Deposit Insurance Regulations; Revocable Trust Accounts, 56706-56712 [E8-23058]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION

[Federal Register Volume 73, Number 190 (Tuesday, September 30, 2008)]
[Rules and Regulations]
[Pages 56706-56712]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-23058]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 330

RIN 3064-AD33


Deposit Insurance Regulations; Revocable Trust Accounts

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Interim rule with request for comments.

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SUMMARY: The FDIC is adopting an interim rule to simplify and modernize 
its deposit insurance rules for revocable trust accounts. The FDIC's 
main goal in implementing these revisions is to make the rules easier 
to understand and apply, without decreasing coverage currently 
available for revocable trust account owners. The FDIC believes that 
the interim rule will result in faster deposit insurance determinations 
after depository institution closings and will help improve public 
confidence in the banking system. The interim rule eliminates the 
concept of qualifying beneficiaries. Also, for account owners with 
revocable trust accounts totaling no more than $500,000, coverage will 
be determined without regard to the beneficial interest of each 
beneficiary in the trust.
    Under the new rules, a trust account owner with up to five 
different beneficiaries named in all his or her revocable trust 
accounts at one FDIC-insured institution will be insured up to $100,000 
per beneficiary. Revocable trust account owners with more than $500,000 
and more than five different beneficiaries named in the trust(s) will 
be insured for the greater of either: $500,000 or the aggregate amount 
of all the beneficiaries' interests in the trust(s), limited to 
$100,000 per beneficiary.

DATES: The effective date of the interim rule is September 26, 2008. 
Written comments must be received by the FDIC not later than December 
1, 2008.

ADDRESSES: You may submit comments by any of the following methods:
     Agency Web Site: https://www.fdic.gov/regulations/laws/
federal. Follow instructions for submitting comments on the Agency Web 
Site.
     E-mail: Comments@FDIC.gov. Include ``Revocable Trust 
Accounts'' in the subject line of the message.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW., 
Washington, DC 20429.
     Hand Delivery/Courier: Guard station at the rear of the 
550 17th Street Building (located on F Street) on business days between 
7 a.m. and 5 p.m. (EST).
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
    Public Inspection: All comments received will be posted without 
change to https://www.fdic.gov/regulations/laws/federal including any 
personal information provided. Paper copies of public comments may be 
ordered from the Public Information Center by telephone at (877) 275-
3342 or (703) 562-2200.

FOR FURTHER INFORMATION CONTACT: Joseph A. DiNuzzo, Counsel, Legal 
Division (202) 898-7349; Christopher Hencke, Counsel, Legal Division 
(202) 898-8839; James V. Deveney, Section Chief, Deposit Insurance 
Section, Division of Supervision and Compliance (202) 898-6687; or 
Kathleen G. Nagle, Associate Director, Division of Supervision and 
Consumer Protection (202) 898-6541, Federal Deposit Insurance 
Corporation, Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Background

    One of the FDIC's fundamental goals is to ensure that depositors 
and insured depository institution employees understand the FDIC's 
deposit insurance rules. That goal is essential in carrying out the 
FDIC's combined mission of helping to maintain public confidence and 
stability in the United States banking system and protecting insured 
depositors.
    Despite the FDIC's efforts to simplify deposit insurance rules in 
recent years, there is still significant public and industry confusion 
about the insurance coverage of revocable trust accounts--particularly 
living trust accounts, one of the two types of revocable trust 
accounts. This continuing confusion about the insurance coverage of 
revocable trust accounts is evidenced by the tens of thousands of 
deposit insurance inquiries the FDIC has received following recent 
depository institution failures.

Current Rules for Revocable Trust Accounts

    There are two types of revocable trust accounts insured under the 
FDIC's coverage rules: Informal trust accounts and formal trust 
accounts. Informal trust accounts are 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. These are the most 
common type of revocable trust accounts and generally are referred to 
as ``payable-on-death'' (``POD'') accounts or in-trust-for (``ITF'') 
accounts or Totten Trust accounts. For purposes of this rulemaking, we 
will refer to all informal trust accounts as POD accounts.
    The other type of revocable trust accounts are accounts established 
in connection with formal revocable trusts. Formal revocable trusts are 
trusts created for estate planning purposes. They are often referred to 
as: living trusts, family trusts, marital trusts, survivor's trusts, 
by-pass trusts, generation-skipping trusts, AB trusts or special needs 
trusts. For purposes of this rulemaking, we will refer to all formal 
revocable trusts as living trusts. Like an informal revocable trust, a 
living trust is a trust created by an owner (also known as a grantor or 
settlor) over which the owner retains control during his or her 
lifetime. Upon the owner's death, the trust generally becomes 
irrevocable. A living trust is an increasingly popular estate planning 
tool. Like a POD account, a deposit account held in connection with a 
living trust account at an FDIC-insured institution is insured under 
the FDIC's coverage rules for revocable trust accounts.
    The FDIC's rules provide that all revocable trust accounts (both 
POD accounts and living trust accounts) are insured up to $100,000 per 
``qualifying beneficiary'' designated by the owner of the account.\1\ 
If there are multiple owners of a revocable trust account, coverage is 
available separately for each owner, per qualifying beneficiary as to 
each owner. Qualifying beneficiaries are defined as the owner's spouse, 
children, grandchildren, parents and siblings.\2\
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    \1\ 12 CFR 330.10.
    \2\ Id. at 330.10(a).
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    The per-qualifying beneficiary coverage available on revocable 
trust accounts is separate from the insurance coverage afforded to 
depositors in

