Display of Official Sign; Temporary Increase in Standard Maximum Share Insurance Amount; Coverage for Mortgage Servicing Accounts; Share Insurance for Revocable Trust Accounts, 55747-55755 [E9-25921]

Agencies

• National Credit Union Administration

[Federal Register Volume 74, Number 208 (Thursday, October 29, 2009)]
[Rules and Regulations]
[Pages 55747-55755]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-25921]



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Federal Register / Vol. 74, No. 208 / Thursday, October 29, 2009 / 
Rules and Regulations

[[Page 55747]]



NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 740 and 745

RIN 3133-AD54; RIN 3133-AD55


Display of Official Sign; Temporary Increase in Standard Maximum 
Share Insurance Amount; Coverage for Mortgage Servicing Accounts; Share 
Insurance for Revocable Trust Accounts

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: NCUA is amending its share insurance rules to: reflect 
Congress's extension, until December 31, 2013, of the temporary 
increase in the standard maximum share insurance amount (``SMSIA'') 
from $100,000 to $250,000; and finalize the interim final rules on 
revocable trust accounts, mortgage servicing accounts, and NCUA's 
official sign issued in October 2008.

DATES: This rule is effective November 30, 2009.

FOR FURTHER INFORMATION CONTACT: Frank Kressman, Staff Attorney, at the 
above address, or telephone: (703) 518-6540.

I. Supplementary Information

A. Overview

    In October 2008, NCUA issued two interim final rules on four share 
insurance related matters: (1) The temporary increase in the SMSIA from 
$100,000 to $250,000 to December 31, 2009; (2) revisions to the rules 
on revocable trust accounts; (3) revisions to the rules on mortgage 
servicing accounts; and (4) NCUA's official sign. 73 FR 60616 (October 
14, 2008); 73 FR 62856 (October 22, 2008). In this final rule, NCUA is 
amending its share insurance regulations to reflect Congress's 
extension of the temporary increase in the SMSIA from $100,000 to 
$250,000 through December 31, 2013, and is finalizing the referenced 
interim final rules on revocable trust accounts, mortgage servicing 
accounts, and NCUA's official sign.

B. Extension of Temporary Increase in the SMSIA

    The Emergency Economic Stabilization Act of 2008 temporarily 
increased the SMSIA from $100,000 to $250,000, effective October 3, 
2008, through December 31, 2009. Public Law 110-343 (October 3, 2008). 
On October 15, 2008, NCUA adopted an interim final rule amending its 
share insurance regulations to reflect this temporary increase. 73 FR 
62856 (October 22, 2008). On May 20, 2009, the President signed the 
Helping Families Save Their Homes Act of 2009, which, among other 
provisions, extended the temporary increase in the SMSIA from December 
31, 2009 to December 31, 2013. Public Law 111-22 (May 20, 2009). After 
December 31, 2013, the SMSIA will, by law, return to $100,000.
    This final rule amends NCUA's share insurance regulation to 
indicate that the increase in the SMSIA from $100,000 to $250,000 is 
effective through December 31, 2013 in accordance with the above 
statutory provisions. Because the extension of the SMSIA is fairly long 
term, NCUA also has updated the share insurance coverage examples 
currently in the regulation and appendix to the regulation and included 
additional examples to reflect $250,000 as the SMSIA. NCUA believes 
this will help to avoid any confusion that might have resulted among 
credit unions and their members if the examples were to continue to use 
$100,000 as the SMSIA.

C. Share Insurance Coverage of Revocable Trust Accounts

    On October 3, 2008, NCUA issued an interim final rule to make the 
coverage rules for revocable trust accounts easier to understand and 
apply. 73 FR 60616 (October 14, 2008). In particular, the interim rule 
eliminated the concept of ``qualifying beneficiaries.'' The elimination 
of the ``qualifying beneficiary'' concept was intended to achieve 
greater fairness by broadening the scope of eligible beneficiaries and 
facilitate share insurance determinations on revocable trust accounts. 
Also, the interim final rule provided a two-part share insurance 
coverage calculation method for revocable trust accounts. Under the 
rule, where a trust account owner has five times the SMSIA ($1,250,000) 
or less in revocable trust accounts at one NCUA-insured credit union, 
the owner is insured up to the SMSIA ($250,000) per beneficiary without 
regard to the exact beneficial interest of each beneficiary in the 
trust(s). For a revocable trust account owner with both more than 
$1,250,000 and more than five beneficiaries named in the trust(s), the 
interim final rule insures the owner for the greater of $1,250,000, or 
the aggregate total of all the beneficiaries' actual interests in the 
trust(s) limited to $250,000 for each beneficiary.
    The interim final rule also sought to simplify the application of 
the share insurance rules to life-estate interests and irrevocable 
trusts springing from a revocable trust. It simplified the share 
insurance coverage rules to deem the value of each life estate interest 
to be the SMSIA amount. For example, where the owner/grantor creates a 
living trust account and provides a life estate interest for the 
owner's/grantor's spouse, in addition to specific bequests to named 
beneficiaries, the spousal interest is deemed to be the SMSIA. Another 
complication is presented when an irrevocable trust springs from a 
revocable trust upon the owner's/grantor's death. In that context under 
the prior rules, the coverage of the trust account often would decrease 
because NCUA's rules governing irrevocable trust accounts were stricter 
than the rules governing revocable trust accounts.\1\ To prevent this 
decrease in

[[Page 55748]]

coverage, the interim final rule provided that irrevocable trust 
accounts would be governed by the same rules as revocable trust 
accounts when the irrevocable trust is created through the death of the 
owner/grantor of a revocable living trust.
---------------------------------------------------------------------------

    \1\ For example, assume that account owner/grantor ``A'' 
establishes a living trust that names three children as 
beneficiaries. Assume also that the trust agreement specifies that 
the revocable trust becomes an irrevocable trust upon the owner's/
grantor's death. In this example, during the life of the owner, the 
insurance coverage of an account in the name of the trust would be 
determined by multiplying the number of beneficiaries, 3 in this 
instance, by the SMSIA of $250,000. Thus, the account would be 
insured up to $750,000. Following the death of the owner, however, 
the coverage would change because the trust itself would change from 
a revocable trust to an irrevocable trust. Under the prior rules, 
the coverage of an irrevocable trust account would depend upon 
whether the interests of the beneficiaries were contingent. For 
example, it could be contingent upon the beneficiary graduating from 
college or contingent upon the discretion of the trustee. Assuming 
that all beneficial interests were contingent, the coverage of the 
account would be $250,000. Thus, in this example, the coverage would 
decrease from $750,000 to $250,000 following the death of the owner 
and following the expiration of NCUA's six-month grace period.
---------------------------------------------------------------------------

