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Financial Institution Letters
[Federal Register: January 21, 2004 (Volume 69, Number 13)]
[Rules and Regulations]               
[Page 2825-2830]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21ja04-1]                         


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Rules and Regulations
                                                Federal Register
________________________________________________________________________

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to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

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[[Page 2825]]



FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 330

RIN 3064-AC54

 
Deposit Insurance Regulations; Living Trust Accounts

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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

SUMMARY: The FDIC is amending its regulations to clarify and simplify 
the deposit insurance coverage rules for living trust accounts. The 
rules are amended to provide coverage up to $100,000 per qualifying 
beneficiary who, as of the date of an insured depository institution 
failure, would become the owner of the living trust assets upon the 
account owner's death.

EFFECTIVE DATE: April 1, 2004.

FOR FURTHER INFORMATION CONTACT: Joseph A. DiNuzzo, Counsel, Legal 
Division (202) 898-7349; Kathleen G. Nagle, Supervisory Consumer 
Affairs Specialist, Division of Supervision and Consumer Protection 
(202) 898-6541; or Martin W. Becker, Senior Receivership Management 
Specialist, Division of Resolutions and Receiverships (202) 898-6644, 
Federal Deposit Insurance Corporation, Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Background

    In June 2003 the FDIC published a proposed rule to simplify the 
insurance coverage rules for living trust accounts (``proposed rule''). 
68 FR 38645, June 30, 2003. The FDIC undertook this rulemaking because 
of the confusion among bankers and the public about the insurance 
coverage of these accounts.
    A living trust is a formal revocable trust over which the owner 
(also known as the grantor) retains ownership during his or her 
lifetime. Upon the owner's death, the trust generally becomes 
irrevocable. A living trust is an increasingly popular instrument 
designed to achieve specific estate-planning goals. A living trust 
account is subject to the FDIC's insurance rules on revocable trust 
accounts. Section 330.10 of the FDIC's regulations (12 CFR 330.10) 
provides that revocable trust accounts are insured up to $100,000 per 
``qualifying'' beneficiary designated by the account owner. If there 
are multiple owners of a living trust account, coverage is available 
separately for each owner. Qualifying beneficiaries are defined as the 
owner's spouse, children, grandchildren, parents and siblings. 12 CFR 
330.10 (a).
    The most common type of revocable trust account is the ``payable-
on-death'' (``POD'') account, comprised simply of a signature card on 
which the owner designates the beneficiaries to whom the funds in the 
account will pass upon the owner's death. The per-beneficiary coverage 
available on revocable trust accounts is separate from the insurance 
coverage afforded to any single-ownership accounts held by the owner or 
beneficiary at the same insured institution. That means, for example, 
if an individual has at the same insured bank or thrift a single-
ownership account with a balance of $100,000 and a POD account (naming 
at least one qualifying beneficiary) with a balance of $100,000, both 
accounts would be insured separately for a combined amount of $200,000. 
If the POD account names more than one qualifying beneficiary, then 
that account would be insured for up to $100,000 per qualifying 
beneficiary. 12 CFR 330.10(a).
    Separate, per-beneficiary insurance coverage is available for 
revocable trust accounts only if the account satisfies certain 
requirements. First, the title of the account must include a term such 
as ``in trust for'' or ``payable-on-death to'' (or corresponding 
acronym). Second, each beneficiary must be either the owner's spouse, 
child, grandchild, parent or sibling. Third, the beneficiaries must be 
specifically named in the deposit account records of the depository 
institution. And fourth, the account must evidence an intent that the 
funds shall belong unconditionally to the designated beneficiaries upon 
the owner's death. 12 CFR 330.10(a) and (b).
    As noted, the most common form of revocable trust account is the 
POD account, consisting simply of a signature card. With POD accounts, 
the fourth requirement for per-beneficiary coverage does not present a 
problem because the signature card normally will not include any 
conditions upon the interests of the designated beneficiaries. In other 
words, the signature card provides that the funds shall belong to the 
beneficiaries upon the owner's death. In contrast, many living trust 
agreements provide, in effect, that the funds might belong to the 
beneficiaries depending on various conditions. The FDIC refers to such 
conditions as ``defeating contingencies'' if they create the 
possibility that the beneficiaries may never receive the funds 
following the owner's death.
    Living trust accounts started to emerge in the late 1980s and early 
1990s. At that time, the FDIC responded to a significant number of 
questions about the insurance coverage of such accounts, often times 
reviewing the actual trust agreements to determine whether the 
requirements for per-beneficiary insurance were satisfied. In the 
FDIC's review of numerous such trusts, it determined that many of the 
trusts included conditions that needed to be satisfied before the named 
beneficiaries would become the owners of the trust assets. For example, 
some trusts required that the trust assets first be used to satisfy 
legacies in the grantor's will; the remaining assets, if any, would 
then be distributed to the trust beneficiaries. Other trusts provided 
that, in order to receive any benefit under the trust, the beneficiary 
must graduate from college. Because of the prevalence of defeating 
contingencies among living trust agreements and the increasing number 
of requests to render opinions on the insurance coverage of specific 
living trust accounts, in 1994 the FDIC issued ``Guidelines for 
Insurance Coverage of Revocable Trust Accounts (Including ``Living 
Trust'' Accounts).'' FDIC Advisory Opinion 94-32 (May 18, 1994). As 
part of its overall simplification of the deposit insurance 
regulations, in 1998 the FDIC revised Sec.  330.10 to include a 
provision explaining the insurance coverage rules for living trust 
accounts. 12 CFR 330.10(f). That provision included a definition of 
defeating contingencies.

