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FDIC Federal Register Citations

[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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[[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.

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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 01/24/2004 regs@fdic.gov