[[Page 56707]]

connection with other accounts they own in other ownership capacities 
at the same insured institution. That means, for example, if an 
individual has at the same insured depository institution 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 coverage amount of 
$200,000.
    Under our current rules, 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 POD or ITF or family trust (or similar 
expression or acronym), evidencing an intent that the funds shall 
belong to the designated beneficiaries upon the owner's death. Second, 
as explained above, each beneficiary must be a qualifying beneficiary. 
And third, for POD accounts, the beneficiaries must be specifically 
named in the deposit account records of the depository institution. 
Under the current rules, the beneficiaries of a living trust need not 
be indicated in the institution's records.\3\
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    \3\ Id. at 330.10(a) & (b).
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    If a revocable trust account owner names one or more non-qualifying 
beneficiaries in the account (or trust), the funds corresponding to 
those non-qualifying beneficiaries are considered the single-ownership 
funds of the depositor and insured under that category of coverage. For 
example, assume a depositor owns a POD account (and no other accounts 
at the same institution) naming his spouse and a friend as 
beneficiaries. The account has a balance of $200,000. The coverage 
would be $100,000 under the revocable trust coverage rules because he 
has named one qualifying beneficiary, and $100,000 would be insured 
under the single-ownership coverage rules because the funds 
attributable to the non-qualifying beneficiary (the friend) would be 
considered the owner's single-ownership funds and thus insured under 
that category of ownership. If the account owner in this example also 
has a single-ownership account with a balance of, say, $50,000, then 
the $100,000 (attributable to the non-qualifying beneficiary) from his 
POD account would be added to the funds held in the single-ownership 
account and be insured to a limit of $100,000. Thus, $50,000 would be 
uninsured.
    As explained above, both POD accounts and living trust accounts are 
types of revocable trust accounts insured under the revocable trust 
account category in the FDIC's coverage rules. Consequently, all funds 
that a depositor holds in both living trust accounts and POD accounts 
naming the same beneficiaries are aggregated for insurance purposes and 
insured to the applicable coverage limits. For example, assume a 
depositor has a living trust account for $200,000 in connection with a 
living trust naming his children, A and B. If the depositor also has a 
$200,000 POD account naming A and B, the combined coverage on the two 
accounts would be $200,000--not $200,000 per account.

Prior Guidance on and Revisions to the Revocable Trust Account Coverage 
Rules

    Prior to the late 1980s, when living trusts began to emerge, the 
coverage rules for revocable trust accounts were easy to understand and 
apply. Revocable trusts were almost exclusively in the form of POD 
accounts, and the coverage was determined based on the number of 
qualifying beneficiaries named on the signature card used to establish 
the account. In fact, the opening of the POD account (solely through 
the completion of the signature card) resulted in the formation of the 
trust.
    In 1994, as living trusts became increasingly popular, the FDIC 
published guidelines on the insurance coverage of living trust 
accounts.\4\ The guidelines addressed how the FDIC would insure living 
trust accounts amid the complicating factor that many living trusts 
contained clauses tying a beneficiary's entitlement to the trust assets 
to the satisfaction of specified conditions, known as defeating 
contingencies. Despite the issuance of these guidelines, bankers and 
depositors continued to be confused and uncertain about the insurance 
coverage of living trust accounts. This confusion and uncertainty was 
understandable, given the complex legal theory and analysis needed to 
determine the coverage of living trust accounts involving defeating 
contingencies. In 2004, the FDIC simplified the rules for living trust 
accounts by amending the regulations to provide coverage for the owners 
of living trust accounts, irrespective of defeating contingencies in 
the trust. The FDIC's objectives behind this rulemaking were to 
simplify the existing rules and to provide coverage for living trust 
accounts similar to POD account coverage.\5\
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    \4\ FDIC Advisory Opinion 94-32 (May 14, 1994).
    \5\ 69 FR 2825, 2827 (Jan. 21, 2004).
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    Despite the FDIC's past efforts to simplify and clarify the 
coverage rules for living trust accounts, confusion and uncertainty 
continue to exist among bankers and depositors. One reason for this 
situation is that living trusts are becoming increasingly complex. A 
typical living trust is a trust with two grantors, husband and wife, 
who have full access to the trust assets during their lifetimes, with 
the trust providing for a life estate interest for the surviving spouse 
upon the death of the first spouse and then providing for a ``family 
trust'' (in the form of an irrevocable trust) for designated family 
members upon the death of the second spouse. It is also common for 
living trusts to provide for lump-sum payments to designated 
beneficiaries. The FDIC's coverage rules for living trust accounts, as 
the result of the 2004 revisions, in theory are fairly straightforward, 
but applying them to complex living trusts has resulted in significant 
continuing confusion and uncertainty among bankers and depositors. 
Also, upon an institution failure, because of the complexities of 
living trusts, FDIC determinations on the coverage available to owners 
of living trust accounts are often time consuming; thus, depositors are 
sometimes delayed in receiving their insured funds.

