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4000 - Advisory Opinions

Insurance Coverage Afforded Funds Held by a Corporation Formed Primarily for Estate Planning Purposes Whose Stock Is Held by a Revocable Trust

FDIC 91-27 April 8, 1991 Roger A. Hood, Assistant General Counsel

This is in response to your letter, dated March 15, 1991, inquiring about the extent of deposit insurance that would be provided for certain hypothetical accounts.

In your letter, you present the following hypothetical situation:

Four separate corporations were formed primarily for estate planning and liability protection purposes. The corporations each maintain separate bank accounts at a single financial institution. Each bank account maintains an average balance in excess of $100,000. All of the stock of the corporations is held by a revocable trust established by and fully revocable by one Settlor. The trust document provides that the beneficiaries during the Settlor's lifetime are the Settlor and the Settlor's spouse. The Settlor also has the right to designate additional beneficiaries during his lifetime. The trust designates several individuals as contingent beneficiaries following the Settlor's death.

You ask whether the accounts of the four hypothetical corporations would be separately insured and, in a case where there is more than one grantor of a revocable trust that owns corporations, whether there is any additional insurance coverage.

In answer to your first question, section 330.9(a) of the FDIC's regulations provides that the accounts of any corporation engaged in an independent activity will be added together and insured up to $100,000. A corporation is deemed to be engaged in an "independent activity" when it is operated primarily for some purpose other than to increase deposit insurance coverage. If two or more businesses are separately incorporated, their accounts would be separately insured regardless of the extent to which the separate corporations have common owners.

In your letter, you indicate that the four hypothetical corporations were "formed primarily for estate planning and liability protection purposes." This representation is not sufficient for us to determine whether or not the corporations are, in fact, "operated primarily for some purpose other than to increase deposit insurance" as required by the "independent activity" test noted above. In the event that the bank becomes insolvent and is closed, the FDIC might take a close look at that issue.

If the four corporations satisfy the "independent activity" test, then each corporation's accounts would be separately insured up to $100,000. As noted above, this is true regardless of whether or not the four corporations are owned by the same person or entity (in your hypothetical, a revocable trust).

Since the FDIC does not consider ownership of corporations in determining insurance coverage, the fact that, in your hypothetical, there is more than one settlor of the revocable trust that owns the corporations would not increase or decrease the insurance coverage provided for the corporate accounts.

I trust that this has been responsive to your inquiry. If you have any further questions, feel free to contact me at (202) 898-3681 or Mr. Claude A. Rollin of my staff at (202) 898-3985.

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