FDIC Law, Regulations, Related Acts
4000 - Advisory Opinions
Revocable Trust Accounts Where Named Beneficiary Also Holds Power of Attorney With Respect to the Account
April 1, 1994
Claude A. Rollin, Senior Counsel
This letter is in response to your letter of February 12, 1994 concerning deposit insurance coverage of accounts that you and your wife hold at [BANK X] and [BANK Y]. Your questions relate primarily to (1) the validity for deposit insurance purposes of revocable trust accounts (not established pursuant to any formal trust agreement) that you now own or plan to establish, and (2) the insurance coverage of these accounts if the named beneficiary also holds a power of attorney with respect to them.
FDIC regulations provide separate insurance coverage for revocable trust accounts that satisfy the requirements prescribed in those regulations. The threshold requirement is that the account evidences an intention that upon the death of the owner(s) of the account, the funds therein belong to a beneficiary(ies) that is the owner's spouse, child or grandchild. The regulations deal primarily with proper titling of the account and listing the account beneficiaries by name in the deposit account records of the bank. A revocable trust account is properly titled when the account title demonstrates the intention of the account owner(s) (by the use of terms such as "in trust for", "as trustee for") that upon his/her death the funds belong to the beneficiary. Beneficiaries must be listed by name, rather than category (i.e., [NAME], not spouse or children), to satisfy the regulation. There is an exception to the general rule that revocable trust accounts with two or more settlors are insured separately from joint accounts, however, in the case where the settlors and beneficiaries are the same. For example, a revocable trust account established by a husband and wife for the sole benefit of both or either of them is insured as a joint account.
With respect to the signature cards at [BANK Y] in my opinion the signature cards satisfy FDIC's regulations governing recordkeeping for revocable trust accounts. With respect to the copies of signature cards for revocable trust accounts for you and your wife at [BANK X], I believe that the cards could more clearly indicate the beneficiary status. For example, on the first line of the signature "NAME [A]" has been typed in beside Name (1). On the next line, the designation "name (2)" has been lined out and "NAME [B]" typed in beside it. Because the reverse side of the card merely designates [B] as the successor trustee in the event of your incapacity, it is not totally clear that [B] is your intended beneficiary. Although [BANK] officials have indicated that the name following "TR-F" is the beneficiary, I believe it would be clearer to title the account as "NAME [A] in trust for NAME [b], beneficiary". Because the current signature form is used for revocable trust accounts with both one or multiple settlors, in the event the bank failed, I believe the suggested revised designation would avoid any confusion as to how many settlors are involved here and who the beneficiary is.
You have also asked whether the insurance coverage would be the same if the beneficiary of a revocable trust account holds a power of attorney with respect to the account. As noted above, the threshold requirement for the separate insurability of otherwise-qualifying revocable trust accounts is evidence of the owner's intention that upon his/her death the funds pass to certain beneficiaries. The corollary of this requirement is that the funds, in fact, belong to the owner during his/her lifetime (and, thus, not to the beneficiaries until the owner's death). The fact that husband and wife exchange powers of attorney on their respective revocable trust accounts would not, in and of itself, preclude separate insurability of these accounts as revocable trust accounts, unless other surrounding facts and circumstances showed that the legal ownership of the funds was actually joint and not individual as recorded in the bank's records. If ownership of your revocable trust accounts was determined in fact to be joint ownership during the settlors' joint lifetimes, both of your revocable trust accounts would be added to any actual joint accounts held at the same bank. The total amount would be insured for up to a maximum of $100,000--that is, all of these accounts would be treated as joint accounts.
I hope the above information has been responsive to your inquiry. However, if you have further questions, please do not hesitate to telephone me at (202) 898-3985.