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FDIC Federal Register Citations

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September 4, 2003

Robert E. Feldman
Executive Secretary
Comments/Legal ESS
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

Re: Deposit Insurance Regulations; Living Trust Accounts

Dear Mr. Feldman:

The Independent Community Bankers of America (ICBA)1 appreciates the opportunity to offer the following comments on the FDIC’s proposed rules to amend its deposit insurance regulations concerning living trust accounts. The purpose of the amendments is to clarify and simplify the regulations on the insurance coverage of living trust accounts.

ICBA agrees with the FDIC that despite efforts in 1998 and 1999 to clarify the deposit insurance regulations, there is still significant public and industry confusion about the insurance coverage of living trust accounts. Bankers and customers assume that living trust accounts are insured like payable-on-death (POD) accounts and are insured up to $100,000 per qualifying beneficiary without regard to any terms in the trust that might prevent the beneficiary from ever receiving the funds. They are unaware that living trusts often fail to satisfy the requirements for per-beneficiary coverage because of the existence of defeating contingencies in the trust agreements. Recent depository institution failures where there has been a disproportionately high percentage of uninsured living trust deposits when compared to the percentage of uninsured deposits in other categories of coverage appear to confirm the overall misunderstanding that bankers and bank customers have about this issue.

The existing deposit insurance rules on living trusts also hinder the FDIC’s ability to give advice on this issue since a legal analysis of the trust agreement is necessary before the FDIC can give a definitive answer on the amount of insurance coverage. In response to questions about coverage of living trust accounts, the FDIC usually advises depositors and bankers that they should assume that such accounts will be insured for no more than $100,000 per grantor. Otherwise, the FDIC suggests that the owners of living trust accounts seek advice from an attorney.

ICBA Urges the Adoption of Alternative One

To address this problem, the FDIC is proposing two alternatives. The first alternative for simplifying and clarifying the insurance rules for living trust accounts would be to provide coverage up to $100,000 per qualifying beneficiary named in the living trust irrespective of defeating contingencies (‘Alternative One”). Under this alternative, the FDIC would identify the beneficiaries and their ascertainable interests in the trust from the depository institution’s account records and provide coverage on the account up to $100,000 per qualifying beneficiary, subject to the same rules that now apply to POD accounts.

Under the second alternative (“Alternative Two”), the FDIC would create a separate category of coverage for living trust accounts that would be insured up to $100,000 per owner of the account. Individual customers would be insured up to a total of $100,000 for all living trust accounts he or she has a the same depository institution, regardless of the number of beneficiaries named in the trust, the grantor’s relationship to the beneficiaries and whether there are defeating contingencies in the trust. The deposit insurance coverage for a living trust account would be separate from the coverage afforded to any single-ownership or POD accounts the owner may have at the same depository institution.

ICBA believes that the FDIC should adopt Alternative One because it would be the easiest to understand of the two alternatives and would not decrease the overall level of deposit insurance coverage. As was stated before, most depositors and bankers presently believe that living trusts accounts are insured like POD accounts and are unaware of the problem of defeating contingencies. Since, under Alternative One, coverage would no longer depend on defeating contingencies in the trust agreement, depositors would have a clear understanding of their account coverage. Bankers will be able to explain to their customers that living trust accounts are insured like POD accounts and that insurance is limited to $100,000 per qualifying beneficiary. The FDIC would also be able to clearly advise customers of the insurance coverage of living trusts without having to perform a legal analysis of the trust document.

One rationale for covering POD accounts on a per beneficiary basis is that such accounts are frequently used as an alternative to a will and to pass title to assets outside of probate. Living trusts are frequently used for the same purpose. Thus, similar per beneficiary coverage for living trust accounts is appropriate.

Alternative Two, on the other hand, would change the existing rules by creating a completely new category of coverage and would decrease the deposit insurance coverage for revocable trusts with more than one beneficiary. Because coverage under Alternative Two would differ from POD account coverage, Alternative Two is likely to generate more customer confusion than Alternative One.

Moreover, ICBA opposes Alternative Two because it will result in an overall decrease in deposit insurance coverage. At a time when coverage levels have seriously eroded due to inflation, it is inappropriate to change deposit insurance rules in a way that further reduces available coverage. Bank customers with living trusts are likely to view with disfavor a change that reduces their deposit insurance coverage.