II. The Interim Rule

Overview

    The FDIC's goals in this rulemaking are twofold. One is to make the 
coverage rules for revocable trust accounts easy to understand and easy 
to apply (in determining the applicable coverage amount), without 
decreasing coverage currently available for revocable trust account 
owners. The other is to retain reasonable limitations on coverage 
levels for revocable trust account owners. Under the new rules, a trust 
account owner with up to $500,000 in revocable trust accounts at one 
FDIC-insured institution is insured up to $100,000 \6\ per beneficiary. 
(This is the rule that will apply to the vast majority of revocable 
trust account owners.) Revocable trust account owners with more than 
$500,000 and more than five different beneficiaries named in the 
trust(s) are insured for the greater of either: $500,000 or the 
aggregate amount of all the beneficiaries' interests in the

[[Page 56708]]

trust(s), limited to $100,000 per beneficiary.
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    \6\ Technically, as reflected in the regulatory text, this 
limitation is the Standard Maximum Deposit Insurance Amount 
(``SMDIA''), currently $100,000. Thus, the coverage would 
automatically reflect any future inflation adjustments to the SMDIA 
consistent with section 11(a)(1)(F) of the FDI Act, 12 U.S.C. 
1821(a)(1)(F). For ease of reference, throughout this notice we will 
use $100,000 as the basic coverage amount.
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    Under the interim rule, coverage is based on the existence of any 
beneficiary named in the revocable trust, as long as the beneficiary is 
a natural person, or a charity or other non-profit organization.\7\ As 
discussed below, under the interim rule the concept of ``qualifying 
beneficiaries'' is eliminated. For an account owner with combined 
revocable trust account balances of $500,000 \8\ or less, the maximum 
available coverage would be determined simply by multiplying the number 
of beneficiaries by $100,000.
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    \7\ If in establishing a POD account, the owner names a living 
trust as the beneficiary, we will consider the beneficiaries of the 
trust to be the beneficiaries of the POD account.
    \8\ Technically, this amount is fives times the SMDIA.
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    A living trust account with a balance of $400,000, for example, 
would be insured for up to $400,000 as long as there are at least four 
beneficiaries named in the trust.\9\ Different proportional ownership 
interests of the beneficiaries in the trust assets would not affect the 
deposit insurance coverage. So, in this example, the maximum coverage 
would be $400,000 even if the trust provided that beneficiaries A and B 
are entitled to twenty percent each of the trust assets and 
beneficiaries C and D are entitled to thirty percent each of the trust 
assets. As under the current rules, however, a depositor would receive 
a combined maximum coverage amount of $100,000 for the same beneficiary 
named in more than one revocable trust account he or she owns at one 
insured institution.\10\
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    \9\ This assumes the account owner has no other revocable trust 
accounts at the same depository institution.
    \10\ For example, if a depositor has a POD account naming her 
son as a beneficiary and a living trust account at the same bank 
naming the same son as a beneficiary, the depositor would be 
entitled to no more than $100,000 with respect to having named her 
son a beneficiary of her revocable trust accounts.
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Eliminating the Concept of ``Qualifying Beneficiaries''

    As explained above, currently revocable trust account coverage is 
based, in large part, on the number of qualifying beneficiaries named 
in the trust. Qualifying beneficiaries are defined as the revocable 
trust account owner's spouse, children, grandchildren, parents and 
siblings.\11\ Prior to 1999, the definition included only the owner's 
spouse, children and grandchildren. The FDIC's rationale in 1999 for 
expanding the definition of qualifying beneficiaries to include the 
account owner's parents and siblings was to recognize other family 
members likely to be named in a person's revocable trust. The objective 
was to prevent depositors from losing money in an institution failure 
because of their misunderstanding of the coverage rules for revocable 
trust accounts.\12\
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    \11\ 12 CFR 330.10(a).
    \12\ 64 FR 15657 (Apr. 1, 1999).
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    Before and since the 1999 expansion of the definition of qualifying 
beneficiaries, depositors, consumer groups and bankers have questioned 
the fairness of limiting the coverage on revocable trust accounts to 
the naming of certain beneficiaries. Many have argued that the FDIC 
should expand the definition of qualifying beneficiaries to include, 
among others, an account holder's nieces and nephew, in-laws, great-
grandchildren, cousins, friends and charities. Historically, the FDIC's 
response to such complaints has been that there must be a reasonable 
limitation of the amount of coverage available on revocable trust 
accounts; otherwise, there would be potentially unlimited coverage 
under this account category. Hence, the FDIC has been reluctant to 
amend the rules to provide coverage based on any beneficiary(ies) named 
in a revocable trust. Under the interim rule, however, the FDIC 
believes that it can achieve greater fairness under the revocable trust 
rules by basing coverage on the naming of any beneficiary in a 
revocable trust, but concurrently imposing coverage qualifications 
(discussed below) on accounts over $500,000.
    In addition to addressing the fairness issue, eliminating the 
concept of ``qualifying beneficiaries'' makes the coverage rules easier 
to understand. Depositors and bankers no longer need to know who is a 
qualifying beneficiary and who is not. Also, this revision will obviate 
the need for FDIC claims agents, upon an institution's failure, to 
confirm that a beneficiary named in a revocable trust account is a 
qualifying beneficiary. Thus, under the interim rule, the FDIC 
anticipates being able to make quicker deposit insurance determinations 
on revocable trust accounts at institution failures.

