4000 - Advisory Opinions
Question regarding whether a Health Savings Account can be insured as a revocable trust Account under FDIC regulations
November 28, 2005
Christopher L. Hencke, Counsel
This responds to your letter dated October 25, 2005, addressed to James Williams. In that letter, you asked whether a "Health Savings Account" ("HSA") could be insured as a revocable trust account under the FDIC's regulations. Your letter was forwarded to me. I am an attorney in the FDIC's Legal Division.
The insurance coverage of revocable trust accounts is governed by 12 C.F.R. § 330.10. That section of the FDIC's regulations provides as follows: "Funds owned by an individual and deposited into an account with respect to which the owner evidences an intention that upon his or her death the funds shall belong to one or more qualifying beneficiaries shall be insured in the amount of up to $100,000 in the aggregate as to each such named qualifying beneficiary, separately from any other accounts of the owner or the beneficiaries." 12 C.F.R. § 330.10(a).
In a letter dated April 28, 2004 (copy enclosed), the FDIC staff determined that this "per beneficiary" coverage for revocable trust accounts could apply to an HSA established by a person. Such coverage would depend upon the satisfaction of certain requirements (discussed in detail below). The staff also found, however, that an HSA established by an employer for employees would be insured not as a revocable trust account but as an employee benefit plan account. The latter type of account is not insured on a "per beneficiary" basis. Rather, an employee benefit plan account is insured up to $100,000 for the "non-contingent interest" of each plan participant (i.e., employee) provided that the insured depository institution satisfies capital requirements. See 12 C.F.R. § 330.14.
In short, your bank's HSAs will be insured on a "per beneficiary" basis if (1) the HSA is established by a person and not an employer; and (2) the HSA satisfies the FDIC's requirements for revocable trust accounts. The latter requirements are discussed below.
First, the account must be structured so that the funds will pass to named beneficiaries upon the owner's death. This could be accomplished by completing section 4 of the "Health Savings Account Application" (submitted with your letter). Section 4 includes spaces for "primary beneficiaries" as well as "contingent beneficiaries." In applying the $100,000 "per beneficiary" insurance limit, the FDIC would disregard the interests of the "contingent beneficiaries" (unless the "primary beneficiaries" are deceased). See 12 C.F.R. § 330.10(f)(1) (providing that a beneficiary's ownership interest must "not depend on the death of another trust beneficiary"). Also, the FDIC would assume that the interests of the "primary beneficiaries" are equal unless section 4 provides otherwise.
Second, the beneficiaries must be "qualifying beneficiaries." This means that the beneficiaries must be the owner's spouse, children, grandchildren, parents or siblings. See 12 C.F.R. § 330.10(a). "If a named beneficiary . . . is not a qualifying beneficiary, the funds corresponding to that beneficiary shall be treated as individually owned (single ownership) accounts of [the] owner(s), aggregated with any other single ownership accounts of such owner(s), and insured up to $100,000 per owner." 12 C.F.R. § 330.10(c).
Third, the title of the bank account must reflect the owner's intention that the funds will pass to the beneficiaries upon the owner's death. This requirement can be satisfied through the use of "commonly accepted terms such as, but not limited to, in trust for,' as trustee for,' payable-on-death to,' or any acronym therefor." See 12 C.F.R. § 330.10(b). In your letter, you mentioned that your banks HSAs are titled as follows: "John Doe, Health Savings Account." This title is insufficient because it does not include "POD" or similar term. A sufficient title would be the following: "John Doe, Health Savings Account, POD Steven Doe and Susan Doe." Also sufficient would be the following: "John Doe, Health Savings Account/POD Account."
Fourth, the beneficiaries must be identified by name in the account records of the insured depository institution. See id. This requirement could be satisfied by completing section 4 of the application.
Assuming the satisfaction of the requirements discussed above, your bank's HSAs would be insured as revocable trust accounts. In other words, the accounts would be insured up to $100,000 for the interest of each "qualifying beneficiary." I hope that this information is useful.