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4000 - Advisory Opinions

Whether Bank Acting as Trustee for Pooled Deposit of Various Trusts' Funds May Liquidate a Terminating Trust's Interest in the Account and Transfer It to Another Participating Trust in Return for Excess Cash


February 8, 1991

Gerald J. Gervino, Senior Attorney

You have inquired concerning whether certain activities of your trust department violate any FDIC regulation or procedure. You have asked whether a violation would affect the insurance coverage of deposits held by your bank as trustee.

The trust department of your bank has opened an account in a local bank in the amount of $560,000 as trustee for various participating trusts, none of which has an interest in the account in excess of $100,000. The account is in the name of "*** (as nominee for the *** in its various fiduciary capacities)". Your bank's records as trustee show the dollar amount participation of each trust in this deposit.

On infrequent occasion, your bank, as trustee, must liquidate a trust's interest in the account because of termination of a trust. Because of penalties and loss of interest, your trust department does not then withdraw the deposit. Instead it transfers the interest of a terminating trust to another participating trust in return for excess cash. Thus, the records of the depository bank will reflect no ownership change. Your bank's trust department records will reflect the ownership transfer.

It is not clear whether the deposit in the local bank is jointly owned by the individual trusts or is part of a common trust fund established to meet the tax exemption provisions of §584 of the Internal Revenue Code of 1986. It if is meant to be an asset of a tax exempt common trust fund, it must comply with the regulations of the Comptroller of the Currency pertaining to the collective investment of trust funds by national banks. These are set out at 12 CFR §9.18 (1991). Interpretation of §9.18 may be obtained from the Washington Office of the Comptroller of the Currency.

We assume that the deposit is jointly held for individual trusts rather than a common trust fund. If all of the transfers and records of the trust department are handled in accordance with the procedures and requirements of state law, we would find no violation of our rules and regulations in the activity which you have presented. Each participating trust's beneficial interest, when added to any other deposits held by your bank as trustee for the same beneficial interest in the same insured depository bank, will be insured to the statutory maximum of $100,000.

If we have not completely answered your inquiry or you have any further questions, please write or call us.

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