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From: Scott Sargent
Sent: Friday, August 29, 2003 4:20 PM
To: Comments
Subject: Deposit Insurance Regulations: Living Trust Accounts

August 29, 2003

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

RE: 12 CFR Part 330 RIN 3064-AC54 Deposit Insurance Regulations; Living Trust Accounts

Dear Mr. Feldman,

Thank you for the opportunity to comment on the proposed rules regarding insuring Revocable Living Trust Accounts and POD accounts. Compass Bank would like to offer the following analysis and recommendations.

Alternative One

This proposal provides coverage up to $100,000 per qualifying beneficiary named in the living trust. This alternative requires the depository institution to designate in its account records all beneficiaries of the trust and their respective interests in trust assets. The depository institution's records would then be dispositive of insurance coverage.

A. This creates serious problems for depository institutions opening trust accounts. Living trusts sometimes provide for different levels of beneficiaries whose interest in the trust depends on certain conditions. In some situations it might be impossible to identify and indicate in a depository institution's records the ownership interest of each beneficiary; i.e. a trust might provide that upon a grantor's death his or her spouse receives all the trust's assets, but if the spouse predeceases the grantor then each of the grantor's two children receive 50% of the trust assets. It is simply impractical for an institution to train all of its personnel in the complex legal ramifications of laws that govern trust, particularly when that institution operates in several states. And in some cases, system limitations preclude the identification of multiple beneficiaries on an account.

The option the FDIC proposes to treat all beneficiaries as "equal" under the trust for insurance purposes may be more workable, but it neglects two important complicating factors: (1) many times beneficiaries are not individually named, they are simply a class i.e. all children born to my son, and (2) this defeats the trustor's intent in setting up contingencies in the trust by treating all potential beneficiaries equally.

As a result, this proposal imposes an undue burden on depository institutions by making them the ultimate authority of who is insured when they are not in a position to make that kind of legal determination, possibly imposes a duty that their existing system cannot meet and defeats the primary intent of the trustor in naming their beneficiaries and establishing contingencies on their respective interests.

B. The depository institution would also be required to obtain beneficiary relationship information when a trust account is opened or amended. An affidavit would be required to affirm that the beneficiaries listed are the grantor's spouse, child, grandchild, parent, or sibling.

This would substantially increase the depository institution's record keeping duties and modify their trust account opening procedures by requiring them to get the beneficiary affidavit. Both of these new obligations represent additional initial costs in training and material as well as on going costs in record keeping, training and system maintenance. Ultimately, this would result in additional costs to the depository institution's customers.

C. It appears to be an unfair preference in insurance coverage. Individual accounts are insured up to $100,000. However, if that same individual opens an account with a living trust with five beneficiaries, the insurance coverage is increased five times. While in both cases, the same individual most always has absolute control over the funds on deposit and can even terminate the trust at any time without regard to the beneficiaries.

Alternative Two

This alternative would create a separate category of trust accounts and insure such accounts up to $100,000 per owner of the account. That owner would be insured up to $100,000 for all trust accounts he or she has at 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 any defeating contingencies in the trust. This would be separate from any insurance available for single ownership accounts and POD accounts.

In this alternative the depository institution would not have to indicate in their deposit account records the names of the trust beneficiaries and their respective interests. However, the depository institution would be required to certify in their deposit account records the existence of the living trust. The FDIC envisions that the depository institution would simply ask to see a copy of the trust and note in the deposit account records that the trust exists. Moreover, the FDIC would require the institution to retain a copy of the first and last pages of the trust or the trust document.

This alternative creates less of a burden on the depository institution but would still require some changes in record keeping and account opening procedures. However, speaking for Compass Bank, we believe most institutions already substantially comply with the obligations outlined in this alternative.

Further, this appears to be the fairest treatment of these accounts as it treats them more like individual accounts. Since revocable trust accounts are generally used for the primary benefit of one, or sometimes two individuals, this seems more in line with policy of FDIC insurance than Alternative One.

Also, the FDIC solicited comment on how depositors are informed of the change in this rule, particularly with option 2 that may result in a reduction of coverage. Although many avenues are available to the FDIC for this notification, it would seem expedient that financial institutions provide a statement insert to its depositors prior to the effective date of the new rule.

Alternative Two is the preferred method of addressing this problem. It does not unduly burden the depository institutions with costs, training and risk and treats the revocable trust accounts fairly.

Thank you again for this opportunity to comment.

S. Scott Sargent
Sr. Corporate Counsel
Compass Bank
Birmingham, AL

Last Updated 09/02/2003

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