For Accounts With Aggregate Balances of $500,000 or Less, Determining 
Coverage Without the Necessity of Discerning Each Beneficiary's 
Interest in the Trust(s)

    One of the most confusing and complex aspects of determining 
revocable trust account coverage under the current rules is having to 
discern and consider unequal beneficial interests in revocable trusts. 
This issue typically arises in the context of a living trust that, for 
example, provides either varying lump-sum payments for designated 
beneficiaries or different percentage interests in trust assets to 
certain beneficiaries, or different remainder interests in the assets 
to the same or other beneficiaries. The method for determining coverage 
in some situations involving unequal beneficial interests necessitates 
the formulation and solving of simultaneous equations. Consumers and 
bankers alike find applying the current revocable trust account rules 
to complicated living trusts, especially ones involving unequal 
beneficial interests, far too complex. The FDIC agrees. Therefore, a 
key component of the interim rule is the ability to determine coverage 
available to account owners without regard to unequal interests of the 
beneficiaries named in the revocable trust(s). The FDIC believes this 
rule change, coupled with the recognition of all beneficiaries, will 
make the revocable trust account rules simpler and more transparent.

Retaining Current Coverage Levels for Account Owners With More Than 
$500,000 in Revocable Trust Accounts and More Than Five Beneficiaries 
Named in the Trusts(s)

    Based on our experience at recent institution failures, the FDIC 
believes that the vast majority of revocable trust account owners have 
less than $500,000 in revocable trust accounts at one FDIC-insured 
institution. Thus, under the interim rule coverage for an account 
owner's revocable trust accounts will be determined simply by 
multiplying the number of different beneficiaries named in the trust(s) 
by $100,000.
    In order to retain reasonable limits on the maximum coverage 
available to revocable trust account owners and also to retain the 
coverage available to revocable trust account owners under the current 
coverage rules, the interim rule provides special treatment for 
depositors with revocable trust accounts over $500,000 naming more than 
five beneficiaries. Under the interim rule, revocable trust account 
owners with more than $500,000 and more than five beneficiaries named 
in the trusts are insured for the greater of either: $500,000 or the 
aggregate amount of all the beneficiaries' interests in the trusts(s), 
limited to $100,000 per beneficiary. This coverage is no less than the 
coverage afforded to such account owners under the current rules, 
particularly because under the interim rule the coverage is based on 
the number of beneficiaries, not the number of qualifying 
beneficiaries. Also, as discussed below, under the interim rule life-
estate interest holders are deemed to

[[Page 56709]]

have a $100,000 interest in the trust assets.
    For example, assume an individual has a living trust account. The 
living trust provides a life estate interest for that individual's 
spouse, $15,000 for his college, $5,000 for each of three brothers and 
the remaining amount to his friend. The balance in the account is 
$600,000. Here the account balance exceeds $500,000 and the number of 
beneficiaries is more than five. Hence, under the interim rule, the 
maximum coverage would be the greater of either: $500,000 or the 
aggregate beneficial interests of all the beneficiaries (up to a limit 
of $100,000 per beneficiary). The beneficial interests are: $100,000 
for the spouse's life estate interest, $15,000 for the college, $5,000 
for each brother (totaling $15,000), and $100,000 for the friend 
(because of the per-beneficiary limitation of $100,000). The total 
beneficial interests, thus, would be $230,000. Hence, the maximum 
coverage afforded to the account owner would be $500,000, the greater 
of $500,000 or $230,000.
    The FDIC believes that basing the coverage of trust accounts over 
$500,000 (with more than five different beneficiaries in the trust(s)) 
on the ownership interest of each beneficiary named in the applicable 
trust(s) would prevent the potential of providing unlimited coverage 
with respect to revocable trust accounts. Without such a limitation, an 
account owner could name a limitless number of beneficiaries each with 
a nominal interest in the trust and obtain coverage up to $100,000 for 
naming each such beneficiary. For example, a revocable trust account 
held in connection with a trust entitling one beneficiary to $1 million 
and entitling each of nine other beneficiaries to $1 would be insured 
for $1 million, without the limitation imposed under the interim rule.

