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I applaud the FDIC for their recent update of the rules for FDIC insurance coverage for revocable trusts.
First of all, in the interest of fairmess, I am glad to see that the distinction of "qualified" beneficiaries is being dropped. Many people, myself included, have a very small immediate family (1 brother, no spouse or children) and instead have an extended family that does not meet the definition of "qualified" beneficiaries. It is appropriate to drop the "qualified" requirement and should reduce the need to run around town opening accounts/buying cd's at many different banks in order to be insured.
With regard to the "over $500,000" threshold for revocable trust account owners, this seems to be a reasonable limit, and a much more practical threshold, for determining coverage based on beneficial interests of the trust beneficiaries. It will certainly facilitate the determination of covered funds when necessary.
When a revocable trust becomes irrevocable, due to the death of the grantor, I feel that the rules should not change. Rules should be the same for revocable or irrevocable trusts.
As to the effect that these rules would have on the level of insured deposits, this would be hard, if not impossible, to quantify. While elimination of the "qualified" beneficiary requirement, and the use of a $500,000 threshold might tend to increase the level of insurance coverage, in many cases it may not. I think that the more likely scenario would be that it would not be necessary for a trust to have accounts at so many different financial institutions.
There are still some unclear areas with regard to the requirements of these rules. The rules should clarify exactly what is required in the way of titling of accounts, the maintenance of bank records and the completion of signature cards, both with respect to POD accounts and formal trusts. There is much confusion between personnel at different banks and the public as to what is required, especially with regard to POD accounts. The following items should be clarified:
1) On a POD account, is it mandatory that the title line of the account
or does it just have to say "POD" after the owner's name without the need to name the beneficiary in the title line?
or as three local banks have told me at different times in the past, does the title line only need to have the owner's name without any POD designation etc., as long as there is a signature card on file showing the beneficiary name?
If a signature card is enough, please indicate whether this informal trust should be identified as a personal account, or is this should be identified as a trust account on the signature card. In the past when I have opened a POD account, the bank has always called this a personal account.
2) On a formal revocable trust, is it sufficient to title an account as:
Also, does the bank have to enter a list of all beneficiaries of the trust on the signature card or otherwise maintain such a list in their files?
Depending upon the answers to the above titling and recordkeeping requirements, it may be necessary for the FDIC to find out whether banks that are in the FDIC program are in compliance with the rules. Several local banks that I am familiar have different approaches to these requirements, mostly driven by their use of computer systems cannot accomodate more than a single name on the title line. They have even told me they cannot enter POD after the name. The burden should not be entirely on the public to fully understand and follow the FDIC rules.
I hope you will consider adding some clarification to the rules. Overall, I think they are a great imrpovement.
|Last Updated 10/27/2008||Regs@fdic.gov|