August 29, 2003
Federal Deposit Insurance Corporation
550 17th Street, NW
Mail Stop 1-5
Washington, DC 20429
Attn: Robert E. Feldman
Executive Secretary
Comments/Legal ESS
Re: Deposit Insurance Regulations; Living Trust Accounts – Notice
of Proposed Rulemaking
Ladies and Gentlemen:
Thank you very much for providing Capital One the opportunity to
comment on the notice of proposed rulemaking issued by the Federal
Deposit Insurance Corporation (the “FDIC”) clarifying and simplifying
the regulations on the insurance coverage of living trust accounts.
Capital One Financial Corporation, McLean, Virginia (together, with all
of its subsidiaries and affiliates, "Capital One") is a holding company
whose principal subsidiaries, Capital One Bank, Glen Allen, Virginia and
Capital One, F.S.B., McLean, Virginia, offer consumer lending and
deposit products, including credit cards and installment loans. Both of
these principal subsidiaries hold deposits that are FDIC-insured.
Subject to limitations discussed below, Capital One would like to
express its support for Alternative One for providing FDIC
insurance coverage on formal revocable living trust accounts. Under
Alternative One, the FDIC has proposed to simplify insurance coverage
for revocable living trust accounts by providing coverage up to $100,000
per qualifying beneficiary named in the living trust irrespective of
defeating contingencies. Such insurance coverage treatment is consistent
with the insurance coverage applicable to payable-on-death trust
accounts and greatly simplifies how the rules apply to formal revocable
living trust accounts. Moreover, Alternative One will result in less
disruption for existing depositors who may believe their trust accounts
are insured per qualifying beneficiary and will provide greater
flexibility for depository institutions to provide to its customers by
permitting additional levels of coverage than would exist under
Alternative Two.
Capital One notes, however, that the recordkeeping requirements
proposed by FDIC under Alternative One add unnecessary burden and
complexity to the operations of insured depository institutions. Under
Alternative One, the FDIC has proposed that depository institution’s
deposit account records: 1) indicate in the account title that the funds
are held pursuant to a formal revocable trust; 2) certify the existence
of a living trust; and 3) name the beneficiaries of the living trust and
their ownership interest. The proposal seeks comment on whether the
deposit account records should contain the beneficiary’s familial
relationship to the grantor. Under the proposal, FDIC would rely
primarily on the deposit account records to ascertain the beneficiaries’
trust interests in determining insurance payouts. Therefore, it is
implicit in these requirements that a duty exists for depository
institutions to maintain accurate records throughout the life cycle of
the living trust account. For reasons discussed below, we do not believe
this is practicable or appropriate for depository institutions.
Given the complexity of living trust instruments and the privacy
concerns of depositors, it is unreasonable to require depository
institutions to ascertain the beneficiaries and familial relationship of
such beneficiaries under a trust instrument. The identity of
beneficiaries is not always readily apparent from a trust instrument and
some depositors may perceive a request for such information as an
invasion of privacy because they do not see the need for the depository
institution to have the information unless they choose to provide it. In
addition, the burden of maintaining ongoing beneficiary records related
to the trust is more appropriately placed on the trustee of such trust
as the depository institution is not in a position to identify events or
occurrences that result in a change to the beneficiaries under a trust
instrument.
More significantly troublesome is the impact the recordkeeping
requirements could have on the legal liability of depository
institutions. Many state laws provide statutory protection from
liability for third parties when dealing with trustees, so long as the
third party does not have actual knowledge that the trustee is exceeding
or improperly exercising its authority. Requiring depository
institutions to review trust documents to determine familial
relationship and beneficiary information could arguably impute knowledge
regarding the trust to the depository institution, thereby, stripping
the depository institution of protection under state law for actions it
takes as directed by the trustee. Such a result could significantly
hinder a depository institution’s ability to administer revocable living
trust accounts.
Capital One believes that the FDIC should continue to rely on its
practice of determining insurance payouts based on the trust instrument
as it exists at the time an institution is closed. The practice of
having an account owner certify the existence of a living trust and
beneficiary information at the time of closure will result in more
accurate, reliable and complete information for FDIC to act upon during
closure situations. The depository institution is ill-situated to obtain
and update this information throughout the life cycle of a deposit
account.
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Capital One appreciates the FDIC's effort to provide clarity for
coverage of living trust accounts. As discussed above, Capital One
supports Alternative One with significant modifications to the
recordkeeping requirements. We believe that the current practice FDIC
uses to determine the existence of a living trust and information
regarding the beneficiaries under a trust at the time an institution is
closed is more appropriate and will provide more reliable information
for determining insurance payouts. We thank you again for allowing us
the opportunity to comment on the proposal, and please do not hesitate
to contact us if you have any questions.
Respectfully submitted,
Andres L. Navarrete
Associate General Counsel
Capital One Financial Corporation