Treatment of Life-Estate Interests

    Another complicating factor in determining the coverage for living 
trust accounts is determining the value of life estate interests. A 
life estate interest usually means the life-estate beneficiary is 
entitled to the income on the trust assets during his or her lifetime. 
A large percentage of living trusts provide a life estate interest for 
one or more beneficiaries. The most typical situation is where a 
married person creates a trust providing a life estate interest for his 
or her surviving spouse and a remainder interest for their children. 
The FDIC's current rules provide that, in such situations, each life-
estate holder and each remainder-man (also known as residuary 
beneficiaries) is deemed to have an equal interest in the trust assets 
for deposit insurance purposes.\13\ This rule has proven difficult to 
apply, especially where the living trust provides for lump-sum gifts 
for certain beneficiaries, life estate interests for others and 
different percentage interests for the remainder-men, who may be the 
same as or different from the other beneficiaries. In order to simplify 
the coverage rules, the interim rule revises the current valuation 
method for life estate interests by deeming each such interest to be 
$100,000, for purposes of determining deposit insurance coverage. The 
example above (involving a trust providing for a spousal life estate 
interest and bequests to the owner's college, brothers and friend) 
demonstrates how the interim rule would apply to a living trust 
providing for a life-estate interest.
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    \13\ 12 CFR 330.10(f)(3).
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Treatment of Irrevocable Trusts Springing From a Revocable Trust

    Another current complexity in determining coverage for living trust 
accounts is that, when it is created, a living trust is a revocable 
trust but, when the owner dies, the trust becomes irrevocable.\14\ At 
that stage in the lifecycle of the living trust, the funds 
corresponding to the irrevocable trust are insured under the FDIC's 
rules for irrevocable trust accounts.\15\ Under those rules, coverage 
is based on the non-contingent interest of each beneficiary named in 
the trust. In effect, when a living trust evolves from a revocable 
trust to an irrevocable trust the insurance coverage available on the 
account is based on a different set of rules--the irrevocable trust 
account rules. As such, the coverage on the account often decreases 
from what it had been when the trust was insured solely under the 
revocable trust rules.
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    \14\ For jointly owned living trusts, upon the death of one of 
the owners, typically part of the trust remains revocable and part 
becomes irrevocable.
    \15\ 12 CRR 330.13.
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    To eliminate this complexity and the confusion it generates, under 
the interim rule, the rules for determining the coverage of the living 
trust account will remain the same when the trust (or part of the 
trust) converts to an irrevocable trust. For example, a grantor has a 
living trust account held in connection with a trust naming three 
beneficiaries, each of whom receives a specified share of the trust 
assets if he or she graduates from college by age 25. Under the current 
insurance rules, when the grantor is alive (meaning that the trust is 
still a revocable trust) the maximum coverage on the account is 
$300,000--1 grantor times 3 beneficiaries times $100,000. Also under 
the current rules, upon the grantor's death (allowing for the six-month 
grace period during which coverage would remain the same), the coverage 
reduces to $100,000 (if none of the beneficiaries has graduated from 
college yet) because of the contingent nature of the beneficial 
interests provided for in the trust. Under the interim rule, 
contingencies would continue to be irrelevant for coverage purposes 
after the grantor's death, even though the trust has evolved into an 
irrevocable trust. In this example, under the interim rule the coverage 
would still be up to $300,000.
    The FDIC believes that the continuity of coverage provided for 
under this component of the interim rule would greatly simplify the 
current rules for determining coverage for living trust accounts. It is 
important to note, however, that under the interim rule the coverage on 
a living trust account could still change during the lifecycle of the 
trust. For example, when both grantors in a co-grantor trust are alive, 
the maximum coverage on the account would be $1,000,000, because the 
formula for determining coverage would be: 2 (grantors) times 5 
beneficiaries times $100,000.\16\ If one of the grantors dies, then the 
maximum coverage would be 1 (grantor) times 5 beneficiaries times 
$100,000.\17\ Coverage would likewise decrease if one or more of the 
beneficiaries named in the revocable trust died, assuming the death of 
the beneficiary(ies) would cause the total number of beneficiaries to 
drop below five.
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    \16\ This assumes neither grantor has any other revocable trust 
accounts at the same insured institution.
    \17\ Of course, the FDIC rules provide for a six-month grace 
period after the death of an account owner during which the coverage 
would be the same as if the owner (grantor) were still alive. 12 CFR 
330.3(j).
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Impact of Proposed Rules on the Deposit Insurance Fund Reserve Ratio

