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4000 - Advisory Opinions

Stepchildren are Recognized as Children for the Purpose of Deposit Insurance Coverage on Testamentary Trusts


April 22, 1986

Roger A. Hood, Assistant General Counsel

Recently, the Washington Legal Division was asked whether stepchildren are considered children within the meaning of section 330.3 of the deposit insurance coverage regulations. The question arose when a depositor at a failed bank was denied separate insurance coverage on a testamentary trust for a stepchild in the amount of $100,000. Upon the denial by the Liquidation Claims Agent, the depositor contacted Washington and was given the opposite opinion.

Section 330.3 provides that revocable trust accounts, Totten trusts, or similar accounts evidencing an intention that the funds shall belong to a spouse, child, or grandchild are insured to $100,000 as to each such beneficiary, separately from any other accounts of the owner. A review of Legal Division files revealed a number of letters from 1972 through February 1986 advising that stepchildren are children under section 330.3. However, at FDIC training sessions, liquidation personnel are advised that stepchildren are not children under this provision.

The case law is not dispositive on this issue but tends to support the principle that a stepchild is not within the meaning of child. At common law a stepparent was not obligated to support a stepchild unless he or she stood "in loco parentis." The underlying doctrine was based on the stepparent's intention to treat the stepchild as his or her own child; simply providing maintenance did not evidence such intent. Annot., 75 A.L.R. 3d 1129 (1977). In the matter of inheritance, child has generally been interpreted to exclude stepchild. In re Smith's Estate, 299 P.2d 550 (Wash. 1956); Walker Bank & Trust Co. v. State Tax Commission, 18 Utah 2d 300, 422 P.2d 201 (1967). It has also been held that wrongful death and workmen's relief and compensation statutes do not recognize stepchildren as children absent an explicit statutory provision. Brown v. Brown, 309 S.E.2d 586 (Va. 1983); Pate v. Miller Transporters, Inc., 381 So.2d 64 o(Ala. Civ. App. 1979); Flanagen v. Railroad Retirement Board, 332 F.2d 301 (3d Cir. 1964); but see Travelers Ins. Co. v. E.I. Du Pont Nemours & Co., 9 A.2d 88 (Del. 1939).

It is believed the better rule is that stepchildren are not children within the meaning of section 330.3; legally adopted children remain covered by that section upon proof of adoption. Part 330 is currently being revised to reflect the position that stepchildren should not be recognized as children for purposes of testamentary trusts.

Given the Legal Division's position over the past 14 years, however, depositors should continued to be advised at present that stepchildren are considered to be children for testamentary trusts, but that the regulation is subject to revision. Adherence to the present position is in accord with that taken by the FSLIC. By opinion of the FSLIC General Counsel, dated July 3, 1968, stepchildren and stepgrandchildren are recognized as children and grandchildren for purposes of testamentary trusts. For these reasons, the present position should be maintained until formal revision of Part 330 has occurred.

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