    NCUA received only three comments regarding the revocable trust 
account portion of the rule, none of which suggested any significant 
revisions.
    This final rule closely follows the interim final rule, with minor 
revisions. Notably, in light of the statutory extension of the 
temporary increase in the SMSIA, the final rule reflects the new 
$250,000 SMSIA, the new $1,250,000 benchmark for revocable trust 
account coverage, and revised examples using both of these dollar 
values to enhance their usefulness. NCUA also has provided additional 
examples illustrating how the revised rules would apply. By law, 
December 31, 2013 is the ending date for the $250,000 SMSIA, after 
which the SMSIA will revert to $100,000. At that time, NCUA will 
revisit the need to revise these limits and examples.
    This final rule, like the interim final rule, eliminates the 
concept of ``qualifying beneficiaries,'' and requires only that a 
revocable trust beneficiary be a natural person, or a charity or other 
non-profit organization. The final rule also incorporates the interim 
final rule's two-part calculation method for share insurance coverage 
of revocable trust accounts. While, as a result of the temporary 
increase in the SMSIA, the benchmark between the lower-dollar and 
higher-dollar revocable trust share insurance treatments has increased 
to $1,250,000, from $500,000 as set forth in the interim final rule, it 
is anticipated that the lower-balance treatment for revocable trust 
ownership interests falling below $1,250,000 at one credit union will 
likely capture most revocable trust accounts, and this should advance 
NCUA's goals of simplifying the treatment of unequal beneficial 
interests and quickening share insurance coverage determinations. The 
share insurance coverage calculation method for revocable trust 
ownership interests that are both above this $1,250,000 benchmark and 
involve more than five beneficiaries, consistent with the interim final 
rule, will ensure that reasonable limits remain on the maximum coverage 
available to revocable trust account owners and avoid the potential of 
unlimited coverage being afforded to such accounts through contrived 
trust structures. Moreover, consistent with the interim final rule, 
where a payable-on-death (POD) account owner names his or her living 
trust as a beneficiary of the POD account, for insurance purposes, NCUA 
will consider the beneficiaries of the trust to be the beneficiaries of 
the POD account.

D. Mortgage Servicing Accounts

    Before October 2008, NCUA insured mortgage servicing accounts, 
previously known as custodial loan accounts, somewhat differently from 
how the Federal Deposit Insurance Corporation (FDIC) insured them. The 
interim final rule expanded share insurance coverage for this type of 
account by insuring the principal and interest portion of a mortgagor's 
payment separately from the mortgagor's individual accounts. The taxes 
and insurance premiums portion of a mortgagor's payment continues to be 
added together with the mortgagor's individual accounts and insured in 
the aggregate as it had been before the interim final rule.
    Before October 2008, NCUA had considered all portions of a payment, 
including principal, interest, taxes, and insurance premiums, in such 
an account as the individually owned funds of the mortgagor/borrower. 
NCUA would aggregate payments with the owner's other individual 
accounts and insure them on a pass-through basis up to the SMSIA as a 
single ownership account. 12 CFR 745.3(a)(3). By contrast, FDIC 
considered the principal and interest portion of a payment in a 
mortgage servicing account as owned by and insured on a pass-through 
basis for the interest of the mortgagee/investor or security holder. 
FDIC considered the taxes and insurance premiums portion of a payment 
as owned by and insured on a pass-through basis for the interest of the 
mortgagor. FDIC added deposits for taxes and insurance premiums with 
other agency or nominee accounts where the mortgagor was the principal 
and insured them up to the standard insurance amount for single 
ownership accounts. 12 CFR 330.7(d).
    In October 2008, FDIC simplified the manner in which it insures 
mortgage servicing accounts because securitization methods and vehicles 
for mortgages have become more layered and complex, making it more 
difficult and time-consuming for a servicer to identify and determine 
the share of any investor in a securitization and in the principal and 
interest funds on deposit at an insured depository institution. FDIC 
believed this simplification would also prevent unexpected losses to 
investors who have far in excess of the current $250,000 per-depositor 
insurance limit.
    Specifically, FDIC determined it would provide insurance coverage 
on a per-mortgagor/borrower basis for both principal and interest 
payments and payments for taxes and insurance premiums. This is how 
NCUA already had been insuring mortgage servicing accounts. FDIC opted 
to insure a mortgagor's payment of principal and interest in a mortgage 
servicing account on a pass-through basis up to the current temporary 
$250,000 limit separate from any other accounts of that mortgagor. NCUA 
believes this treatment of principal and interest payments provides 
greater and fairer coverage for credit union members and decided to 
take the same approach in its share insurance rules. FDIC determined to 
insure a mortgagor's payment of taxes and insurance premiums in a 
mortgage servicing account on a pass-through basis but decided to add 
these funds to other individually owned funds held by that mortgagor at 
the same insured institution up to the current temporary $250,000 
limit. This is how NCUA already had been addressing that situation.
    NCUA received only one comment regarding the mortgage servicing 
accounts portion of the interim final rule. It supports the rule 
change. This final rule adopts the amendments made in the interim final 
rule without change.

E. Official Sign

    NCUA stated in the interim final rule published on October 22, 2008 
that the temporary increase in the SMSIA from $100,000 to $250,000 
called into question the usefulness of NCUA's official sign, as 
depicted in Part 740 of NCUA's rules, which includes a statement that 
member shares are insured to at least $100,000. Obviously, that 
statement does not reflect the temporary coverage limit of $250,000. 
NCUA knows from recent experience in revising the official sign that 
requiring credit unions to replace the sign with a revised sign would 
be an expensive and burdensome process. NCUA recognized the need to 
balance that burden with the need and desire to inform members they 
have increased insurance coverage to $250,000. In that regard, NCUA 
revised its rules to provide insured credit unions with maximum 
flexibility. Specifically, under the interim final rule, insured credit 
unions had the option to: (1) Continue to display the current official 
sign in Part 740, reflecting the $100,000 limit, without penalty; (2) 
display any other version of the official sign distributed or approved 
by NCUA and appearing on NCUA's

[[Page 55749]]

official Web site through December 31, 2013 that reflects the temporary 
increase to $250,000; or 3) alter by hand or otherwise the current 
official sign to make it reflect the increase to $250,000 provided the 
altered sign is legible and otherwise complies with Part 740. NCUA 
noted that an example of how an insured credit union could alter the 
sign by hand is to affix a sticker that reads ``$250,000'' over the 
portion of the current sign that reads ``$100,000.'' Also, insured 
credit unions that do not change or alter the official sign should 
inform members about the temporary increase in account insurance 
through additional signage, for example, posting a sign in their 
lobbies or a notice on their Web sites that through December 31, 2013, 
accounts are insured for $250,000.
    NCUA received only one comment regarding the official sign portion 
of the interim final rule. That commenter supports the rule change. 
This final rule adopts the amendments made by the interim final rule 
without change other than to reflect the extended duration of the 
temporary SMSIA increase.

II. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a rule may have on a 
substantial number of small entities (primarily those under ten million 
dollars in assets). This final rule implements enhanced share insurance 
coverage and provides flexibility to credit unions. Accordingly, it 
will not have a significant economic impact on a substantial number of 
small credit unions, and, therefore, no regulatory flexibility analysis 
is required.

Paperwork Reduction Act

    NCUA has determined that this rule will not increase paperwork 
requirements under the Paperwork Reduction Act of 1995 and regulations 
of the Office of Management and Budget.

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

    NCUA has determined that this rule will not affect family well-
being within the meaning of section 654 of the Treasury and General 
Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681 
(1998).

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(Pub. L. 104-121) (SBREFA) provides generally for congressional review 
of agency rules. A reporting requirement is triggered in instances 
where NCUA issues a final rule as defined by Section 551 of the APA. 5 
U.S.C. 551. The Office of Information and Regulatory Affairs, an office 
within the Office of Management and Budget, has determined that, for 
purposes of SBREFA, this is not a major rule.

List of Subjects

12 CFR Part 740

    Advertisements, Credit unions, Signs and symbols.

12 CFR Part 745

    Credit unions, Share insurance.

    By the National Credit Union Administration Board, this 22nd day 
of October 2009.
Mary F. Rupp,
Secretary of the Board.

0
For the reasons discussed above, NCUA adopts as the interim rules 
published at 73 FR 60616 (October 14, 2008) and 73 FR 62856 (October 
22, 2008) as final with the following changes:

PART 740--ACCURACY OF ADVERTISING AND NOTICE OF INSURED STATUS

0
1. The authority citation for Part 740 continues to read as follows:

    Authority:  12 U.S.C. 1766, 1781, 1789.


0
2. Section 740.4(b)(1) is amended by revising the last sentence to read 
as follows:


Sec.  740.4  Requirements for the official sign.

* * * * *
    (b) * * *
    (1) * * * To address the temporary increase through December 31, 
2013 in the standard maximum share insurance amount as defined in Sec.  
745.1(e) of this chapter, insured credit unions may continue to display 
the official sign depicted in paragraph (b) of this section but should 
inform members of the increased coverage through additional signage 
indicating the temporary increase in coverage, display other versions 
of the official sign distributed or approved by NCUA and appearing on 
NCUA's official website, or alter by hand or otherwise the official 
sign depicted in paragraph (b) of this section for that purpose 
provided the altered sign is legible and otherwise complies with this 
part.
* * * * *

PART 745--SHARE INSURANCE AND APPENDIX

0
3. The authority citation for Part 745 continues to read as follows:

    Authority:  12 U.S.C. 1752(5), 1757, 1765, 1766, 1781, 1782, 
1787, 1789.


0
4. Section 745.1(e) is revised to read as follows:


Sec.  745.1  Definitions.

* * * * *
    (e) The term ``standard maximum share insurance amount,'' referred 
to as the ``SMSIA'' hereafter, means $250,000 from October 3, 2008, 
until December 31, 2013. Effective January 1, 2014, the SMSIA means 
$100,000 adjusted pursuant to subparagraph (F) of section 11(a)(1) of 
the Federal Deposit Insurance Act (12 U.S.C. 1821(a)(1)(F)). All 
examples in this part use $250,000 as the SMSIA.

0
5. Section 745.3(a)(3) is revised to read as follows:


Sec.  745.3  Single ownership accounts.

    (a) * * *
    (3) Mortgage servicing accounts. Accounts maintained by a mortgage 
servicer, in a custodial or other fiduciary capacity, which are 
comprised of payments by mortgagors of principal and interest, shall be 
insured for the cumulative balance paid into the account by the 
mortgagors, up to the limit of the SMSIA per mortgagor. Accounts 
maintained by a mortgage servicer, in a custodial or other fiduciary 
capacity, which are comprised of payments by mortgagors of taxes and 
insurance premiums shall be added together and insured in accordance 
with paragraph (a)(2) of this section for the ownership interest of 
each mortgagor in such accounts. This provision is effective as of 
October 22, 2008, for all existing and future mortgage servicing 
accounts.
* * * * *

0
6. Section 745.4 is revised to read as follows:


Sec.  745.4  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 credit union) in

[[Page 55750]]