    Eliminating the concept of qualifying beneficiaries and 
disregarding unequal interests in a trust (for accounts with five or 
fewer beneficiaries) theoretically will increase coverage immediately. 
Since no industry-wide data are maintained on trust accounts, a 
definite determination of the extent of this effect on insurance 
coverage for existing accounts is difficult. Thus, the precise effect 
the proposal will immediately have on the Deposit Insurance Fund 
(``DIF'') reserve ratio can be estimated,

[[Page 56710]]

as discussed below, but cannot be determined with precision.\18\
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    \18\ The reserve ratio is determined by dividing the DIF fund 
balance by the estimated insured deposits by the industry (12 U.S.C. 
1817(l)).
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    In fifteen failures from 1999 to 2003 and three failures from the 
past year for which final insurance determinations have been made, 
approximately ninety-seven percent of the funds in revocable trust 
accounts were insured on average and approximately twenty-five percent 
of domestic deposits were in revocable trust accounts on average. If 
conclusions from these eighteen failed institutions can be generalized 
to the banking industry as a whole, then, even if all current revocable 
trust deposits were to become insured, the effect on total insured 
deposits and on the DIF reserve ratio would be small. Recognizing that 
this data does not provide a strong statistical basis for drawing 
conclusions, we welcome comments on the effect of the interim rule on 
the level of insured deposits.
    In the long-term, eliminating the concept of qualifying 
beneficiaries could bring more insured deposits into the system. For 
example, since, under the interim rule, nieces and nephews are eligible 
beneficiaries, a depositor might add her niece and nephew to a trust 
account that previously had only a sister as the sole beneficiary. 
Anticipating future moves by depositors is even more difficult than 
estimating the immediate effect on deposit insurance coverage. Thus, 
the long-term effect of the interim rule on insured deposits and on the 
reserve ratio is even more uncertain, beyond the conclusion that over 
time the change can be expected to lower the reserve ratio to some 
(likely limited) degree.

Effective Date of the Interim Rule

    The interim rule is effective on September 26, 2008, the date on 
which the FDIC Board of Directors approved the interim rule. It is also 
the date this interim rule was filed for public inspection with the 
Office of the Federal Register. In this regard, the FDIC invokes the 
good cause exception to the requirements in the Administrative 
Procedure Act \19\ (``APA'') that, before a rulemaking can be 
finalized, it must first be issued for public comment and, once 
finalized, must have a delayed effective date of thirty days from the 
publication date. The FDIC believes good cause exists for making the 
interim rule effective immediately because, based on recent depository 
institution failures, it is evident that many depositors and depository 
institution employees misunderstand the insurance rules for revocable 
trust accounts. The interim rule simplifies and modernizes the coverage 
rules for revocable trust accounts and, hence, will provide greater 
certainty to depositors and depository institution employees about the 
extent to which revocable trust accounts are insured.
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    \19\ 5 U.S.C. 553.
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    Importantly, under the interim rule, no depositor will be insured 
for an amount less than he or she would have been entitled to under the 
current revocable trust account rules. Some depositors will be entitled 
to greater coverage under the interim rule than under the current 
rules, especially because under the interim rule a beneficiary need no 
longer be a qualifying beneficiary for the account owner to be insured 
on a per-beneficiary basis. Moreover, the FDIC believes that the 
interim rule will result in faster deposit insurance determinations 
after depository institution closings and will help improve public 
confidence in the banking system.
    For these reasons, the FDIC has determined that the public notice 
and participation that ordinarily are required by the APA before a 
regulation may take effect would, in this case, be contrary to the 
public interest and that good cause exists for waiving the customary 
30-day delayed effective date. Nevertheless, the FDIC desires to have 
the benefit of public comment before adopting a permanent final rule 
and thus invites interested parties to submit comments during a 60-day 
comment period. In adopting the final regulation, the FDIC will revise 
the interim rule, if appropriate, in light of the comments received on 
the interim rule.

III. Request for Comments

    The FDIC requests comments on all aspects of the proposed 
rulemaking. We solicit specific comments on: (1) Whether ``over 
$500,000'' is the proper threshold for determining coverage for 
revocable trust account owners based on the beneficial interests of the 
trust beneficiaries; (2) whether the FDIC's irrevocable trust account 
rules should be revised so that all trusts are covered by substantially 
the same rules; and (3) what effect the interim rule will have on the 
level of insured deposits.

IV. Paperwork Reduction Act

    The interim rule will revise the FDIC's deposit insurance 
regulations. 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 collection has been submitted to the 
Office of Management and Budget for review.

V. Regulatory Flexibility Act

    The Regulatory Flexibility Act requires an agency that is issuing a 
final rule to prepare and make available a regulatory flexibility 
analysis that describes the impact of the final rule on small entities. 
5 U.S.C. 603(a). The Regulatory Flexibility Act provides that an agency 
is not required to prepare and publish a regulatory flexibility 
analysis if the agency certifies that the final rule will not have a 
significant economic impact on a substantial number of small entities.
    Pursuant to section 605(b) of the Regulatory Flexibility Act, the 
FDIC certifies that the interim rule will not have a significant impact 
on a substantial number of small entities. The interim rule simplifies 
the deposit insurance rules for revocable trust accounts held at FDIC-
insured depository institutions.

