provides that, upon B's death, his

wife shall receive $200,000 but, if the wife predeceases B, each of

the two children shall receive $100,000. Assuming B has no other

revocable trust accounts at the same depository institution and his

wife is alive at the time of the institution failure, the coverage

on his living trust account would be $100,000. The trust names only

one beneficiary (B's spouse) who would become the owner of the trust

assets upon B's death. If when the institution fails B's wife has

predeceased him, then the account would be insured to $200,000

because the two children would be entitled to the trust assets upon

B's death.)


 

(2) The rules in paragraph (c) of this section on the interest of

non-qualifying beneficiaries apply to living trust accounts. (Example:

C is the owner of a living trust account with a deposit balance of

$200,000. The trust provides that upon C's death his son shall receive

$100,000 and his nephew shall receive $100,000. The account would be

insured for at least $100,000 because one qualifying beneficiary (C's

son) would become the owner of trust interests upon C's death. Because

the nephew is a non-qualifying beneficiary entitled to receive an

interest in the trust upon C's death, that interest would be considered

C's single-ownership funds and insured with any other single-ownership

funds C might have at the same institution. Assuming C has no other

single-ownership funds at the institution, the full $200,000 in the

living trust account would be insured ($100,000 in C's revocable trust

account ownership capacity and $100,000 in C's single-ownership account

capacity).

(3) For living trusts accounts that provide for a life-estate

interest for designated beneficiaries and a remainder interest for

other beneficiaries, unless otherwise indicated in the trust, each

life-estate holder and each remainder-man will be deemed to have equal

interests in the trust assets for deposit insurance purposes. Coverage

will then be provided under the rules in this


 

[[Page 2830]]


 

paragraph (f) up to $100,000 per qualifying beneficiary.


 

(Example 1: D creates a living trust providing for his wife to have

a life-estate interest in the trust assets with the remaining assets

going to their two children upon the wife's death. The assets in the

trust are $300,000 and a living trust deposit account is opened for

that full amount. Unless otherwise indicated in the trust, each

beneficiary (all of whom here are qualifying beneficiaries) would be

deemed to own an equal share of the $300,000; hence, the full amount

would be insured. This result would be the same even if the wife has

the power to invade the principal of the trust, inasmuch as

defeating contingencies are not relevant for insurance purposes.)

(Example 2: E creates a living trust providing for a life estate

interest for her spouse and remainder interests for two nephews. The

life estate holder is a qualifying beneficiary (E's spouse) but the

remainder-men (E's nephews) are not. Assuming a deposit account

balance of $300,000, the living trust account would be insured for

at least $100,000 because there is one qualifying beneficiary (E's

spouse). The $200,000 attributable to E's nephews would be insured

as E's single-ownership funds. If E has no other single-ownership

funds at the same institution, then $100,000 would be insured

separately as E's single-ownership funds. Thus, the $300,000 in the

living trust account would be insured for a total of $200,000 and

$100,000 would be uninsured.)


 

(4) In order for a depositor to qualify for the living trust

account coverage provided under this paragraph (f), the title of the

account must reflect that the funds in the account are held pursuant to

a formal revocable trust. There is no requirement, however, that the

deposit accounts records of the depository institution indicate the

names of the beneficiaries of the living trust and their ownership

interests in the trust.

(5) Effective April 1, 2004, this paragraph (f) shall apply to all

living trust accounts, unless, upon a depository institution failure, a

depositor who established a living trust account before April 1, 2004,

chooses coverage under the previous living trust account rules. For any

depository institution failures occurring between January 13, 2004 and

April 1, 2004, the FDIC shall apply the living trust account rules in

this revised paragraph (f) if doing so would benefit living trust

account holders of such failed institutions.

* * * * *


 

Dated at Washington, DC, this 13th day of January, 2004.


 

By order of the Board of Directors.


 

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Executive Secretary.

[FR Doc. 04-1198 Filed 1-20-04; 8:45 am]

BILLING CODE 6714-01-P

Last Updated: March 23, 2024