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FDIC Federal Register Citations

August 29, 2003

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

Re: Proposed amendment to regulations governing FDIC insurance coverage of living trust accounts

Dear Mr. Feldman:

Sunflower Bank wishes to thank you for the opportunity to comment regarding the proposed amendment to the regulations governing FDIC insurance coverage of living trusts:

Sunflower Bank does not agree that the rules governing the insurance of living trust accounts are too complex and confusing. However, it does agree that many individuals are confused regarding the coverage. It is our belief that the confusion results from an inadequate lack of communication with those individuals regarding the rules and a lack of diligence by those individuals in understanding the rules. Nevertheless, Sunflower Bank does agree that the rules should be modified, but for the purpose of making the treatment of living trusts more consistent with the treatment of POD accounts rather than for the purpose of eliminating confusion.

It is for that same reason that Sunflower Bank supports Alternative One rather than Alternative Two. Fundamentally, the interests of the owner(s) of living trusts and POD accounts are one and the same i.e. they require an owner(s) and a beneficiary(ies) that can only acquire an interest in the property in the event of and at the time of the death of the owner. Similarly, both living trusts and POD accounts remain in the total control of the owner(s) during their lifetime and may be modified at any time prior to death. It would, therefore, be inequitable to treat those types of accounts differently.

While Alternative Two is easy to understand, it proposes to treat the interests of the owner(s) of living trusts and POD accounts differently. Specifically, Alternative Two proposes that a separate category of coverage be created for living trust accounts. The coverage granted to the owner(s) of living trusts would then be less than that received if the funds were held in the POD account category. We find no valid justification for granting more favorable coverage to POD accounts than for living trusts.

Alternative One has several major advantages. The first advantage is that it does make coverage easier to understand. The second advantage is that, by ignoring “defeating contingencies”, it makes treatment of living trusts more consistent with the coverage extended to POD accounts.

However, the comments requested by the FDIC regarding the implementation of Alternative One display either a weakness in an understanding of trust law or carelessness. For example, the FDIC points out that Alternative One would expressly require that depository institutions’ deposit account records indicate the ownership interest of living trust beneficiaries i.e. the kinship relationship between a revocable trust account owner and the trust beneficiaries. Subsequently, the FDIC mentions that in some situations it might be infeasible to identify and indicate in a depository institution’s records the ownership interest of each beneficiary named in the trust. Sunflower Bank takes the position that in all situations it is infeasible to identify and indicate in a depository institution’s records the ownership interest of each beneficiary named in the trust. The reason that it is infeasible in all situations, rather than just some, is because of the very nature of living trusts i.e. they are revocable. Without examining the trust documents in each and every situation, it is impossible to determine whether or not the beneficiaries and/or terms of the trust have been modified since the time of the creation of the trust. Accordingly, it is believed that enacting such a requirement in order to implement Alternative One constitutes a futile act.

The FDIC’s proposal to specify a particular form or affidavit for the purpose of ascertaining the ownership interest of each beneficiary named in the trust would be workable if those interests were not revocable. That, however, is not the case. The FDIC’s proposal to require the institution to obtain beneficiary relationship information when a depositor opens or amends a living trust or POD account would be workable when the depositor opens a living trust or when a depositor opens or amends a POD account. Similarly, it would not create a burden on the financial institution to have the depositor sign an affidavit or other form at that time indicating whether each beneficiary is a qualifying beneficiary. However, a problem would likely arise surrounding the amendment of a living trust i.e. it would be impossible for the financial institution to know if the living trust has been modified unless it was specifically so advised. Thus, it is not the additional record keeping requirement for depository institutions that is the problem. Instead, the problem results from the fact that those beneficiaries may change without notice to the financial institution.

The FDIC requests comment on their requirement under both alternatives that depository institution certify the existence of a living trust when a depositor opens a living trust account. This requirement should be of no consequence to any financial institution. Under the US Patriot’s Act all financial institutions will be required to obtain this information anyway as a part of its duty to verify the identity of its customers. The requirements of the US Patriot’s Act to verify their customers also apply to telephone and internet customers.

Finally, the FDIC requests comment on how existing depositors should be informed of the possible reduction in coverage in the event Alternative Two is adopted. It is believed that no reasonable manner exists to accomplish this. Any method that would be adopted would either leave multitudes of customers uninformed and/or would be prohibitively costly.

Respectfully yours,
Philip M. Durr
Compliance Officer
Sunflower Bank, N.A.

Last Updated 09/02/2003

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