VI. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The FDIC has determined that the proposed rule would 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). The interim should have a positive 
effect on families by clarifying the coverage rules for revocable trust 
accounts, a popular type of consumer bank account.

VII. Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that the interim 
rule is not a ``major rule'' within the meaning of the relevant 
sections of the Small Business Regulatory Enforcement Act of 1996 
(``SBREFA'') (5 U.S.C. 801 et seq.). As required by SBREFA, the FDIC 
will file the appropriate reports with Congress and the General 
Accounting Office so that the interim rule may be reviewed.

VIII. Plain Language

    The FDIC has sought to present the interim rule in a simple and 
straightforward manner. The FDIC invites comment on whether it could 
take additional steps to make the rule easier to understand.

[[Page 56711]]

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 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 is revised to read as follows:


Sec.  330.10  Revocable trust accounts.

    (a) General rule. Except as provided in paragraph (e) of this 
section, the funds owned by an individual and deposited into one or 
more accounts with respect to which the owner evidences an intention 
that upon his or her death the funds shall belong to one or more 
beneficiaries shall be separately insured (from other types of accounts 
the owner has at the same insured depository institution) in an amount 
equal to the total number of different beneficiaries named in the 
account(s) multiplied by the SMDIA. This section applies to all 
accounts held in connection with informal and formal testamentary 
revocable trusts. Such informal trusts are commonly referred to as 
payable-on-death accounts, in-trust-for accounts or Totten Trust 
accounts, and such formal trusts are commonly referred to as living 
trusts or family trusts. (Example 1: An individual has a living trust 
account with four beneficiaries named in the trust. The account owner 
has no other revocable trust accounts at the same FDIC-insured 
institution. The maximum insurance coverage would be $400,000, 
determined by multiplying 4 (the number of beneficiaries) times 
$100,000 (the current SMDIA). Example 2: An individual has a payable-
on-death account naming his niece and cousin as beneficiaries and, at 
the same FDIC-insured institution, has another payable-on-death account 
naming the same niece and a friend as beneficiaries. The maximum 
coverage available to the account owner would be $300,000. This is 
because the account owner has named three different beneficiaries in 
the revocable trust accounts. The naming of the same beneficiary in 
more than one revocable trust account, whether it be a payable-on-death 
account or living trust account, does not increase the total coverage 
amount.)
    (b) Required intention. The required intention in paragraph (a) of 
this section that upon the owner's death the funds shall belong to one 
or more beneficiaries must be manifested in the title of the account 
using commonly accepted terms such as, but not limited to, in trust 
for, as trustee for, payable-on-death to, or any acronym therefore. In 
addition, for informal revocable trust accounts, the beneficiaries must 
be specifically named in the deposit account records of the insured 
depository institution. The settlor of a revocable trust shall be 
presumed to own the funds deposited into the account.
    (c) Definition of beneficiary. For purposes of this section, a 
beneficiary includes natural persons as well as charitable 
organizations and other non-profit entities recognized as such under 
the Internal Revenue Code of 1986.
    (d) Interests of beneficiaries outside the definition of 
beneficiary in this section. If a beneficiary named in a trust covered 
by this section does not meet the definition of beneficiary in 
paragraph (c) of this section, the funds corresponding to that 
beneficiary shall be treated as the individually owned (single 
ownership) funds of the owner(s). As such, they shall be aggregated 
with any other single ownership accounts of such owner(s) and insured 
up to the SMDIA per owner. (Example: If an individual establishes an 
account payable-on-death to a pet, the account would be insured as a 
single-ownership account.)
    (e) Revocable trust accounts with aggregate balances exceeding five 
times the SMDIA and naming more than five different beneficiaries. 
Notwithstanding the general coverage provisions in paragraph (a) of 
this section, for funds owned by an individual in one or more revocable 
trust accounts naming more than five different beneficiaries and whose 
aggregate balance is more than five times the SMDIA, the maximum 
revocable trust account coverage for the account owner shall be the 
greater of either: five times the SMDIA or the aggregate amount of the 
ownership interests of each different beneficiary named in the trusts, 
to a limit of the SMDIA per different beneficiary. (Example: A has a 
living trust account with a balance of $600,000. Under the terms of the 
trust, upon A's death, A's three children are each entitled to $50,000, 
A's friend is entitled to $5,000 and a designated charity is entitled 
to $70,000. The trust also provides that the remainder of the trust 
assets shall belong to A's spouse. In this case, because the balance of 
the account is over $500,000 (which is five times the current SMDIA of 
$100,000) and there are more than five different beneficiaries named in 
the trust, the maximum coverage available to A would be the greater of: 
$500,000 or the aggregate of each different beneficiary's interest to a 
limit of $100,000 per beneficiary. The beneficial interests in the 
trust considered for purposes of determining coverage are: $50,000 for 
each of the children (totaling $150,000), $5,000 for the friend, 
$70,000 for the charity, and $100,000 for the spouse ($375,000, subject 
to the $100,000 limit per beneficiary). The aggregate beneficial 
interests, thus, are $325,000. Hence, the maximum coverage afforded to 
the account owner would be $500,000, the greater of $500,000 or 
$325,000.)
    (f) Joint revocable trust accounts. (1) Where an account described 
in paragraph (a) of this section is established by more than one owner, 
the respective interest of each account owner (which shall be deemed 
equal) shall be insured separately, per different beneficiary, up to 
the SMDIA, subject to the limitation imposed in paragraph (e) of this 
section. (Example 1: A & B, two individuals, establish a payable-on-
death account naming their three nieces as beneficiaries. Neither A nor 
B has any other revocable trust accounts at the same FDIC-insured 
institution. The maximum coverage afforded to A&B would be $600,000, 
determined by multiplying the number of owners (2) times the SMDIA 
(currently $100,000) times the number of different beneficiaries (3). 
In this example, A would be entitled to revocable trust coverage of 
$300,000 and B would be entitled to revocable trust coverage of 
$300,000. Example 2: A and B, two individuals, establish a payable-on-
death account naming their two children, two cousins and a charity as 
beneficiaries. The balance in the account is $700,000. Neither A nor B 
has any other revocable trust accounts at the same FDIC-insured 
institution. The maximum coverage would be determined (under paragraph 
(a) of this section) by multiplying the number of account owners (2) 
times the number of different beneficiaries (5) times $100,000, or $1 
million. Because the account balance is less than the maximum coverage 
amount, the account would be fully insured. Example 3: A and B, two 
individuals, establish a living trust account with a balance of $1.5 
million. Under the terms of the trust, upon the death of both A & B, 
each of A & B's three children is entitled to $200,000, B's cousin is 
entitled to $150,000, A's friend is entitled to

