4000 - Advisory Opinions
Insurance Coverage for Joint Accounts
September 8, 1987
By letter of August 6, 1987, you requested an opinion concerning deposit insurance coverage on behalf of your client, the *** family. You pose three alternatives for structuring deposit accounts that would permit equal access by all seven family members, while maximizing insurance coverage. Please be advised that staff opinions issued on deposit insurance questions are not binding on the FDIC. Further, as you can appreciate, the FDIC cannot properly advise the public on deposit insurance coverage based on hypotheticals. Your proposals, however, raise several issues which you may wish to consider in advising your client.
In the first alternative you propose establishing seven joint deposit accounts of $100,000 each and co-owned by three family members in different combinations. No one family member will be a co-owner on more than three accounts and thus each co-owner will have a less than $100,000 interest in the combined joint accounts. You are correct in stating that the total insured interest of these accounts is $700,000 under section 330.9 of FDIC regulations.
You also suggest that a power of attorney can be given to the remaining four members so that each has equal access to the funds in all the accounts. The power of attorney would thus confer unlimited withdrawal rights on non-signatories to the account, effectively creating joint ownership of each account among all seven members. Although each account would ordinarily be presumed to be a jointly held account by the three signatories, the pattern and frequency of withdrawals by persons holding powers of attorney could call into question the actual ownership of each account. If proved that all family members, in fact, co-owned all seven accounts by virtue of their unlimited use of each account, the FDIC could elect to pay deposit insurance claims based on actual ownership. Under those circumstances, insurance coverage for all seven accounts would be $100,000.
The second and third alternatives propose setting up an irrevocable express trust for the *** family, each of whom would contribute $100,000 to the trust for total trust assets of $700,000. As defined by section 330.1(c)(4), "trust interest" means the interest of a beneficiary in an irrevocable express trust, excluding any interest retained by the settlor. Section 330.1(c)(3) provides that each trust interest in a trust established by two or more settlors is deemed to be derived from each settlor's pro rata contribution to the trust. As described in both alternatives, each family member is a settlor with a retained beneficial interest of $100,000. Therefore, the retained interest of each settlor would be added with any other individual accounts held by him or her in the same bank and insured to $100,000. Any assets of the trust which remained after accounting for the settlors' retained interests would be insured to $100,000 for each beneficiary.
I would also like to comment on the proposal in the third alternative to use a foreign corporation, owned and controlled by the *** as trustee. Although a corporation may be chartered to exercise fiduciary powers, it is questionable whether the proposed entity can be said to have independent authority separate and distinct from the settlors who control the corporation. It appears that the settlors would hold a retained interest both by virtue of their trust contributions and their controlling interests in the corporate trustee.