ICBA recently conducted an informal survey of its members to see which alternative—Alternative One or Two—they would prefer. More than ninety percent indicated that they preferred Alternative One because it was the easiest to understand and was in the best interests of their customers.

Additional Recordkeeping and Certification Requirements Should be Avoided

Under both alternative proposals, the FDIC would require that, when a depositor opens a living trust account, banks would have to “certify” in their deposit account records the existence of the living trust. The proposal is unclear as to what this certification process would entail and whether the bank would ever be liable for its certification. The FDIC indicates in its proposal that the bank would merely ask to see a copy of the trust and then the bank would note in its deposit account records that such a trust exists. However, would there be occasions when the bank would have to review the entire trust instrument and perhaps even consult with an attorney? Would the bank be liable if the bank certifies to the existence of a living trust and for some reason the trust was later found to be legally nonexistent?

In addition to certifying the existence of living trust accounts, the FDIC is also proposing under Alternative One that banks obtain affidavits from living trust owners as to whether each beneficiary is a “qualifying beneficiary” (e.g. the trust owner’s spouse, child, grandchild, parent or sibling) and that banks indicate in their records at the time the account is opened (1) the ownership interests of living trusts and (2) the kinship relationship between the trust account owner and the trust beneficiaries. The FDIC believes that these additional certification and recordkeeping requirements would expedite payments to living trust depositors when a bank fails.

ICBA opposes any additional recordkeeping or certification requirements for living trust accounts. While we appreciate the problems and delays that the FDIC faces with living trust accounts, we do not see how the FDIC can avoid the time-consuming process of reviewing living trust agreements when a bank failure occurs. Requiring each institution to “certify” to the existence of a living trust at the time the account is opened is not going to confirm that the trust exists at the time the institution fails. Living trusts are usually drafted so that they can be easily amended or revoked by the grantor. Kinship relationships and ownership interests may also change between the date the account is opened and the date of an institution failure. In short, the only reliable way that the FDIC can get current information on the existence of a living trust and its beneficiaries is to contact the owner at the time the institution fails and obtain from the trust owner the necessary certifications and trust documentation.

Furthermore, it would be very difficult for a community bank to acquire and maintain such information. Besides the significant recordkeeping burden, for privacy reasons, some living trust owners may be reluctant to divulge information about their trusts or certify to the existence of a trust. Instead of divulging information about their trusts, living trust owners may conclude that the best way to insure their privacy would be to open a living trust account with a financial institution other than a bank such as a broker or an insurance company.

Rather than imposing additional recordkeeping and certification requirements on banks, ICBA suggests that the banks be required to acquire and maintain only the names of the account owners of living trusts. In the unlikely case the bank fails, then the FDIC would then be in position to contact the account owner and verify the existence of the trust and the ownership interests and kinships of the beneficiaries. If necessary, the FDIC could then obtain certifications from the account owner of the existence of the trust and whether the beneficiaries were “qualified” and could examine the trust documentation.

ICBA also suggests that the FDIC consider eliminating the requirement that a beneficiary of a living trust be a “qualified beneficiary” in order to be insured. This would avoid having the FDIC review trust documentation to confirm the kinship relationships of all of the beneficiaries. Although this may increase overall deposit insurance coverage, the increase most likely would be insignificant.


ICBA urges the FDIC to adopt Alternative One as the best way to simplify and clarify the insurance rules for living trust accounts. We also urge that the FDIC not impose any additional recordkeeping or certification requirements on depository institutions for living trust accounts. If you have any questions or need any additional information, please contact Chris Cole, ICBA’s regulatory counsel at 202-659-8111.

1 About ICBA: ICBA is the nation's leading voice for community banks and the only national trade association dedicated exclusively to protecting the interests of the community banking industry. We aggregate the power of our members to provide a voice for community banking interests in Washington, resources to enhance community bank education and marketability, and profitability options to help community banks compete in an ever-changing marketplace. ICBA has nearly 5,000 members with 17,000 locations nationwide. Our members hold more than $526 billion in insured deposits, $643 billion in assets and more than $405 billion in loans to consumers, small businesses and farms. For more information, visit

C.R. Cloutier
Independent Community Bankers of America
Washington, DC

Last Updated 06/24/2003

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