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4000 - Advisory Opinions

Insurance Coverage Afforded Irrevocable Trust Accounts


September 8, 1989

Walter P. Doyle, Counsel

Thank you for your August 21 letter on insurance of "Lifeguard Accounts," in further reference to our exchange of correspondence in late 1986 and early 1987.

In order for the trust interest of each beneficiary of an irrevocable trust deposit to be insured to $100,000, that interest must be actual, and not illusory. In this case, the so-called "irrevocable Trust Agreement" refers to the "terms and conditions of this Trust," but does not set forth any more than the most minimal of terms and conditions. More importantly, however, the Agreement states that interest on the deposit "remains the property of, and shall be paid to the Trustee (viz., the insurance company)." A related provision in the Lifeguard Account Agreement states--

"If the account(s) of the [Insurance] Company also name the [insured] Owner as a beneficiary of an irrevocable trust . . . account, . . . the Owner hereby assigns his other interests therein to the Company."

So, at the outset, the insured assigns all his or her beneficial interests in the putative "irrevocable trust" account to the insurance company, thereby giving the company both beneficial and legal ownership of such deposit.

Various other aspects of the arrangement also suggest that the insurance company remains at all times the true beneficial owner of all Lifeguard funds on deposit under the program. For example, at the death of the insured the insurance proceeds are substituted for the original amount on deposit in the "trust" account. This original amount (the putative trust corpus) is then paid to the insurance company (i.e., the "trustee") for its own account.

Accordingly, I must conclude, that no bona fide trust is actually established under this program and that all "Lifeguard" deposits at the same insured bank would be insured, in the aggregate, to a single limit of $100,000.

Please let me know if I can be of further assistance.

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