an amount equal to the total number of different beneficiaries named in 
the account(s) multiplied by the SMSIA. 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: Account Owner ``A'' has a living 
trust account with four different beneficiaries named in the trust. A 
has no other revocable trust accounts at the same NCUA-insured credit 
union. The maximum insurance coverage would be $1,000,000, determined 
by multiplying 4 times $250,000 (the number of beneficiaries times the 
SMSIA). (Example 2: Account Owner ``A'' has a payable-on-death account 
naming his niece and cousin as beneficiaries, and A also has, at the 
same NCUA-insured credit union, another payable-on-death account naming 
the same niece and a friend as beneficiaries. The maximum coverage 
available to the account owner would be $750,000. This is because the 
account owner has named only three different beneficiaries in the 
revocable trust accounts--his niece and cousin in the first, and the 
same niece and a friend in the second. 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.) (Example 3: Account Owner ``A'' establishes a 
living trust account with a balance of $300,000, naming his two 
children ``B'' and ``C'' as beneficiaries. A also establishes, at the 
same NCUA-insured credit union, a payable-on-death account, with a 
balance of $300,000, also naming his children B and C as beneficiaries. 
The maximum coverage available to A is $500,000, determined by 
multiplying 2 times $250,000 (the number of different beneficiaries 
times the SMSIA). A is uninsured in the amount of $100,000. This is 
because all funds that an owner holds in both living trust accounts and 
payable-on-death accounts, at the same NCUA-insured credit union and 
naming the same beneficiaries, are aggregated for insurance purposes 
and insured to the applicable coverage limits.)
    (b) Required intention and naming of beneficiaries. 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 or elsewhere in the account records of the 
credit union using commonly accepted terms such as, but not limited to, 
in trust for, as trustee for, payable-on-death to, or any acronym 
therefore, or by listing one or more beneficiaries in the account 
records of the credit union. In addition, for informal revocable trust 
accounts, the beneficiaries must be specifically named in the account 
records of the insured credit union. 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 a natural person as well as a charitable 
organization and other non-profit entity recognized as such under the 
Internal Revenue Code of 1986, as amended.
    (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 SMSIA per owner. (Example: Account Owner ``A'' establishes a 
payable-on-death account naming a pet as beneficiary with a balance of 
$100,000. A also has an individual account at the same NCUA-insured 
credit union with a balance of $175,000. Because the pet is not a 
``beneficiary,'' the two accounts are aggregated and treated as a 
single ownership account. As a result, A is insured in the amount of 
$250,000, but is uninsured for the remaining $25,000.)
    (e) Revocable trust accounts with aggregate balances exceeding five 
times the SMSIA 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 SMSIA, the maximum 
revocable trust account coverage for the account owner shall be the 
greater of either: five times the SMSIA or the aggregate amount of the 
interests of each different beneficiary named in the trusts, to a limit 
of the SMSIA per different beneficiary. (Example 1: Account Owner ``A'' 
has a living trust with a balance of $1 million and names two friends, 
``B'' and ``C'' as beneficiaries. At the same NCUA-insured credit 
union, A establishes a payable-on-death account, with a balance of $1 
million naming his two cousins, ``D'' and ``E'' as beneficiaries. 
Coverage is determined under the general coverage provisions in 
paragraph (a) of this section, and not this paragraph (e). This is 
because all funds that A holds in both living trust accounts and 
payable-on-death accounts, at the same NCUA-insured credit union, are 
aggregated for insurance purposes. Although A's aggregated balance of 
$2 million is more than five times the SMDIA, A names only four 
different beneficiaries, and coverage under this paragraph (e) applies 
only if there are more than five different beneficiaries. A is insured 
in the amount of $1 million (4 beneficiaries times the SMSIA), and 
uninsured for the remaining $1 million.) (Example 2: Account Owner 
``A'' has a living trust account with a balance of $1,500,000. Under 
the terms of the trust, upon A's death, A's three children are each 
entitled to $125,000, A's friend is entitled to $15,000, and a 
designated charity is entitled to $175,000. 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 exceeds $1,250,000 (5 
times the SMSIA) and there are more than five different beneficiaries 
named in the trust, the maximum coverage available to A would be the 
greater of: $1,250,000 or the aggregate of each different beneficiary's 
interest to a limit of $250,000 per beneficiary. The beneficial 
interests in the trust for purposes of determining coverage are: 
$125,000 for each of the children (totaling $375,000), $15,000 for the 
friend, $175,000 for the charity, and $250,000 for the spouse (because 
the spouse's $935,000 is subject to the $250,000 per-beneficiary 
limitation). The aggregate beneficial interests total $815,000. Thus, 
the maximum coverage afforded to the account owner would be $1,250,000, 
the greater of $1,250,000 or $815,000.)
    (f) Co-owned 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 SMSIA, subject to the limitation imposed in 
paragraph (e) of this section. (Example 1: A and 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 NCUA-insured credit union. The maximum coverage afforded to 
A and B would be $1,500,000, determined by multiplying the number of 
owners (2) times the SMSIA ($250,000) times the

[[Page 55751]]

number of different beneficiaries (3). In this example, A would be 
entitled to revocable trust coverage of $750,000 and B would be 
entitled to revocable trust coverage of $750,000.) (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 $1,750,000. Neither A nor B has any other revocable 
trust accounts at the same NCUA-insured credit union. 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 $250,000, totaling $2,500,000. 
Because the account balance ($1,750,000) is less than the maximum 
coverage amount ($2,500,000), the account would be fully insured.) 
(Example 3: A and B, two individuals, establish a living trust account 
with a balance of $3.75 million. Under the terms of the trust, upon the 
death of both A and B, each of their three children is entitled to 
$600,000, B's cousin is entitled to $380,000, A's friend is entitled to 
$70,000, and the remaining amount ($1,500,000) goes to a charity. Under 
paragraph (e) of this section, the maximum coverage, as to each co-
owned account owner, would be the greater of $1,250,000 or the 
aggregate amount (as to each co-owner) of the interest of each 
different beneficiary named in the trust, to a limit of $250,000 per 
account owner per beneficiary. The beneficial interests in the trust 
considered for purposes of determining coverage for account owner A 
are: $750,000 for the children (each child's interest attributable to 
A, $300,000, is subject to the $250,000-per-beneficiary limitation), 
$190,000 for the cousin, $35,000 for the friend, and $250,000 for the 
charity (the charity's interest attributable to A, $750,000, is subject 
to the $250,000 per-beneficiary limitation). As to A, the aggregate 
amount of the beneficial interests eligible for deposit insurance 
coverage totals $1,225,000. Thus, the maximum coverage afforded to 
account co-owner A would be $1,250,000, which is the greater of 
$1,250,000 or the aggregate of all the beneficial interests 
attributable to A (limited to $250,000 per beneficiary), which totaled 
slightly less at $1,225,000. Because B has equal ownership interest in 
the trust, the same analysis and coverage determination also would 
apply to B. Thus, of the total account balance of $3.75 million, $2.5 
million would be insured and $1.25 million would be uninsured.)
    (2) Notwithstanding paragraph (f)(1) of this section, where the 
owners of a co-owned revocable trust account are themselves the sole 
beneficiaries of the corresponding trust, the account shall be insured 
as a joint account under section 745.8 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, 
NCUA shall value each such life estate interest as the SMSIA for 
purposes of determining the insurance coverage available to the account 
owner under paragraph (e) of this section. (Example: Account Owner 
``A'' has a living trust account with a balance of $1,500,000. Under 
the terms of the trust, A provides a life estate interest for his 
spouse. Moreover, A's three children are each entitled to $275,000, A's 
friend is entitled to $15,000, and a designated charity is entitled to 
$175,000. The trust also provides that the remainder of the trust 
assets shall belong to A's granddaughter. In this case, because the 
balance of the account exceeds $1,250,000 (5 five times the SMSIA) and 
there are more than five different beneficiaries named in the trust, 
the maximum coverage available to A would be the greater of: $1,250,000 
or the aggregate of each different beneficiary's interest to a limit of 
$250,000 per beneficiary. The beneficial interests in the trust 
considered for purposes of determining coverage are: $250,000 for the 
spouse's life estate, $750,000 for the children (because each child's 
$275,000 is subject to the $250,000 per-beneficiary limitation), 
$15,000 for the friend, $175,000 for the charity, and $250,000 for the 
granddaughter (because the granddaughter's $310,000 remainder is 
limited by the $250,000 per-beneficiary limitation). The aggregate 
beneficial interests total $1,440,000. Thus, the maximum coverage 
afforded to the account owner would be $1,440,000, the greater of 
$1,250,000 or $1,440,000.)
    (h) Revocable trusts that become irrevocable trusts. 
Notwithstanding the provisions in section 745.9-1 on the insurance 
coverage of irrevocable trust accounts, if a revocable trust account 
converts in part or entirely to an irrevocable trust upon the death of 
one or more of the trust's owners, the trust account shall continue to 
be insured under the provisions of this section. (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 apply to all existing and future revocable 
trust accounts and all existing and future irrevocable trust accounts 
resulting from formal revocable trust accounts.