[[Page 2826]]

    Despite the FDIC's issuance of guidelines on the insurance coverage 
of living trust accounts and its inclusion of a special provision in 
the insurance regulations explaining the coverage of these accounts, 
there still is significant public and industry confusion about how the 
insurance rules apply to living trust accounts. Time has shown that the 
basic rules on the coverage of POD accounts are not fully adaptable to 
living trust accounts. The POD rules were written to apply to 
signature-card accounts, not lengthy, detailed trust documents. Because 
living trust accounts and PODs are subject to the same insurance rules 
and analysis, depositors and bankers often mistakenly believe that 
living trust accounts are automatically insured up to $100,000 per 
qualifying beneficiary without regard to any terms in the trust that 
might prevent the beneficiary from ever receiving the funds. Our 
experience indicates that in a significant number of cases that is not 
so under existing rules. Because of the existence of defeating 
contingencies in the trust agreement, a living trust account often 
fails to satisfy the requirements for per-beneficiary coverage. Thus, 
the funds in the account are treated as the owner's single-ownership 
funds and, after being added to any other single-ownership funds the 
owner has at the same institution, insured to a limit of $100,000. The 
funds in a non-qualifying living trust account with more than one owner 
are deemed the single-ownership funds of each owner, with the 
corresponding attribution of the funds to each owner's single-ownership 
accounts.
    The FDIC recognizes that the rules governing the insurance of 
living trust accounts are complex and confusing. Under the current 
rules, the amount of insurance coverage for a living trust account can 
only be determined after the trust document has been reviewed to 
determine whether there are any defeating contingencies. Consequently, 
in response to questions about coverage of living trust accounts, the 
FDIC can only advise depositors and bankers that they should assume 
that such accounts will be insured for no more than $100,000 per 
grantor, assuming the grantor has no single-ownership funds in the same 
depository institution. Otherwise, the FDIC suggests that the owners of 
living trust accounts seek advice from the attorney who prepared the 
trust document. Depositors who contact the FDIC about their living 
trust insurance coverage are often troubled to learn that they cannot 
definitively determine the amount of their coverage without a legal 
analysis of their trust document. Also, when a depository institution 
fails the FDIC must review each living trust to determine whether the 
beneficiaries' interests are subject to defeating contingencies. This 
often is a time-consuming process, sometimes resulting in a significant 
delay in making deposit insurance payments to living trust account 
owners.

