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4000 - Advisory Opinions

Insurance Coverage Provided for Settlement Funds Held by Surrogate Court as Custodian for Various Children


January 3, 1992

Adrienne George, Attorney

I am writing in response to your November 27, 1991 letter, in which you ask about the insurance coverage of funds held at your bank by a court as custodian for various children.

In your letter, you state that [Bank] has approximately $10 million dollars on deposit, consisting of funds held by the Surrogate Court on behalf of approximately 500 minors. These children have been plaintiffs in various lawsuits, and the funds held by the Surrogate Court represent settlements in the children's favor. Each child's share must be held by the Court as custodian until that child reaches majority. By petitioning the Court, the minor's parent or guardian may be permitted to withdraw funds for the minor's health, education or welfare, but the bank can release such funds only upon receiving the Surrogate Court's authorization.

Pursuant to section 330.6(a) of the FDIC's deposit insurance regulations, funds owned by a principal and deposited into one or more deposit accounts in the name of an agent, custodian or nominee (other than an insured depository institution) are insured as if they were deposited in the name of the principal. 12 C.F.R. § 330.6(a) (1991). Since the Surrogate Court is acting as custodian for the children (the principals), each minor's funds would be separately insured for up to $100,000, as if each child's share had been deposited in the name of that child, provided that certain recordkeeping requirements are met.

These requirements are set forth in the FDIC's insurance regulations, at 12 C.F.R. §§ 330.4(b)(1) and (2). First, the deposit account records of the depository institution--and the title of the account--must disclose that the funds are held by the depositor in a representative capacity. An appropriate title to use on the signature card in this case would be "Surrogate Court as Custodian for Various Minors." Using this title on the signature card--one form of deposit account record--would also meet the requirement that the depositor's representative capacity be disclosed in the deposit account records. (The term "deposit account records" is defined in 12 C.F.R. § 330.1(d).) Second, the records of either the depository institution, the depositor, or some agent of the depositor must disclose the ascertainable interest of each owner (in this case, each minor) in the account. Records maintained by the depositor or his agent must be kept in good faith and in the regular course of business.

When these requirements are satisfied, the ownership interest of each child in the Surrogate Court's custodial account will be added to any other individually-owned deposit accounts held by that child in the same depository institution, and that total amount will be insured for up to $100,000.

I am enclosing a copy of the FDIC's deposit insurance regulations, so that you may refer to the exact wording of the sections cited here.

I hope that this information will prove useful to you. If I can be of any further help, I can be reached at (202) 898-3859.

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