0
7. Section 745.8 is amended by redesignating paragraphs (b), (c), and 
(d) as paragraphs (c), (d) and (e), respectively, and adding a new 
paragraph (b) to read as follows:


Sec.  745.8  Joint ownership accounts.

* * * * *
    (b) Determination of insurance coverage. The interests of each co-
owner in all qualifying joint accounts shall be added together and the 
total shall be insured up to the SMSIA. (Example: ``A&B'' have a 
qualifying joint account with a balance of $150,000; ``A&C'' have a 
qualifying joint account with a balance of $200,000; and ``A&B&C'' have 
a qualifying joint account with a balance of $375,000. A's combined 
ownership interest in all qualifying joint accounts would be $300,000 
($75,000 plus $100,000 plus $125,000); therefore, A's interest would be 
insured in the amount of $250,000 and uninsured in the amount of 
$50,000. B's combined ownership interest in all qualifying joint 
accounts would be $200,000 ($75,000 plus $125,000); therefore, B's 
interest would be fully insured. C's combined ownership interest in all 
qualifying joint accounts would be $225,000 ($100,000 plus $125,000); 
therefore, C's interest would be fully insured.
* * * * *

0
8. The Appendix to Part 745 is revised to read as follows:

Appendix to Part 745--Examples of Insurance Coverage Afforded Accounts 
in Credit Unions Insured by the National Credit Union Share Insurance 
Fund

What Is the Purpose of This Appendix?

    The following examples illustrate insurance coverage on accounts 
maintained in the same federally-insured credit union. They are 
intended to cover various types of ownership interests and 
combinations of accounts which may occur in connection with funds 
invested in insured credit unions. These examples interpret the 
rules for insurance of accounts contained in 12 CFR

[[Page 55752]]

part 745 and focus on those accounts for which examples are not 
provided in the regulatory text.
    The examples, as well as the rules which they interpret, are 
predicated upon the assumption that: (1) Invested funds are actually 
owned in the manner indicated on the credit union's records and (2) 
the owner of funds in an account is a credit union member or 
otherwise eligible to maintain an insured account in a credit union. 
If available evidence shows that ownership is different from that on 
the institution's records, the National Credit Union Share Insurance 
Fund may pay claims for insured accounts on the basis of actual 
rather than ostensible ownership. Further, the examples and the 
rules which they interpret do not extend insurance coverage to 
persons otherwise not entitled to maintain an insured account or to 
account relationships that have not been approved by the NCUA Board 
as an insured account.

A. How Are Single Ownership Accounts Insured?

    All funds owned by an individual member (or, in a community 
property state, by the husband-wife community of which the 
individual is a member) and invested in one or more individual 
accounts are added together and insured to the $250,000 maximum. 
This is true whether the accounts are maintained in the name of the 
individual member owning the funds or in the name of the member's 
agent or nominee. (Sec.  745.3(a)(1) and (2).) All such accounts are 
added together and insured as one individual account. Funds held in 
one or more accounts in the name of a guardian, custodian, or 
conservator for the benefit of a ward or minor are added together 
and insured up to $250,000. However, such an account or accounts 
will not be added to any other individual accounts of the guardian, 
custodian, conservator, ward, or minor for purposes of determining 
insurance coverage. (Sec.  745.3(b).) A mortgage servicing account 
maintained by a mortgage servicer, in a custodial or other fiduciary 
capacity, comprised of payments by a mortgagor of principal and 
interest is insured for the cumulative balance paid into the account 
by the mortgagor, up to $250,000 for the mortgagor separately from 
other individual accounts of the mortgagor. A mortgage servicing 
account maintained by a mortgage servicer, in a custodial or other 
fiduciary capacity, comprised of payments by a mortgagor of taxes 
and insurance premiums shall be added together with the mortgagor's 
other individual accounts and insured up to $250,000. (Sec.  
745.3(a)(3).)
    Example 1 Question: Members A and B, husband and wife, each 
maintain an individual account containing $250,000. What is the 
insurance coverage?

    Answer: Each account is separately insured up to $250,000, for a 
total coverage of $500,000. The coverage would be the same whether 
the individual accounts contain funds owned as community property or 
as individual property of the spouses (Sec.  745.3(a)(1)).

    Example 2 Question: Members H and W, husband and wife, reside in 
a community property state. H maintains a $250,000 account 
consisting of his separately-owned funds and invests $250,000 of 
community property funds in another account, both of which are in 
his name alone. What is the insurance coverage?

    Answer: The two accounts are added together and insured to a 
total of $250,000. $250,000 is uninsured (Sec.  745.3(a)(1)).

    Example 3 Question: Member A has $192,500 invested in an 
individual account, and his agent, Member B, invests $125,000 of A's 
funds in a properly designated agency account. B also holds a 
$250,000 individual account. What is the insurance coverage?

    Answer: A's individual account and the agency account are added 
together and insured to the $250,000 maximum, leaving $67,500 
uninsured. The investment of funds through an agent does not result 
in additional insurance coverage for the principal (Sec.  
745.3(a)(2)). B's individual account is insured separately from the 
agency account (Sec.  745.3(a)(1)). However, if the account records 
of the credit union do not show the agency relationship under which 
the funds in the $125,000 account are held, the $250,000 in B's name 
could, at the option of the NCUSIF, be added to his individual 
account and insured to $250,000 in the aggregate, leaving $125,000 
uninsured (Sec.  745.2(c)).

    Example 4 Question: Member A holds a $250,000 individual 
account. Member B holds two accounts in his own name, the first 
containing $125,000 and the second containing $192,500. In 
processing the claims for payment of insurance on these accounts, 
the NCUSIF discovers that the funds in the $125,000 account actually 
belong to A and that B had invested these funds as agent for A, his 
undisclosed principal. What is the insurance coverage?