II. The Proposed Rule

    In the proposed rule issued in June 2003, the FDIC identified and 
requested comments on what it believed to be two viable alternatives to 
address the confusion surrounding the insurance coverage of living 
trust accounts.
    The first alternative provided for coverage up to $100,000 per 
qualifying beneficiary named in the living trust irrespective of 
defeating contingencies (``Alternative One'').
    The FDIC would identify the beneficiaries and their ascertainable 
interests in the trust from the depository institution's account 
records and provide coverage on the account up to $100,000 per 
qualifying beneficiary. As with POD accounts, under Alternative One 
insurance coverage would be provided up to $100,000 per qualifying 
beneficiary limited to each beneficiary's ascertainable interest in the 
trust.
    Alternative One expressly required that the deposit account records 
of the institution indicate the ownership interest of each beneficiary 
in the living trust. The information could be in the form of the dollar 
amount of each beneficiary's interest or on a percentage basis relative 
to the total amount of the trust assets. The FDIC requested specific 
comments on how such a recordkeeping requirement should be satisfied 
when a trust provided for different levels of beneficiaries whose 
interests in the trust depend on certain conditions, including the 
death of a ``higher-tiered'' beneficiary. In the proposed rule the FDIC 
noted that Alternative One generally would result in an increase in 
deposit insurance coverage because, unlike under the current rules, 
beneficiaries would not be required to have an unconditional interest 
in the trust in order for the account to qualify for per-beneficiary 
coverage.
    The second alternative in the proposed rule provided, in essence, 
for a separate category of ownership for living trust accounts, 
insuring such accounts up to $100,000 per account owner (``Alternative 
Two''). An individual grantor would be insured up to a total of 
$100,000 for all living trust accounts he or she had at the same 
depository institution, regardless of the number of beneficiaries named 
in the trust, the grantor's relationship to the beneficiaries and 
whether there were any defeating contingencies in the trust. The 
coverage for a living trust account would be separate from the coverage 
afforded to any single-ownership accounts or qualifying joint accounts 
the owner might have at the same depository institution. Where there 
were joint owners of a living trust account, the account would be 
insured up to $100,000 per grantor. Such accounts also would be 
separately insured from any joint accounts either grantor might have at 
the same insured depository institution. In the proposed rule the FDIC 
noted that Alternative Two likely would result in reduced coverage for 
owners of living trusts naming more than one qualifying beneficiary 
because per-beneficiary coverage would be eliminated.

III. Comments on the Proposed Rule

    The FDIC received forty-three comments on the proposed rule. 
Thirty-seven comments were from banks and savings associations and six 
were from state and national depository institution trade associations. 
Twenty-five comments were in favor of Alternative One or a modified 
version of that alternative and sixteen were in favor of Alternative 
Two. Two comments discussed the characteristics of both alternatives 
without expressing a preference for either one. Many of the comments on 
the proposed rule praised the FDIC for attempting to simplify and 
clarify the living trust rules. All the comment letters are available 
on the FDIC Web site, http://www.fdic.gov/regulations/laws/federal/propose.html
.

    Seventeen comments expressed support for Alternative One as 
proposed. In general, those commenters said Alternative One would 
provide more coverage for depositors than Alternative Two and would be 
more in line with the current coverage available for POD accounts. As 
such, depositors would not have to place their money with more than one 
institution or through deposit brokers to obtain full insurance 
coverage on their deposits. Along these lines, two commenters mentioned 
that Alternative One would assist depositors in estate-planning efforts 
by allowing them to place a sizable portion of their assets at one 
insured institution. Several comments lauded the certainty provided by 
Alternative One. One stated that ``[Alternative One] provides the 
amount of coverage and the clarity and understanding of living trust 
accounts that our customers deserve.'' Another argued that it would be 
inequitable to treat POD accounts and living trust accounts differently 
because they both

