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From: Scott Sargent
Sent: Friday, August 29, 2003 4:20 PM
To: Comments
Subject: Deposit Insurance Regulations: Living Trust Accounts
August 29, 2003
Robert E. Feldman, Executive Secretary
Attn: Comment/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429
RE: 12 CFR Part 330 RIN 3064-AC54 Deposit Insurance Regulations;
Living Trust Accounts
Dear Mr. Feldman,
Thank you for the opportunity to comment on the proposed rules
regarding insuring Revocable Living Trust Accounts and POD accounts.
Compass Bank would like to offer the following analysis and
recommendations.
Alternative One
This proposal provides coverage up to $100,000 per qualifying
beneficiary named in the living trust. This alternative requires the
depository institution to designate in its account records all
beneficiaries of the trust and their respective interests in trust
assets. The depository institution's records would then be dispositive
of insurance coverage.
A. This creates serious problems for depository institutions opening
trust accounts. Living trusts sometimes provide for different levels of
beneficiaries whose interest in the trust depends on certain conditions.
In some situations it might be impossible to identify and indicate in a
depository institution's records the ownership interest of each
beneficiary; i.e. a trust might provide that upon a grantor's death his
or her spouse receives all the trust's assets, but if the spouse
predeceases the grantor then each of the grantor's two children receive
50% of the trust assets. It is simply impractical for an institution to
train all of its personnel in the complex legal ramifications of laws
that govern trust, particularly when that institution operates in
several states. And in some cases, system limitations preclude the
identification of multiple beneficiaries on an account.
The option the FDIC proposes to treat all beneficiaries as "equal"
under the trust for insurance purposes may be more workable, but it
neglects two important complicating factors: (1) many times
beneficiaries are not individually named, they are simply a class i.e.
all children born to my son, and (2) this defeats the trustor's intent
in setting up contingencies in the trust by treating all potential
beneficiaries equally.
As a result, this proposal imposes an undue burden on depository
institutions by making them the ultimate authority of who is insured
when they are not in a position to make that kind of legal
determination, possibly imposes a duty that their existing system cannot
meet and defeats the primary intent of the trustor in naming their
beneficiaries and establishing contingencies on their respective
interests.
B. The depository institution would also be required to obtain
beneficiary relationship information when a trust account is opened or
amended. An affidavit would be required to affirm that the beneficiaries
listed are the grantor's spouse, child, grandchild, parent, or sibling.
This would substantially increase the depository institution's record
keeping duties and modify their trust account opening procedures by
requiring them to get the beneficiary affidavit. Both of these new
obligations represent additional initial costs in training and material
as well as on going costs in record keeping, training and system
maintenance. Ultimately, this would result in additional costs to the
depository institution's customers.
C. It appears to be an unfair preference in insurance coverage.
Individual accounts are insured up to $100,000. However, if that same
individual opens an account with a living trust with five beneficiaries,
the insurance coverage is increased five times. While in both cases, the
same individual most always has absolute control over the funds on
deposit and can even terminate the trust at any time without regard to
the beneficiaries.
Alternative Two
This alternative would create a separate category of trust accounts
and insure such accounts up to $100,000 per owner of the account. That
owner would be insured up to $100,000 for all trust accounts he or she
has 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 are any defeating contingencies in the
trust. This would be separate from any insurance available for single
ownership accounts and POD accounts.
In this alternative the depository institution would not have to
indicate in their deposit account records the names of the trust
beneficiaries and their respective interests. However, the depository
institution would be required to certify in their deposit account
records the existence of the living trust. The FDIC envisions that the
depository institution would simply ask to see a copy of the trust and
note in the deposit account records that the trust exists. Moreover, the
FDIC would require the institution to retain a copy of the first and
last pages of the trust or the trust document.
This alternative creates less of a burden on the depository
institution but would still require some changes in record keeping and
account opening procedures. However, speaking for Compass Bank, we
believe most institutions already substantially comply with the
obligations outlined in this alternative.
Further, this appears to be the fairest treatment of these accounts
as it treats them more like individual accounts. Since revocable trust
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.
Also, the FDIC solicited comment on how depositors are informed of
the change in this rule, particularly with option 2 that may result in a
reduction of coverage. Although many avenues are available to the FDIC
for this notification, it would seem expedient that financial
institutions provide a statement insert to its depositors prior to the
effective date of the new rule.
Alternative Two is the preferred method of addressing this problem.
It does not unduly burden the depository institutions with costs,
training and risk and treats the revocable trust accounts fairly.
Thank you again for this opportunity to comment.
S. Scott Sargent
Sr. Corporate Counsel
Compass Bank
Birmingham, AL
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