| August 29, 2003 Robert E.
Feldman
Executive Secretary
Attention: Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street NW.
Washington, DC 20429
Re: Proposed amendment to regulations governing FDIC insurance
coverage of living trust accounts
Dear Mr. Feldman:
Sunflower Bank wishes to thank you for the opportunity to comment
regarding the proposed amendment to the regulations governing FDIC
insurance coverage of living trusts:
Sunflower Bank does not agree that the rules governing the insurance
of living trust accounts are too complex and confusing. However, it does
agree that many individuals are confused regarding the coverage. It is
our belief that the confusion results from an inadequate lack of
communication with those individuals regarding the rules and a lack of
diligence by those individuals in understanding the rules. Nevertheless,
Sunflower Bank does agree that the rules should be modified, but for the
purpose of making the treatment of living trusts more consistent with
the treatment of POD accounts rather than for the purpose of eliminating
confusion.
It is for that same reason that Sunflower Bank supports Alternative
One rather than Alternative Two. Fundamentally, the interests of the
owner(s) of living trusts and POD accounts are one and the same i.e.
they require an owner(s) and a beneficiary(ies) that can only acquire an
interest in the property in the event of and at the time of the death of
the owner. Similarly, both living trusts and POD accounts remain in the
total control of the owner(s) during their lifetime and may be modified
at any time prior to death. It would, therefore, be inequitable to treat
those types of accounts differently.
While Alternative Two is easy to understand, it proposes to treat the
interests of the owner(s) of living trusts and POD accounts differently.
Specifically, Alternative Two proposes that a separate category of
coverage be created for living trust accounts. The coverage granted to
the owner(s) of living trusts would then be less than that received if
the funds were held in the POD account category. We find no valid
justification for granting more favorable coverage to POD accounts than
for living trusts.
Alternative One has several major advantages. The first advantage is
that it does make coverage easier to understand. The second advantage is
that, by ignoring “defeating contingencies”, it makes treatment of
living trusts more consistent with the coverage extended to POD
accounts.
However, the comments requested by the FDIC regarding the
implementation of Alternative One display either a weakness in an
understanding of trust law or carelessness. For example, the FDIC points
out that Alternative One would expressly require that depository
institutions’ deposit account records indicate the ownership interest of
living trust beneficiaries i.e. the kinship relationship between a
revocable trust account owner and the trust beneficiaries. Subsequently,
the FDIC mentions that in some situations it might be infeasible to
identify and indicate in a depository institution’s records the
ownership interest of each beneficiary named in the trust. Sunflower
Bank takes the position that in all situations it is infeasible to
identify and indicate in a depository institution’s records the
ownership interest of each beneficiary named in the trust. The reason
that it is infeasible in all situations, rather than just some, is
because of the very nature of living trusts i.e. they are revocable.
Without examining the trust documents in each and every situation, it is
impossible to determine whether or not the beneficiaries and/or terms of
the trust have been modified since the time of the creation of the
trust. Accordingly, it is believed that enacting such a requirement in
order to implement Alternative One constitutes a futile act.
The FDIC’s proposal to specify a particular form or affidavit for the
purpose of ascertaining the ownership interest of each beneficiary named
in the trust would be workable if those interests were not revocable.
That, however, is not the case. The FDIC’s proposal to require the
institution to obtain beneficiary relationship information when a
depositor opens or amends a living trust or POD account would be
workable when the depositor opens a living trust or when a depositor
opens or amends a POD account. Similarly, it would not create a burden
on the financial institution to have the depositor sign an affidavit or
other form at that time indicating whether each beneficiary is a
qualifying beneficiary. However, a problem would likely arise
surrounding the amendment of a living trust i.e. it would be impossible
for the financial institution to know if the living trust has been
modified unless it was specifically so advised. Thus, it is not the
additional record keeping requirement for depository institutions that
is the problem. Instead, the problem results from the fact that those
beneficiaries may change without notice to the financial institution.
The FDIC requests comment on their requirement under both
alternatives that depository institution certify the existence of a
living trust when a depositor opens a living trust account. This
requirement should be of no consequence to any financial institution.
Under the US Patriot’s Act all financial institutions will be required
to obtain this information anyway as a part of its duty to verify the
identity of its customers. The requirements of the US Patriot’s Act to
verify their customers also apply to telephone and internet customers.
Finally, the FDIC requests comment on how existing depositors should
be informed of the possible reduction in coverage in the event
Alternative Two is adopted. It is believed that no reasonable manner
exists to accomplish this. Any method that would be adopted would either
leave multitudes of customers uninformed and/or would be prohibitively
costly.
Respectfully yours,
Philip M. Durr
Compliance Officer
Sunflower Bank, N.A.
| 