[[Page 2827]]

are in the owner's control during his or her lifetime and may be 
modified at any time prior to the owner's death.
    Eight of the twenty-five commenters who supported Alternative One, 
however, expressed concerns about certain aspects of the alternative 
and asked the FDIC to modify Alternative One before finalizing it. One 
state financial institution trade association voiced strong opposition 
to ``any requirement for financial institutions to: Obtain any part of 
a trust document; provide a certification of trust existence; and 
specifically identify a qualifying beneficiary's interest in trust 
assets or relationship to the grantor(s).''
    A national depository institutions trade group cautioned that the 
proposed recordkeeping requirements might jeopardize the protections 
afforded under certain state laws for financial institutions in dealing 
with trusts. It cited ``compelling practical reasons'' against the 
proposed recordkeeping requirements in Alternative One, noting that:
    [sbull] Unlike POD accounts, for which the only document is the 
institution's account--opening record, living trusts can be lengthy, 
complicated documents that identify multiple tiers of beneficiaries.
    [sbull] It is often difficult for bankers to get information from 
accountholders who may be confused by the complexity and terminology of 
their living trust documents.
    [sbull] Living trusts can be amended or revoked at any time and 
depository institutions should not be expected to repeatedly contact 
their customers to determine whether their account information is 
current.
    [sbull] Customers might perceive such recordkeeping requirements as 
an invasion of privacy.
    Two other trade associations and several depository institutions 
echoed these views.
    Many of the commenters in favor of Alternative One without the 
proposed recordkeeping requirements suggested that the FDIC continue 
its current practice of ascertaining the existence of living trust 
beneficiaries and kinship information at the time an institution is 
closed. In addition to making the same points on the recordkeeping 
requirements as those noted above, another national trade association 
representing community banks said ``we do not see how the FDIC can 
avoid the time-consuming process of reviewing trust agreements when a 
bank failure occurs.''
    Sixteen comments were in favor of Alternative Two. Generally, the 
consensus among these comments was, as expressed by one community 
banker, ``[Alternative Two is] easier [than Alternative One] to explain 
to the depositor and for the bank to keep track of.'' Another community 
banker described the option as ``straightforward.'' A common point made 
by several commenters was that, because of the simplicity of 
Alternative Two, depositors would be able to make an informed decision 
in placing living trust funds with depository institutions. Another 
community banker noted that Alternative Two would be the ``simplest, 
easiest and cleanest method'' of insuring living trust deposits and 
added that ``[w]e are not lawyers nor tax accountants and we should not 
have to `dive' into someone's trust papers and try to decide how many 
beneficiaries, the relationships (of the parties) and if there are 
contingencies in the trust.''
    Three commenters who favored Alternative Two suggested that under 
Alternative Two the insurance coverage for living trust accounts be 
increased to $200,000 to address the reduction in coverage some 
depositors might experience as a result of the rule change. (This is 
not a viable option for the FDIC because it would take an act of 
Congress to increase the basic deposit insurance amount.)
    A large regional bank commented that Alternative Two ``appears to 
be the fairest treatment of these accounts as it treats them more like 
individual accounts. Since revocable accounts are generally used for 
the primary benefit of one, or sometimes two individuals, this seems 
more in line with policy of FDIC insurance than Alternative One.''
    Many comments in support of Alternative Two acknowledged that 
Alternative One also offered advantages to depositors and would be an 
improvement over the current rule, but noted that Alternative One would 
place an added burden on financial institutions by imposing new 
recordkeeping requirements and would place institutions in the position 
of requesting information from depositors that they likely would be 
unwilling or unable to provide for privacy and other reasons. One 
medium-sized institution favored Alternative Two because ``we wouldn't 
have to track the names of the trust beneficiaries and their various 
interests.'' A community banker voiced support for Alternative Two, 
saying it would be ``easier to understand by the customer and bank 
personnel.'' She noted that customers would have the option to open POD 
accounts to obtain separate per-beneficiary POD coverage.