    Answer: Since the available evidence shows that A is the actual 
owner of the funds in the $125,000 account, those funds would be 
added to the $250,000 individual account held by A (rather than to 
B's $192,500 account) and insured to the $250,000 maximum, leaving 
$125,000 uninsured. (Sec.  745.3(a)(2).) B's $192,500 individual 
account would be separately insured.

    Example 5 Question: Member C, a minor, maintains an individual 
account of $750. C's grandfather makes a gift to him of $250,000, 
which is invested in another account by C's father, designated on 
the credit union's records as custodian under a Uniform Gift to 
Minors Act. C's father, also a member, maintains an individual 
account of $250,000. What is the insurance coverage?

    Answer: C's individual account and the custodian account held 
for him by his father are each separately insured: The $250,000 
maximum on the custodian account, and $750 on his individual 
account. The individual account held by C's father is also 
separately insured to the $250,000 maximum. (Sec.  745.3 (a)(1) and 
(b).)

    Example 6 Question: Member G, a court-appointed guardian, 
invests in a properly designated account $250,000 of funds in his 
custody which belong to member W, his ward. W and G each maintain 
$25,000 individual accounts. What is the insurance coverage?

    Answer: W's individual account and the guardianship account in 
G's name are each insured to $250,000 providing W with $275,000 in 
insured funds. G's individual account is also separately insured. 
(Sec.  745.3 (a)(1) and (b).)

    Example 7 Question: Member A has three individual accounts at 
the same NCUA-insured credit union. Account 1 is a $250,000 
individual account. Account 2 is a mortgage servicing 
account maintained by a mortgage servicer, in a custodial or other 
fiduciary capacity, comprised of payments by Member A of principal 
and interest in the amount of $3,000. Account 3 is a 
mortgage servicing account maintained by a mortgage servicer, in a 
custodial or other fiduciary capacity, comprised of payments by 
Member A of taxes and insurance premiums in the amount of $1,500. 
What is the insurance coverage?

    Answer: Accounts  1 and 3 are added together 
and insured up to $250,000, leaving $1,500 uninsured. Account 
2 is separately insured up to $250,000.

B. How Are Accounts Held by Executors or Administrators Insured?

    All funds belonging to a decedent and invested in one or more 
accounts, whether held in the name of the decedent or in the name of 
his executor or administrator, are added together and insured to the 
$250,000 maximum. Such funds are insured separately from the 
individual accounts of any of the beneficiaries of the estate or of 
the executor or administrator.

    Example 1 Question: Member A, administrator of Member D's 
estate, sells D's automobile and invests the proceeds of $12,500 in 
an account entitled ``A Administrator of the estate of D.'' A has an 
individual account in that same credit union containing $250,000. 
Prior to his death, D had opened an individual account of $250,000. 
What is the insurance coverage?

    Answer: The $12,500 is added to D's individual account and 
insured to $250,000, leaving $12,500 uninsured. A's individual 
account is separately insured for $250,000 (Sec.  745.5).

C. How Are Accounts Held by a Corporation, Partnership or 
Unincorporated Association Insured?

    All funds invested in an account or accounts by a corporation, a 
partnership or an unincorporated association engaged in any 
independent activity are added together and insured to the $250,000 
maximum. The term ``independent activity'' means any activity other 
than the one directed solely at increasing coverage. If the 
corporation, partnership or unincorporated association is not 
engaged in an independent activity, any account held by the entity 
is insured as if owned by the persons owning or comprising the 
entity, and the imputed interest of each such person is added for 
insurance purposes to any individual account which he maintains.

    Example 1 Question: Member X Corporation maintains a $250,000 
account.

[[Page 55753]]

The stock of the corporation is owned by members A, B, C, and D in 
equal shares. Each of these stockholders also maintains an 
individual account of $250,000 with the same credit union. What is 
the insurance coverage?

    Answer: Each of the five accounts would be separately insured to 
$250,000 if the corporation is engaged in an independent activity 
and has not been established merely for the purpose of increasing 
insurance coverage. The same would be true if the business were 
operated as a bona fide partnership instead of as a corporation 
(Sec.  745.6). However, if X corporation was not engaged in an 
independent activity, then $62,500 (\1/4\ interest) would be added 
to each account of A, B, C, and D. The accounts of A, B, C, and D 
would then each be insured to $250,000, leaving $62,500 in each 
account uninsured.

    Example 2 Question: Member C College maintains three separate 
accounts with the same credit union under the titles: ``General 
Operating Fund,'' ``Teachers Salaries,'' and ``Building Fund.'' What 
is the insurance coverage?

    Answer: Since all of the funds are the property of the college, 
the three accounts are added together and insured only to the 
$250,000 maximum (Sec.  745.6).

    Example 3 Question: The men's club of X Church carries on 
various social activities in addition to holding several fund-
raising campaigns for the church each year. The club is supported by 
membership dues. Both the club and X Church maintain member accounts 
in the same credit union. What is the insurance coverage?

    Answer: The men's club is an unincorporated association engaged 
in an independent activity. If the club funds are, in fact, legally 
owned by the club itself and not the church, each account is 
separately insured to the $250,000 maximum (Sec.  745.6).

    Example 4 Question: The PQR Union, a member of the ABC Federal 
Credit Union, has three locals in a certain city. Each of the locals 
maintains an account containing funds belonging to the parent 
organization. All three accounts are in the same insured credit 
union. What is the insurance coverage?

    Answer: The three accounts are added together and insured up to 
the $250,000 maximum (Sec.  745.6).

D. How Are Accounts Held by Government Depositors Insured?

    For insurance purposes, the official custodian of funds 
belonging to a public unit, rather than the public unit itself, is 
insured as the account holder. All funds belonging to a public unit 
and invested by the same custodian in a federally-insured credit 
union are categorized as either share draft accounts or share 
certificate and regular share accounts. If these accounts are 
invested in a federally-insured credit union located in the 
jurisdiction from which the official custodian derives his 
authority, then the share draft accounts will be insured separately 
from the share certificate and regular share accounts. Under this 
circumstance, all share draft accounts are added together and 
insured to the $250,000 maximum and all share certificate and 
regular share accounts are also added together and separately 
insured up to the $250,000 maximum. If, however, these accounts are 
invested in a federally-insured credit union located outside of the 
jurisdiction from which the official custodian derives his 
authority, then insurance coverage is limited to $250,000 for all 
accounts regardless of whether they are share draft, share 
certificate or regular share accounts. If there is more than one 
official custodian for the same public unit, the funds invested by 
each custodian are separately insured. If the same person is 
custodian of funds for more than one public unit, he is separately 
insured with respect to the funds of each unit held by him in 
properly designated accounts.
    For insurance purposes, a ``political subdivision'' is entitled 
to the same insurance coverage as any other public unit. ``Political 
subdivision'' includes any subdivision of a public unit or any 
principal department of such unit: (1) The creation of which has 
been expressly authorized by state statute, (2) to which some 
functions of government have been allocated by state statute, and 
(3) to which funds have been allocated by statute or ordinance for 
its exclusive use and control.

