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4000 - Advisory Opinions

Insurance Coverage Afforded Investment Annuity Accounts


March 22, 1990

Mark A. Mellon, Attorney

This is in response to your letter of February 28, 1990. Pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (Pub. L. No. 101--73, 103 Stat. 183) (the "FIRREA"), the Federal Deposit Insurance Corporation (the "FDIC") succeeds to all claims concerning insured deposits at savings and loans institutions.

You wish to ascertain how an investment annuity account is insured pursuant to federal insurance regulations. Based on your letter, it is my understanding that you have an investment annuity account with a savings and loan institution. The account is titled in the name of * * * Custodian for * * *. * * * is the issuer of the annuity policy and you are the annuitant under that policy.

Prior to 1986, all annuity accounts were treated for insurance purposes as if they were irrevocable trust accounts. After an exhaustive review of this type of treatment, the Federal Home Loan Bank Board (the "FHLBB") published an interpretive rule on August 18, 1986 which provided that annuity accounts established pursuant to the separate account statute of a state cannot be treated as an irrevocable trust. 12 C.F.R. section 570.13(b). The Board decided, however, that certain accounts established before that date would be "grandfathered" for insurance purposes. 12 C.F.R. section 570.13(c). Grandfathered accounts are ones opened on or before August 18, 1986, pursuant to annuity contracts in existence prior to August 18, 1986 and in reliance upon opinions of the FHLBB Office of General Counsel issued to account holders or their representatives prior to August 18, 1986. Thus, if an annuity account meets the qualifications as a grandfathered account, it will still be treated for insurance purposes as an irrevocable trust account.

The interests of a beneficiary in irrevocable trust accounts in a savings and loan institution are aggregated and insured to $100,000 where the accounts are part of a trust estate created by the same grantor. 12 C.F.R. section 564.10. If the account is entitled to the protection of the grandfather provision, you would be considered a beneficiary and your interest would be insured to $100,000.

Pursuant to section 402 of the FIRREA, these regulations remain in effect for all savings and loan institutions until new regulations are prescribed by the FDIC for all depository institutions. The FDIC is inclined to provide in the final regulations that any time deposit which is issued by an insured depository institution on or before the date that the final uniform regulations are published in the Federal Register would be entitled to the deposit insurance provided under the regulations currently in existence (the "old rules") or that which is provided under the amended regulation (the "new rules"), whichever is more favorable to the depositor, until the first maturity of the time deposit. If the FDIC makes this provision in the new uniform regulations and if your account is covered under the FHLBB grandfather provision, your account will be insured as an irrevocable trust account until the maturity date of that account.

You indicate in your letter that you have the power to decide where to invest the funds in the account upon the date of maturity. I recommend that you consult with an attorney or an experienced financial planner before you make this decision.

I hope that this letter is responsive to your inquiry. If you have any further questions on this or any other matter, please contact me.

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