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4000 - Advisory Opinions

Insurance Coverage for Trust Created by Trust Agreement of Grantors


December 21, 1987

Alan J. Kaplan, Counsel

Thank you for your letter of December 7, 1987, which asks about the FDIC insurance coverage for a trust created by the Trust Agreement of ***, grantors.

I have examined the "Trust Agreement" dated December 1, 1984, the "Addendum to Trust Agreement" dated August 13, 1985, and the "Second Addendum to Trust Agreement" dated June 11, 1986, which you enclosed with your letter. Although the Trust Agreement, as amended by the two addenda, provides for the creation of three separate "sub-trusts" upon the death of the first grantor to die (two of which sub-trusts are expressly made irrevocable), the single trust created by the Trust Agreement and existing during the time when both grantors are living is expressly made revocable by Article X of the trust agreement.

Because the trust is revocable by the grantors while both are living, deposits made in an insured bank by the trustee under the trust would not be insured during the lifetime of both grantors according to the interests of each of the approximately 27 beneficiaries named in the Trust Agreement and the addenda thereto. In order for the interest of each beneficiary to be insured separately up to the maximum of $100,000 while both grantors are living, the trust would have to be an irrevocable express trust, as well as meet other requirements set forth in sections 330.10 and 330.1 of the FDIC's insurance regulations.

Generally speaking, those regulations provide that trust accounts in FDIC-insured banks maintained pursuant to valid irrevocable trusts are insured up to $100,000 per "trust interest" of each beneficiary, separately from the individual accounts of the grantor(s), trustee(s), and beneficiary(ies). All accounts corresponding to more than one trust having common grantors and beneficiaries are added together and insured up to $100,000 per combined "trust interest." A "trust interest" is defined as the interest of a beneficiary in an irrevocable express trust created by either trust instrument or statute; it excludes any interest retained by the grantor. Separate insurance for each beneficiary's trust interest exists only when the value of that interest can be determined without the evaluation of contingencies, other than contingencies concerning a life expectancy and measurable by using certain federal estate tax tables. If the interests in a trust are not determinable without the evaluation of contingencies, then all such interests in the trust are aggregated and insured up to $100,000.

In the *** trust, the irrevocable "sub-trusts" do not come into existence during the lifetime of both grantors; therefore, should the depository bank be closed while both *** are still living, deposits by the trustee under the *** trust would not be entitled to insurance based on the various interests of the 27 beneficiaries of the sub-trusts. Rather, the Trust Agreement provides that the income from the principal of the trust corpus is to be applied to the use and benefit of the two grantors during their lifetime and, on the death of the first grantor to die, to the use and benefit of the survivor. Thus, during their lifetime, *** are both co-grantors and co-beneficiaries of the trust. Essentially, this arrangement--in which a husband and wife hold property in trust for themselves--is tantamount to joint ownership with rights of survivorship.

Accordingly, it is likely that, if the depository bank were closed while both spouses are living, the FDIC would combine any trust accounts under the *** trust with any other accounts held jointly by *** in the same bank and make payment in an amount not to exceed $100,000 in the aggregate. However, because of the complexity of the Trust Agreement, and because a binding determination of insurance coverage can only be made at the time a bank actually closes and claims are submitted, we regret that we are unable to give you a more definitive answer at this time.

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