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4000 - Advisory Opinions

Deposit Insurance Afforded Revocable Inter-Vivos Trust Agreements


May 15, 1989

Claude A. Rollin, Attorney

This is in response to your letter, dated May 8, 1989, seeking our opinion concerning the extent to which deposit insurance would be afforded to deposit accounts maintained at an FDIC-insured bank, pursuant to certain written revocable trust agreements.

I have reviewed the Trust Agreement of ***, the Trust Agreement of ***, the Trust Agreement of ***, and the Last Will and Testament of *** (hereinafter "Settlor's Will"), all dated May 8, 1989. The basic terms that the three trust agreements have in common (hereinafter "Basic Terms") may be summarized as follows:

*** is the settlor and trustee of a revocable inter-vivos trust. During the settlor's lifetime, the settlor may direct the trustee to distribute as much of the net income and principal of the trust as the settlor requests to whomever the settlor desires and for any purpose whatsoever. If the settlor fails to request any such distribution, the trustee is required to accumulate the net income and add it to the principal. The settlor may, by a general power of appointment (exercisable under the Settlor's Will), dispose of any and all property placed in the trust. The trustee is directed to pay inheritance, estate and other transfer taxes occasioned by the settlor's death with respect to all property placed in the trust. To the extent that the Settlor's Will specifically devises any property that is held in the trust, the trustee is directed to distribute said property in accordance with the provisions of the Settlor's Will.

In addition, the Trust Agreement of *** provides that all property in the trust that is not disposed of in accordance with the above-noted basic terms shall become part of a Qualified Terminable Interest Trust which is to be established under Article 5 of the Settlor's Will. Under the terms of that trust, *** will be entitled to all of the net income during her lifetime and the trustee is authorized to invade the corpus of the trust, to the extent the trustee deems advisable, to provide for her health, support and maintenance. In addition, *** has the right to request a distribution of principal from the trust (the amount of which is specifically limited) on an annual basis.

By contrast, the Trust Agreement of *** and the Trust Agreement of *** provide that the property in their trusts which is not disposed of in accordance with the above-noted Basic Terms shall be transferred to new trusts in the children's individual names.

The trustee is directed to pay to each child, on an annual basis, an amount of the net income from his/her new trust which equals the amount of the child's wages. When each child becomes 35 years old or dies prior to age 35, or upon the settlor's death if the child predeceases the settlor, the trustee is directed to distribute the corpus and any accumulated interest to the child or his/her issue.

Section 330.3 of the FDIC rules and regulations, 12 C.F.R. § 330.3, which applies to deposit accounts established pursuant to revocable trusts, states, in relevant part, that:

Funds owned by an individual and deposited in a revocable trust account . . . evidencing an intention that on his death the funds shall belong to his spouse, child or grandchild shall be insured up to $100,000 in the aggregate as to each such named beneficiary, separately from any other accounts of the owner.

12 C.F.R. § 330.3(a)

In this case, any deposit accounts established pursuant to the three trust agreements would not seem to satisfy the requirement of section 330.3 that funds be deposited with the intention that they "shall belong" to the depositor's spouse/child upon the depositor's death. 12 C.F.R. § 330.3. As noted above, the three trust agreements contain a general power of appointment which the settlor may exercise by making specific reference thereto in the Settlor's Will. The trust agreements permit the settlor to appoint "to any person or institution any and all assets of the trust estate." This makes it quite possible that the beneficiaries named in the trust agreements may never receive any distributions from the trusts and thus they could not be deemed to have any beneficial ownership interests in deposit accounts established pursuant to those trust agreements. The interests of the beneficiaries are just too contingent to say that the funds would "belong" to them upon the death of the settlor. Moreover, in the case of the trust established for *** even if there were no general power of appointment, *** interest in any deposit accounts maintained pursuant to that trust would still be too contingent because of the limitations, imposed by Article 5 of the Settlor's Will, on her right to request distributions of principal from the trust.

Therefore, it is my opinion that any deposit accounts maintained pursuant to the three aforementioned trust agreements would not be entitled to the deposit insurance specified in section 330.3 of the FDIC rules and regulations. 12 C.F.R. § 330.3. Instead, such accounts would be treated as the individually owned accounts of the settlor and they would be aggregated with any other individually owned accounts maintained by the settlor with the same bank and insured up to $100,000.

If you have any further questions, please feel free to contact me.

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