FDIC Federal Register Citations

Re: FDIC Deposit Insurance Regulations; Living Trust Accounts

Notice of Proposed Rulemaking; RIN 3064-AC54

Ladies and Gentlemen:

LaSalle Bank Corporation (“LBC”) appreciates the opportunity to comment on the Notice of Proposed Rulemaking (“Proposal”) issued by the Federal Deposit Insurance Corporation (“FDIC”) addressing the revocable trust account section of the FDIC deposit insurance regulation (“Regulation”).

LBC is an indirect subsidiary of ABN AMRO Bank N.V. (“Bank”), which is headquartered in Amsterdam, the Netherlands. The Bank has over $519 billion in assets, approximately 111,000 employees and a network of approximately 3,400 offices in over 60 countries. The Bank maintains several branches, agencies, and offices in the United States.

LBC is a financial holding company headquartered in Chicago, Illinois. LBC owns LaSalle Bank National Association, located in Chicago, Illinois, and Standard Federal Bank National Association, located in Troy, Michigan. These banks maintain over 400 offices in Illinois, Michigan, and Indiana, with total deposits of approximately $55 billion.

LBC welcomes the opportunity to comment on the Proposal. LBC agrees with the FDIC that the existing revocable trust section of the Regulation is confusing for bankers and depositors. As noted by the FDIC in the Background to the Proposal, the Regulation was written to apply to payable on death or totten trust accounts (“POD Accounts”), and it is very difficult to extend its application to revocable trust accounts that are opened pursuant to and owned by trustees in accordance with separate trust agreements (“Living Trust Accounts”). We are writing to inform the FDIC of the advantages and disadvantages, from LBC’s perspective, to both alternatives suggested in the Proposal.

Alternative One

Alternative One proposes to eliminate the defeating contingency provision of the revocable trust account section of the Regulation. LBC does not believe that Alternative One will alleviate the existing confusion and application difficulties with the Regulation and, instead may add potentially more burdens. According Alternative One, to receive per beneficiary coverage, the institution records must identify the account as a trust account (using “in trust for,” “ITF” or any other language establishing the trust relationship), and identify the beneficiaries’ names, kinship relationships to the depositor, and interests in the Trust. The requirements are carryovers from the existing Regulation and, as recognized by the FDIC, were written to apply to POD Accounts. The requirements that the institution records identify the beneficiaries’ names, kinship relationships, and trust interests should be eliminated for the following reasons:

1. From the deposit perspective, institutions do not need beneficiary information. There is no reason to collect this information, except for deposit insurance purposes.

2. Many institutions do not want to retain copies of depositor trust agreements in their records –

• There is no reason other than deposit insurance to maintain the trust agreement copies.

• Trust agreements are often amended several times, but depositors usually do not update the institution records; Institutions and potentially the FDIC in a failed institution scenario will be relying on outdated trust agreements.

• Some state laws (particularly Illinois and Michigan) protect institutions that rely on the actions of the trustee; Maintaining trust agreements in institution records could interfere with that protection and may place an institution at risk, for example, in the event that a trustee does not act in accordance with the trust agreement and a beneficiary victim attempts to assert that the depository institution should be deemed to have known of the trustee’s misactions (since the trust agreement is on file with the institution).

3. Requesting that the depositors provide beneficiary names and trust interests for the institution records rather than providing copies of the trust agreements to the institution also has many pitfalls for depositors, institutions and the FDIC.

• In LNC’s experience, many depositors do not understand the technical terms of their trust agreements and will not be able to accurately summarize the interest of each beneficiary in the trust, and, therefore, may provide the institution with incorrect information. If the depositors provide incorrect information, are they then amending the terms of their trust agreement? Is the trustee then at risk for paying out to the wrong beneficiary?

• Bankers may try to assist the depositors in gleaning the necessary information from the trust agreements; institutions do not want bankers trying to interpret the terms of trust agreements.

• Depositors may still need to contact their attorneys for the requisite information.

• Trust agreements for high net worth depositors are often too complex to condense into a few words for inclusion in deposit records.

• If the information provided is incorrect or outdated, the FDIC will be relying on incorrect information in the event of an institution failure.

4. Particularly in light of the Bank Secrecy Act as amended by the USA PATRIOT Act, institutions are grappling with record keeping requirements that necessitate procedural and operational changes and resulting significant expense to institutions. The potential additional cost to ever-increasing record keeping expenses on institutions should be weighed against the burden to the FDIC in dealing with the few (relatively speaking) failed institution proceedings, in which the FDIC would continue the apparently existing practice of reviewing the trust agreements for Living Trust Account depositors. The FDIC would be relying on current, accurate information. LBC believes that accurate FDIC payouts and minimal institution record keeping expenses are more significant benefits than decreasing the time that it takes to reimburse the depositors, a benefit noted by the FDIC in the Proposal.

Alternative Two

Alternative Two provides separate insurance coverage for POD Accounts and Living Trust Accounts, by leaving the Regulation section applicable to POD Accounts as is and adding a Living Trust Account provision that separately insures up to $100,000, accounts owned by a trust. Alternative Two should be easily understood by bankers and depositors. The record keeping requirements for the depository institutions will be minimal. However, as the FDIC noted in the Proposal, potential insurance per depositor decreases.

LNC seeks clarification regarding insurance coverage for signature card trust accounts (“Signature Card Trust Accounts), which are different from POD Accounts. A POD Account signature card simply lists the depositor’s name “in trust for” or “ITF” or “payable on death to” a named beneficiary or beneficiaries. For Signature Card Trust Accounts, the account signature card contains an actual trust agreement, including beneficiary and disbursement terms. The trust terms of the Signature Card Trust Account are governed by the trust agreement on the signature card, not by the state law POD/totten trust statute. Signature Card Trust Accounts were primarily opened by savings banks and savings associations and remain open, unless they were converted to another account ownership or closed. Bankers and customers often treat Signature Card Trust Accounts and POD Account ownerships as one and the same, since many institution systems do not differentiate between the two account types and for most banking purposes do not need to differentiate between them. If the FDIC adopts Alternative Two in the revisions to the Regulation, LNC seeks clarification as to whether Signature Card Trust Accounts fall within the category of POD Accounts or Living Trust Accounts for purposes of insurance coverage. If they fall under the Living Trust Account category, will each account constitute a separate trust or will all of a depositor’s Signature Card Trust Accounts be aggregated as one trust? LNC recommends that Signature Card Trusts fall under the POD accounts category for purposes of insurance coverage.

LBC also requests clarification as to whether accounts owned by two or more different living trusts settled by the same grantor will receive up to $100,000 in coverage per living trust or whether they will be aggregated and receive $100,000 in total coverage.

Finally, we assume that the revised Regulation will not be retroactive and will only apply to new accounts opened on or after the effective date of the revision.

Conclusion

Again, LBC appreciates the opportunity to comment on the Proposal. We hope that these comments will assist the FDIC in issuing a revision to the Regulation that is beneficial to depositors, insured institutions, and the FDIC.

Sincerely,
Willie J. Miller, Jr.
LaSalle Bank Corporation
Chicago, IL