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4000 - Advisory Opinions

Insurance of Accounts Payable to Lineal Descendants


August 21, 1990

Roger A. Hood, Assistant General Counsel

This is in response to your letter of June 18, 1990 concerning federal deposit insurance coverage.

Your inquiry pertains to insurance coverage for testamentary accounts. Based on your letter, it is my understanding that, under the Non-probate Transfers Law of Missouri, it is possible for the owners of testamentary accounts in depository institutions located in Missouri to designate not only individuals as the beneficiaries of these accounts but also the lineal descendants of these individuals in the event of their deaths prior to the deaths of the account owners. Under the law, these lineal descendants would take "per stirpes", that is, the descendants would divide the share among them that the original beneficiary would have been entitled to (if beneficiary X had three children, each would receive a one-third share of X's interest in a testamentary account). Depositors may provide for such distributions by stating on signature cards that they designate an individual and the lineal descendants per stirpes of the individual as the beneficiaries of the account (you state that forms are being provided which allow depositors to do this by checking off boxes). You wish to ascertain how the Federal Deposit Insurance Corporation (the "FDIC") will insure testamentary accounts where this designation has been made.

Pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (Pub. L. No. 101--73, 103 Stat. 183), new uniform deposit insurance regulations have been enacted which apply to the accounts of all insured depository institutions. The effective date of these new regulations is July 29, 1990. The regulation pertaining to testamentary accounts is 12 C.F.R. section 330.8. It provides that, if certain requirements are met, the interest of each beneficiary in a testamentary account will be insured to $100,000 separately from any other account which the beneficiary or owner might have with the insured institution. The requirements which must be satisfied are: (a) the intention to have the funds pass to the beneficiary must be shown by using such terms as "payable-on-death," "in trust for," etc., in the account title; (b) the beneficiary must qualify, that is, the beneficiary must be the spouse, child or grandchild of the owner and (c) the beneficiary must be specifically named in the deposit account records of the insured depository institution. If a beneficiary does not qualify, the funds which are attributed to that beneficiary will be treated as the individual funds of the owner, aggregated with any other single-ownership accounts of the owner and insured to $100,000.

In the instant matter, the provision for distribution of a beneficiary's interest to his lineal descendants per stirpes as you have described it fails the test for federal deposit insurance coverage of testamentary accounts on at least one prong. The designation does not state specifically who these lineal descendants are in the deposit account records as the regulation requires.

Moreover, even if the beneficiaries are named in the account records, a portion of the deposit may not be entitled to separate insurance but may instead be aggregated with the depositor's individually-owned funds. The designation of lineal descendants covers children, grandchildren, great-grandchildren and succeeding generations. If the beneficiary is the child of the owner, the beneficiary's own child would qualify (because he would be the grandchild of the depositor) but the beneficiary's grandchildren and great-grandchildren would not be qualifying beneficiaries since they are outside the defined kinship limit. Therefore, any portion of a testamentary account which would be allocated to the interests of lineal descendants who are outside the defined kinship limit would not be recognized by the FDIC as testamentary account funds. The portion would instead be treated as the individual funds of the owner and aggregated with any other individual accounts that the owner might have.

For example, assume that a depository institution has an account titled: "John and Mary Doe, pay on death to their children, Susan Brown, Jim Doe and George Doe, and the lineal descendants of those children per stirpes." If, at the time of the insurance determination, the three beneficiaries (George and Jim Doe and Susan Brown) are still alive, the depositors would then be insured to $600,000 ($200,000 per child since there are two account owners listed). Now assume that, at the time of the determination, Susan Brown is deceased. The requirement that the beneficiaries be specifically designated could be satisfied by listing the lineal descendants of Susan Brown by name in the account records of the insured depository institution. The depositors would then have $200,000 of insurance for each named lineal descendant who is a qualifying beneficiary but only those named beneficiaries who are within the defined kinship limit would qualify, that is, Susan's children but not her grandchildren (who would be the great-grandchildren of John and Mary Doe). Therefore, even if those descendants are specifically listed on the account records, the portion that would be allocated per stirpes to the interests of Susan's lineal descendants could possibly fail the test for testamentary account funds and be deemed to be the individual funds of John and Mary Doe.

I hope that this letter has been responsive to your inquiry. Please contact me if you have any questions about this or any other matter.

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