IV. The Final Rule

A. General Explanation

    Upon considering the comments on the proposed rule, the FDIC has 
revised the current living trust account rules to provide for insurance 
coverage of up to $100,000 per qualifying beneficiary who, as of the 
date of an institution failure, would become entitled to the living 
trust assets upon the owner's death. This is a modified version of 
Alternative One in the proposed rule, based in part on a comment from a 
community banker that living trust coverage be based on beneficiaries 
``without death related contingencies.'' Under the final rule, coverage 
will be determined on the interests of qualifying beneficiaries 
irrespective of defeating contingencies. A beneficiary whose trust 
interest is dependent on the death of another trust beneficiary, 
however, will not qualify.
    For example, an account for a living trust providing that the trust 
assets go in equal shares to the owner's three children upon the 
owner's death would be eligible for $300,000 of deposit insurance 
coverage. If the trust provides that the funds would go to the children 
only if they each graduate from college prior to the owner's death, the 
coverage would still be $300,000, because defeating contingencies will 
no longer be relevant for deposit insurance purposes. Another example 
is where a trust provides that the owner's spouse becomes the owner of 
the trust assets upon the owner's death but, if the spouse predeceases 
the owner, the three children then become the owners of the assets. If 
the spouse is alive when the institution fails, the account will be 
insured up to a maximum of $100,000, because only the spouse is 
entitled to the assets upon the owner's death. If at the time of the 
institution failure, however, the spouse has predeceased the owner, 
then the account would be eligible for up to $300,000 coverage because 
there would be three qualifying beneficiaries entitled to the trust 
assets upon the owner's death.
    In developing the final rule the FDIC was guided by two interwoven 
objectives: To simplify the existing rules and to provide coverage 
similar to POD account coverage. The FDIC believes the final rule 
achieves these objectives because it is reasonably straight-forward and 
because, as with POD accounts, coverage is based on the actual 
interests of qualifying beneficiaries. The final rule is similar to 
Alternative One but provides coverage based on qualifying beneficiaries 
who have an immediate interest in the trust assets upon the grantor's 
death. This concept is the

[[Page 2828]]

same as the coverage theory applicable to POD accounts: To provide 
coverage based on the interests of the beneficiaries who will receive 
the account funds when the owner dies, determined as of the date of the 
institution failure. Alternative One could have allowed for potentially 
open-ended coverage in some situations, particularly where a trust 
provided for tiered, or sequential, beneficiaries whose interests in 
the trust depend on whether ``higher-tiered'' beneficiaries predecease 
them.
    Moreover, Alternative One would have required that a depository 
institution's deposit account records indicate the name and 
ascertainable interest of each qualifying beneficiary in the trust. The 
FDIC was persuaded by a majority of comments contending that requiring 
institutions to maintain records on the names of living trust 
beneficiaries and their interests in the respective trusts would be 
unnecessary and burdensome. The FDIC agrees with the industry 
assessment of that proposed requirement because the grantor of a living 
trust might during his or her lifetime change the trust beneficiaries 
and modify the terms of the trust. Requiring the grantor to inform a 
depository institution of these changes and requiring depository 
institutions to maintain records on such information is impractical and 
unnecessarily burdensome. Hence, a key feature of the final rule is 
that it requires no recordkeeping requirement other than an indication 
on a depository institution's records that the account is a living 
trust account. Upon an institution failure, FDIC claims agents would 
identify the beneficiaries and determine their interests by reviewing 
the trust agreement obtained from the depositor. At that time 
depositors would attest to their relationship to the named 
beneficiaries.
    In the final rule the FDIC has eliminated an unnecessary 
recordkeeping requirement. Specifically, the names of living trust 
beneficiaries will no longer have to be recorded in the deposit account 
records of an insured institution in order for the account to qualify 
for the deposit insurance provided for living trust accounts. The 
removal of this recordkeeping requirement supports the ongoing efforts 
of the FDIC and the other federal banking regulators, under the 
Economic Growth and Regulatory Paperwork Reduction Act (``EGRPRA''), to 
eliminate unnecessary regulatory requirements. Detailed information 
about the EGRPRA project is available at http://www.egrpra.gov.