    Example 1 Question: As Comptroller of Y Consolidated School 
District, A maintains a $275,000 account in the credit union 
containing school district funds. He also maintains his own $250,000 
member account in the same credit union. What is the insurance 
coverage?

    Answer: The two accounts will be separately insured, assuming 
the credit union's records indicate that the account containing the 
school district funds is held by A in a fiduciary capacity. Thus, 
$250,000 of the school's funds and the entire $250,000 in A's 
personal account will be insured (Sec.  745.10(a)(2) and Sec.  
745.3).

    Example 2 Question: A, as city treasurer, and B, as chief of the 
city police department, each have $250,000 in city funds invested in 
custodial accounts. What is the insurance coverage?

    Answer: Assuming that both A and B have official custody of the 
city funds, each account is separately insured to the $250,000 
maximum (Sec.  745.10(a)(2)).

    Example 3 Question: A is Treasurer of X County and collects 
certain tax assessments, a portion of which must be paid to the 
state under statutory requirement. A maintains an account for 
general funds of the county and establishes a separate account for 
the funds which belong to the State Treasurer. The credit union's 
records indicate that the separate account contains funds held for 
the State. What is the insurance coverage?

    Answer: Since two public units own the funds held by A, the 
accounts would each be separately insured to the $250,000 maximum 
(Sec.  745.10(a)(2)).

    Example 4 Question: A city treasurer invests city funds in each 
of the following accounts: ``General Operating Account,'' ``School 
Transportation Fund,'' ``Local Maintenance Fund,'' and ``Payroll 
Fund.'' Each account is available to the custodian upon demand. By 
administrative direction, the city treasurer has allocated the funds 
for the use of and control by separate departments of the city. What 
is the insurance coverage?

    Answer: All of the accounts are added together and insured in 
the aggregate to $250,000. Because the allocation of the city's 
funds is not by statute or ordinance for the specific use of and 
control by separate departments of the city, separate insurance 
coverage to the maximum of $250,000 is not afforded to each account 
(Sec. Sec.  745.1(d) and 745.10(a)(2)).

    Example 5 Question: A, the custodian of retirement funds of a 
military exchange, invests $2,500,000 in an account in an insured 
credit union. The military exchange, a non-appropriated fund 
instrumentally of the United States, is deemed to be a public unit. 
The employees of the exchange are the beneficiaries of the 
retirement funds but are not members of the credit union. What is 
the insurance coverage?

    Answer: Because A invested the funds on behalf of a public unit, 
in his capacity as custodian, those funds qualify for $250,000 share 
insurance even though A and the public unit are not within the 
credit union's field of membership. Since the beneficiaries are 
neither public units nor members of the credit union they are not 
entitled to separate share insurance. Therefore, $2,250,000 is 
uninsured (Sec.  745.10(a)(1)).

    Example 6 Question: A is the custodian of the County's employee 
retirement funds. He deposits $2,500,000 in retirement funds in an 
account in an insured credit union. The ``beneficiaries'' of the 
retirement fund are not themselves public units nor are they within 
the credit union's field of membership. What is the insurance 
coverage?

    Answer: Because A invested the funds on behalf of a public unit, 
in his capacity as custodian, those funds qualify for $250,000 share 
insurance even though A and the public unit are not within the 
credit union's field of membership. Since the beneficiaries are 
neither public units nor members of the credit union they are not 
entitled to separate share insurance. Therefore, $2,250,000 is 
uninsured (Sec.  745.10(a)(2)).

    Example 7 Question: A county treasurer establishes the following 
share draft accounts in an insured credit union each with $250,000:
``General Operating Fund''
``County Roads Department Fund''
``County Water District Fund''
``County Public Improvement District Fund''
``County Emergency Fund''
What is the insurance coverage?

    Answer: The ``County Roads Department,'' ``County Water 
District'' and ``County Public Improvement District'' accounts would 
each be separately insured to $250,000 if the funds in each such 
account have been allocated by law for the exclusive use of a 
separate county department or subdivision expressly authorized by 
State statute. Funds in the ``General Operating'' and ``Emergency 
Fund'' accounts would be added together and insured in the aggregate 
to $250,000, if such

[[Page 55754]]

funds are for countywide use and not for the exclusive use of any 
subdivision or principal department of the county, expressly 
authorized by State statute (Sec. Sec.  745.1(d) and 745.10(a)(2)).

    Example 8 Question: A, the custodian of Indian tribal funds, 
lawfully invests $2,500,000 in an account in an insured credit union 
on behalf of 15 different tribes; the records of the credit union 
show that no tribe's interest exceeds $250,000. A, as official 
custodian, also invests $2,500,000 in the same credit union on 
behalf of 100 individual Indians, who are not members; each Indian's 
interest is $10,000. What is the insurance coverage?

    Answer: Because each tribe is considered a separate public unit, 
the custodian of each tribe, even though the same person, is 
entitled to separate insurance for each tribe (Sec.  745.10(a)(5)). 
Since the credit union's records indicate no tribe has more than 
$250,000 in the account, the $2,500,000 would be fully insured as 15 
separate tribal accounts. If anyone tribe had more than a $250,000 
interest in the funds, it would be insured only to $250,000 and any 
excess would be uninsured.
    However, the $2,500,000 invested on behalf of the individual 
Indians would not be insured since the individual Indians are 
neither public units nor, in the example, members of the credit 
union. If A is the custodian of the funds in his capacity as an 
official of a governmental body that qualified as a public unit, 
then the account would be insured for $250,000, leaving $2,250,000 
uninsured.

    Example 9 Question: A, an official custodian of funds of a state 
of the United States, lawfully invests $500,000 of state funds in a 
federally-insured credit union located in the state from which he 
derives his authority as an official custodian. What is the 
insurance coverage?