[[Page 56712]]

$30,000 and the remaining amount ($720,000) goes to a charity. Under 
paragraph (e) of this section, the maximum coverage, as to each joint 
account owner, would be the greater of $500,000 or the aggregate amount 
(as to each joint owner) of the interest of each different beneficiary 
named in the trust, to a limit of $100,000 per account owner per 
beneficiary. The beneficial interests in the trust considered for 
purposes of determining coverage for account owner A are: $300,000 for 
the children (three times $100,000), $75,000 for the cousin, $15,000 
for the friend and $100,000 for the charity ($360,000 subject to the 
$100,000 per-beneficiary limitation). As to A, the aggregate amount of 
the beneficial interests eligible for deposit insurance coverage, thus, 
is $490,000. Hence, the maximum coverage afforded to joint account 
owner A would be $500,000, the greater of $500,000 or $490,000 (the 
aggregate of all the beneficial interests attributable to A, limited to 
$100,000 per beneficiary). The same analysis and coverage determination 
also would apply to B.
    (2) Notwithstanding paragraph (f)(1) of this section, where the 
owners of a joint revocable trust account are themselves the sole 
beneficiaries of the corresponding trust, the account shall be insured 
as a joint account under section 330.9 and shall not be insured under 
the provisions of this section. (Example: If A and B establish a 
payable-on-death account naming themselves as the sole beneficiaries of 
the account, the account will be insured as a joint account because the 
account does not satisfy the intent requirement (under paragraph (a) of 
this section) that the funds in the account belong to the named 
beneficiaries upon the owners' death. The beneficiaries are in fact the 
actual owners of the funds during the account owners' lifetimes.)
    (g) For deposit accounts held in connection with a living trust 
that provides for a life-estate interest for designated beneficiaries, 
the FDIC shall value each such life estate interest as the SMDIA for 
purposes of determining the insurance coverage available to the account 
owner.
    (h) Revocable trusts that become irrevocable trusts. 
Notwithstanding the provisions in section 330.13 on the insurance 
coverage of irrevocable trust accounts, a revocable trust account shall 
continue to be insured under the provisions of this section even if the 
corresponding revocable trust, upon the death of one or more of the 
owners thereof, converts, in part or entirely, to an irrevocable trust. 
(Example: Assume A and B have a trust account in connection with a 
living trust, of which they are joint grantors. If upon the death of 
either A or B the trust transforms into an irrevocable trust as to the 
deceased grantor's ownership in the trust, the account will continue to 
be insured under the provisions of this section.)
    (i) This section shall be effective as of September 26, 2008 for 
all existing and future revocable trust accounts and for existing and 
future irrevocable trust accounts resulting from formal revocable trust 
accounts.

    Dated at Washington DC, this 26th day of September 2008.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. E8-23058 Filed 9-26-08; 4:15 pm]
BILLING CODE 6714-01-P