    The FDIC believes deposit insurance coverage under the final rule 
would match the coverage many depositors now expect for their living 
trust accounts. Generally, depositors believe that living trust 
coverage is essentially the same as POD account coverage. In other 
words, insurance is based on the number of qualifying beneficiaries 
with an ownership interest in the account, regardless of any 
conditions, or contingencies, affecting those interests. The final rule 
will match those expectations because it provides coverage more closely 
aligned with POD coverage than the former rules. The FDIC believes the 
final rule will provide bankers and depositors with a better 
understanding of the living trust account deposit insurance rules and 
will help to eliminate the present confusion surrounding the coverage 
of living trust accounts.

B. Treatment of Non-Qualifying Beneficiaries

    The treatment of non-qualifying beneficiaries under the final rule 
will be the same as under the current POD rules. Interests of non-
qualifying beneficiaries in a living trust will be insured as the 
owner's single-ownership (or individual) funds. As such, those 
interests will be added to any other single-ownership funds the owner 
holds at the same institution and insured to a total of $100,000 in 
that account-ownership capacity. For example, assume a living trust 
provides that the grantor's assets shall belong equally to her husband 
and nephew upon her death. A living trust account with a balance of 
$200,000 held for that trust would be insured for at least $100,000 
because there is one qualifying beneficiary (the grantor's spouse) who, 
upon the institution failure, would be entitled to the funds upon the 
grantor's death. Because the nephew is a non-qualifying beneficiary, 
the $100,000 attributable to him would be insured as the grantor's 
single-ownership funds. If the grantor has no other single-ownership 
funds at the institution, the full $200,000 of the living trust account 
would be insured--$100,000 under the grantor's revocable trust 
ownership capacity and $100,000 under the grantor's single-ownership 
capacity. If, however, the grantor also has a single-ownership account 
with a balance of, say, $20,000, the $100,000 of the living trust 
account attributable to the nephew would be added to that amount and 
the combined amount, in the grantor's single-ownership capacity, would 
be insured to a limit of $100,000, leaving $20,000 uninsured. This 
result and calculation methodology is the same as under the current 
rules for POD accounts.

C. Treatment of Life-Estate and Remainder Interests

    Living trusts sometime provide for a life estate interest for 
designated beneficiaries and a remainder interest for other 
beneficiaries. The final rule addresses this situation by deeming each 
life-estate holder and each remainder-man to have an equal interest in 
the trust assets. Insurance is then provided up to $100,000 per 
qualifying beneficiary. For example, assume a grantor creates a living 
trust providing for his wife to have a life-estate interest in the 
trust assets with the remaining assets going to their two children upon 
the wife's death. The assets in the trust are $300,000 and a living 
trust account is opened for that full amount. Unless otherwise 
indicated in the trust, the FDIC would deem each of the beneficiaries 
(all of whom here are qualifying beneficiaries) to own an equal share 
of the $300,000; hence, the full amount would be insured. This result 
would be the same even if the wife has the power to invade the 
principal of the trust, inasmuch as under the final rule defeating 
contingencies are no longer relevant for insurance purposes.
    Another example would be where the living trust provides for a life 
estate interest for the grantor's spouse and remainder interests for 
two nephews. In that situation the method for determining coverage 
would be the same as that indicated above: Unless otherwise indicated, 
each beneficiary would be deemed to have an equal ownership interest in 
the trust assets and coverage would be provided accordingly. Here the 
life-estate holder is a qualifying beneficiary (the grantor's spouse) 
but the remainder-men (the grantor's nephews) are not. As such 
(assuming an account balance of $300,000), the living trust account 
would be insured for at least $100,000 because there is one qualifying 
beneficiary (the grantor's spouse). The $200,000 attributable to the 
grantor's nephews would be insured as the grantor's single-ownership 
funds. If the grantor has no other single-ownership funds at the same 
institution, then $100,000 would be insured as the grantor's single-
ownership funds. Thus, the $300,000 in the living trust account would 
be insured for a total of $200,000 and $100,000 would be uninsured. The 
FDIC believes this is a simple, balanced approach to insuring living 
trust accounts where the living trust provides for one or more life 
estate interests.