    Answer: If A invested the entire $500,000 in a share draft 
account, then $250,000 would be insured and $250,000 would be 
uninsured. If A invested $250,000 in share draft accounts and 
another $250,000 in share certificate and regular share accounts, 
then A would be insured for $250,000 for the share draft accounts 
and $250,000 for the share certificate and regular share accounts 
leaving nothing uninsured (Sec.  745.10(a)(2)). If A had invested 
the $500,000 in a federally-insured credit union located outside the 
state from which he derives his authority as an official custodian, 
then $250,000 would be insured for all accounts regardless of 
whether they were share draft, share certificate or regular share 
accounts, leaving $250,000 uninsured (Sec.  745.10(b)).

E. How Are Trust Accounts and Retirement Accounts Insured?

    A trust estate is the interest of a beneficiary in an 
irrevocable express trust, whether created by trust instrument or 
statute, which is valid under state law. Thus, funds invested in an 
account by a trustee under an irrevocable express trust are insured 
on the basis of the beneficial interests under such trust. The 
interest of each beneficiary in an account (or accounts) established 
under such a trust arrangement is insured to $250,000 separately 
from other accounts held by the trustee, the settlor (grantor), or 
the beneficiary. However, in cases where a beneficiary has an 
interest in more than one trust arrangement created by the same 
settlor, the interests of the beneficiary in all accounts 
established under such trusts are added together for insurance 
purposes, and the beneficiary's aggregate interest derived from the 
same settlor is separately insured to the $250,000 maximum.
    A beneficiary's interest in an account established pursuant to 
an irrevocable express trust arrangement is insured separately from 
other beneficial interests (trust estates) invested in the same 
account if the value of the beneficiary's interest (trust estate) 
can be determined (as of the date of a credit union's insolvency) 
without evaluation of contingencies except for those covered by the 
present worth tables and rules of calculation for their use set 
forth in Sec.  20.2031-10 of the Federal Estate Tax Regulations (26 
CFR 20.2031-10). If any trust estates in such an account cannot be 
so determined, the insurance with respect to all such trust estates 
together shall not exceed $250,000.
    In order for insurance coverage of trust accounts to be 
effective in accordance with the foregoing rules, certain 
recordkeeping requirements must be met. In connection with each 
trust account, the credit union's records must indicate the name of 
both the settlor and the trustee of the trust and must contain an 
account signature card executed by the trustee indicating the 
fiduciary capacity of the trustee. In addition, the interests of the 
beneficiaries under the trust must be ascertainable from the records 
of either the credit union or the trustee, and the settlor or 
beneficiary must be a member of the credit union. If there are two 
or more settlors or beneficiaries, then either all the settlors or 
all the beneficiaries must be members of the credit union.
    Although each ascertainable trust estate is separately insured, 
it should be noted that in short-term trusts the insurable interest 
or interests may be very small, since the interests are computed 
only for the duration of the trust. Thus, if a trust is made 
irrevocable for a specified period of time, the beneficial interest 
will be calculated in terms of the length of time stated. A 
reversionary interest retained by the settlor is treated in the same 
manner as an individual account of the settlor.
    As stated, the trust must be valid under local law. A trust 
which does not meet local requirements, such as one imposing no 
duties on the trustee or conveying no interest to the beneficiary, 
is of no effect for insurance purposes. An account in which such 
funds are invested is considered to be an individual account.
    IRA and Keogh accounts are separately insured, each up to 
$250,000. Although credit unions may serve as trustees or custodians 
for self-directed IRA, Roth IRA and Keogh accounts, once the funds 
in those accounts are taken out of the credit union, they are no 
longer insured.
    In the case of an employee retirement fund where only a portion 
of the fund is placed in a credit union account, the amount of 
insurance available to an individual participant on his interest in 
the account will be in proportion to his interest in the entire 
employee retirement fund. If, for example, the member's interest 
represents 10% of the entire plan funds, then he is presumed to have 
only a 10% interest in the plan account. Said another way, if a 
member has a vested interest of $10,000 in a municipal employees 
retirement plan and the trustee invests 25% of the total plan funds 
in a credit union, the member would be insured for only $2,500 on 
that credit union account. There is an exception, however. The 
member would be insured for $10,000 if the trustee can document, 
through records maintained in the ordinary course of business, that 
individual beneficiary's interests are segregated and the total 
vested interest of the member was, in fact, invested in that 
account.

    Example 1 Question: Member S invests $250,000 in trust for B, 
the beneficiary. S also has an individual account containing 
$250,000 in the same credit union. What is the insurance coverage?

    Answer: Both accounts are fully insured. The trust account is 
separately insured from the individual account of S (Sec. Sec.  
745.3(a)(1) and 745.9-1).
    Example 2 Question: S invests funds in trust for A, B, C, D, and 
E. A, B, and C are members of the credit union, D, E and S are not. 
What is the insurance coverage?

    Answer: This is an uninsurable account. Where there is more than 
one settlor or more than one beneficiary, all the settlors or all 
the beneficiaries must be members to establish this type of account. 
Since D, E and S are not members, this account cannot legally be 
established or insured.

    Example 3(a) Question: Member T invests $5,000,000 in trust for 
ABC Employees Retirement Fund. Some of the participants are members 
and some are not. What is the insurance coverage?

    Answer: The account is insured as to the determinable interests 
of each participant to a maximum of $250,000 per participant 
regardless of credit union member status. T's member status is also 
irrelevant. Participant interests not capable of evaluation shall be 
added together and insured to a maximum of $250,000 in the aggregate 
(Sec.  745.9-2).

    Example 3(b) Question: T is trustee for the ABC Employees 
Retirement Fund containing $1,000,000. Fund participant A has a 
determinable interest of $90,000 in the Fund (9% of the total). T 
invests $500,000 of the Fund in an insured credit union and the 
remaining $500,000 elsewhere. Some of the participants of the Fund 
are members of the credit union and some are not. T does not 
segregate each participant's interest in the Fund. What is the 
insurance coverage?

    Answer: The account is insured as to the determinable interest 
of each participant, adjusted in proportion to the Fund's investment 
in the credit union, regardless of the membership status of the 
participants or trustee. A's insured interest in the account is 
$45,000, or 9% of $500,000. This reflects the fact that only 50% of 
the Fund is in the account and A's interest in the account is in

[[Page 55755]]

the same proportion as his interest in the overall plan. All other 
participants would be similarly insured. Participants' interests not 
capable of evaluation are added together and insured to a maximum of 
$250,000 in the aggregate (Sec.  745.9-2).

    Example 4 Question: Member A has an individual account of 
$250,000 and establishes an IRA account and accumulates $250,000 in 
that account. Subsequently, A becomes self-employed and establishes 
a Keogh a