[[Page 2829]]

V. Effective Date

    The final rule will become effective on April 1, 2004, the 
beginning of the first calendar quarter following the publication date 
of the final rule. The final rule will apply as of that date to all 
living trust accounts unless, upon a depository institution failure, a 
depositor who established a living trust account before April 1, 2004, 
chooses coverage under the previous living trust account rules. For any 
depository institution failures occurring between January 13, 2004, and 
April 1, 2004, the FDIC will apply the final rule if doing so would 
benefit living trust account holders of such failed institutions.

VI. Paperwork Reduction Act

    The final rule will simplify the FDIC's regulations governing the 
insurance of living trust accounts. It will not involve any new 
collections of information pursuant to the Paperwork Reduction Act (44 
U.S.C. 3501 et seq.). Consequently, no information has been submitted 
to the Office of Management and Budget for review.

VII. Regulatory Flexibility Act

    The FDIC certifies that the final rule will not have a significant 
economic impact on a substantial number of small businesses within the 
meaning of the Regulatory Flexibility Act (5 U.S.C. 605(b)). The 
amendments to the deposit insurance rules will apply to all FDIC-
insured depository institutions, including those within the definition 
of ``small businesses'' under the Regulatory Flexibility Act. The final 
rule eliminates an existing requirement for all FDIC-insured 
institutions to designate living trust beneficiaries in deposit account 
records. This change in recordkeeping will result in a marginal 
reduction in time and effort for depository institution staff which 
will not significantly affect compliance costs. The rule imposes no new 
reporting, recordkeeping or other compliance requirements. Accordingly, 
the Act's requirements relating to an initial and final regulatory 
flexibility analysis are not applicable.

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

    The FDIC has determined that the final rule will not affect family 
well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, enacted as part of the Omnibus 
Consolidated and Emergency Supplemental Appropriations Act of 1999 
(Pub. L. 105-277, 112 Stat. 2681).

IX. Small Business Regulatory Enforcement Fairness Act

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

List of Subjects in 12 CFR Part 330

    Bank deposit insurance, Banks, banking, Reporting and recordkeeping 
requirements, Savings and loan associations, Trusts and trustees.

0
For the reasons stated above, the Board of Directors of the Federal 
Deposit Insurance Corporation hereby amends part 330 of chapter III of 
title 12 of the Code of Federal Regulations as follows:

PART 330--DEPOSIT INSURANCE COVERAGE

0
1. The authority citation for part 330 continues to read as follows:

    Authority: 12 U.S.C. 1813(l), 1813(m), 1817(i), 1818(q), 1819 
(Tenth), 1820(f), 1821(a), 1822(c).

0
2. Section 330.10(f) is revised to read as follows:


Sec.  330.10  Revocable trust accounts.

* * * * *
    (f) Living trust accounts. (1) This section also applies to 
revocable trust accounts held in connection with a formal revocable 
trust created by an owner/grantor and over which the owner/grantor 
retains ownership during his or her lifetime. These trusts are usually 
referred to as living trusts. If a named beneficiary in a living trust 
is a qualifying beneficiary under this section, then the account held 
in connection with the living trust is eligible for the per-qualifying-
beneficiary coverage described in paragraph (a) of this section. This 
coverage will apply only if, at the time an insured depository 
institution fails, a qualifying beneficiary would be entitled to his or 
her interest in the trust assets upon the grantor's death and that 
ownership interest would not depend on the death of another trust 
beneficiary. If there is more than one grantor, then the beneficiary's 
entitlement to the trust assets must be upon the death of the last 
grantor. The coverage provided in this paragraph (f) shall be 
irrespective of any other conditions in the trust that might prevent a 
beneficiary from acquiring an interest in the deposit account upon the 
account owner's death.

(Example 1: A is the owner of a living trust account with a deposit 
balance of $300,000. The trust provides that, upon A's death, her 
husband shall receive $100,000 and each of their two children shall 
receive $100,000, but only if the children graduate from college by 
age twenty-four. Assuming A has no other revocable trust accounts at 
the same depository institution, the coverage on her living trust 
account would be $300,000. The trust names three qualifying 
beneficiaries. Coverage would be provided up to $100,000 per 
qualifying beneficiary regardless of any contingencies.)
(Example 2: B is the owner of a living trust account with a deposit 
balance of $200,000. The trust provides that, upon B's death, his 
wife shall receive $200,000 but, if the wife predeceases B, each of 
the two children shall receive $100,000. Assuming B has no other 
revocable trust accounts at the same depository institution and his 
wife is alive at the time of the institution failure, the coverage 
on his living trust account would be $100,000. The trust names only 
one beneficiary (B's spouse) who would become the owner of the trust 
assets upon B's death. If when the institution fails B's wife has 
predeceased him, then the account would be insured to $200,000 
because the two children would be entitled to the trust assets upon 
B's death.)

    (2) The rules in paragraph (c) of this section on the interest of 
non-qualifying beneficiaries apply to living trust accounts. (Example: 
C is the owner of a living trust account with a deposit balance of 
$200,000. The trust provides that upon C's death his son shall receive 
$100,000 and his nephew shall receive $100,000. The account would be 
insured for at least $100,000 because one qualifying beneficiary (C's 
son) would become the owner of trust interests upon C's death. Because 
the nephew is a non-qualifying beneficiary entitled to receive an 
interest in the trust upon C's death, that interest would be considered 
C's single-ownership funds and insured with any other single-ownership 
funds C might have at the same institution. Assuming C has no other 
single-ownership funds at the institution, the full $200,000 in the 
living trust account would be insured ($100,000 in C's revocable trust 
account ownership capacity and $100,000 in C's single-ownership account 
capacity).
    (3) For living trusts accounts that provide for a life-estate 
interest for designated beneficiaries and a remainder interest for 
other beneficiaries, unless otherwise indicated in the trust, each 
life-estate holder and each remainder-man will be deemed to have equal 
interests in the trust assets for deposit insurance purposes. Coverage 
will then be provided under the rules in this

[[Page 2830]]

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

(Example 1: D creates a living trust providing for his wife to have 
a life-estate interest in the trust assets with the remaining assets 
going to their two children upon the wife's death. The assets in the 
trust are $300,000 and a living trust deposit account is opened for 
that full amount. Unless otherwise indicated in the trust, each 
beneficiary (all of whom here are qualifying beneficiaries) would be 
deemed to own an equal share of the $300,000; hence, the full amount 
would be insured. This result would be the same even if the wife has 
the power to invade the principal of the trust, inasmuch as 
defeating contingencies are not relevant for insurance purposes.)
(Example 2: E creates a living trust providing for a life estate 
interest for her spouse and remainder interests for two nephews. The 
life estate holder is a qualifying beneficiary (E's spouse) but the 
remainder-men (E's nephews) are not. Assuming a deposit account 
balance of $300,000, the living trust account would be insured for 
at least $100,000 because there is one qualifying beneficiary (E's 
spouse). The $200,000 attributable to E's nephews would be insured 
as E's single-ownership funds. If E has no other single-ownership 
funds at the same institution, then $100,000 would be insured 
separately as E's single-ownership funds. Thus, the $300,000 in the 
living trust account would be insured for a total of $200,000 and 
$100,000 would be uninsured.)

    (4) In order for a depositor to qualify for the living trust 
account coverage provided under this paragraph (f), the title of the 
account must reflect that the funds in the account are held pursuant to 
a formal revocable trust. There is no requirement, however, that the 
deposit accounts records of the depository institution indicate the 
names of the beneficiaries of the living trust and their ownership 
interests in the trust.
    (5) Effective April 1, 2004, this paragraph (f) shall apply to all 
living trust accounts, unless, upon a depository institution failure, a 
depositor who established a living trust account before April 1, 2004, 
chooses coverage under the previous living trust account rules. For any 
depository institution failures occurring between January 13, 2004 and 
April 1, 2004, the FDIC shall apply the living trust account rules in 
this revised paragraph (f) if doing so would benefit living trust 
account holders of such failed institutions.
* * * * *

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

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 04-1198 Filed 1-20-04; 8:45 am]

BILLING CODE 6714-01-P



Last Updated 1/15/2004 communications@fdic.gov