CUNA Regulatory Comment Call
October 14, 2008
Interim Final Rule: Share Insurance for Revocable Trust Accounts Part 745
- NCUA has issued an interim final rule which amends its share insurance rules pertaining to revocable trust accounts, Part 745.
- The amendments eliminate the concept of qualifying beneficiaries. The prior rule limited beneficiary insurance on trust accounts only to those considered qualifying beneficiaries.
- Under the interim rule, the owner of a trust account with up to five beneficiaries will be insured up to $250,000 per beneficiary.
- For owners with more than $1,250,000 in a revocable trust, and more than five beneficiaries of that trust, it will be insured for the greater of $1,250,000 or the aggregate amount of the beneficiaries interests, limited to $250,000 per beneficiary.
- While this rule became effective October 14, 2008, NCUA is accepting comments through December 15, 2008, before it adopts a permanent final rule. Please submit your comments to CUNA by December 1, 2008.
Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at firstname.lastname@example.org and to Regulatory Research Counsel Luke Martone at email@example.com; or mail them to Mary and Luke in c/o CUNAs Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you have questions or would like a copy of the interim rule. You may also access a copy of the proposed rule here.
Similar to other types of accounts with NCUA-insured credit unions, revocable trust accounts are also insured. Beneficiary insurance coverage available on revocable trust accounts is separate from such coverage afforded members in connection with other accounts at the same NCUA-insured credit union.
Over the years, insurance coverage for trust accounts has been the cause of much public and industry confusion. NCUA believes the amendments in this interim rule will further clarify how revocable trust accounts are covered, enhance NCUAs ability to help maintain public confidence and stability in the credit union system, and protect insured members. The interim rule specifically amends 12 CFR 745.4, Revocable trust accounts.
BRIEF DESCRIPTION OF THE PROPOSED RULE
I) Revocable Trust Account Overview
NCUA insures informal and formal revocable trust accounts under its share insurance. These accounts are created by a member of a credit union, which he or she controls during their life, and at death the trust becomes irrevocable, and its beneficiaries are then entitled to its assets.
Informal trust accounts are comprised simply of a signature card with a list of beneficiaries who are to receive the funds at the members death. These are the most common type of revocable trust account, and are generally referred to as payable-on-death (POD) accounts. Informal trusts will hereinafter be referred to as POD accounts.
Formal trust accounts are established in connection with a formal written revocable trust document. These are commonly referred to as: living trusts, family trusts, and marital trusts. Formal trusts will hereinafter be referred to as living trusts.
The previous rule insured qualifying beneficiaries, who were designated by the account owner, up to $100,000 each (the previous insurance limit, which is now $250,000). Qualifying beneficiaries were defined as the owners: spouse, child, grandchild, parent or sibling. Previously, insurance coverage was only available for revocable trust accounts if:
- The account evidenced the owners intent that the funds go to the designated beneficiaries upon death;
- All beneficiaries are qualifying; and
- For POD accounts, the beneficiaries are specifically named in the account records at the credit union.
Similar to the previous rule, the interim rule limits a beneficiary to $250,000 of coverage, even if the member/account owner names that beneficiary in more than one of his or her revocable trust accounts at a single credit union. For example, if Lisa is a member at a credit union and names Tom as a beneficiary in both a living trust and a POD account, at the same credit union, Toms interest is only insurable up to $250,000.
II) Elimination of Qualifying Beneficiaries
The interim rule eliminates the qualifying beneficiaries requirement. Therefore, a beneficiary need not be a spouse, child, etc. to receive insurance coverage.
NCUA originally created the qualifying beneficiary requirement to limit the amount of coverage available on revocable trust accounts. Under the interim rule, however, the NCUA believes that it can achieve greater fairness under the revocable trust rules by basing coverage on the naming of any beneficiary in a revocable trust, but concurrently imposing the coverage qualification on accounts over [$1,250,000].
The interim rule bases coverage on the existence of any beneficiary named in the revocable trust, as long as they are a natural person, charity, or type of non-profit organization.
III) Accounts With $1,250,000 or Less
The previous rule required that any unequal beneficial interests in a revocable trust be accounted for when determining insurance coverage. For revocable trust accounts with $1,250,000 or less, the interim rule does away with the previous requirement and insures each beneficiary up to $250,000. The maximum coverage of a revocable trust account with less than $1,250,000 is determined by multiplying the number of beneficiaries by $250,000.
IV) Accounts With More than $1,250,000
Under the interim rule, for revocable trust accounts with more than $1,250,000 and more than five beneficiaries, these individuals are insured for the greater of: $1,250,000 or the aggregate amount of each of their interests, limited to $250,000 per beneficiary.
V) Life-Estate Interests
A life-estate beneficiary is typically entitled to the income on a trust accounts assets during the beneficiarys lifetime. For insurance coverage purposes, the previous rule took into account, not only the life-time beneficiary, but also any other parties who were entitled to income from the trust during their lives. The previous rule would then factor in the percentages that these future individuals were entitled to. In an effort to simplify the coverage rules, the interim rule instead values each life-estate interest at $250,000 for purposes of determining insurance coverage.
VI) Irrevocable Trusts
When the owner of a living trust dies, that revocable trust is transformed into an irrevocable trust. Under the previous rule, NCUA used a different set of rules for determining insurance coverage for irrevocable trusts. The interim rule does away with multiple sets of rules, and provides that the methods for determining the coverage of the living trust account will remain the same when the trust (or part of the trust) converts to an irrevocable trust.
Note that there was no comment period prior to this interim final rule being approved. In certain circumstances, no such period is required if good cause exists. NCUA believes good cause exists for making the interim rule effective immediately because, based on recent experience, it is clear that many members and credit unions do not fully understand the insurance rules for revocable trust accounts. Additionally, the Federal Deposit Insurance Corporation (FDIC) recently issued an almost identical interim final rule, and NCUA believes that parity between FDIC and NCUA insurance should be maintained.
QUESTIONS POSED BY NCUA REGARDING ITS INTERIM FINAL RULE
- Is over $1,250,000 the proper threshold for determining coverage based on the
beneficial interests of the trust beneficiaries?
- Should NCUAs revocable trust account rules, 12 CFR 745.9-1, be revised so that
all trusts are covered by substantially the same rules?
- What effect will the interim rule have on the level of insured shares?
- Any other comments or concerns regarding NCUAs interim final rule?
Eric Richard General Counsel (202) 508-6742 firstname.lastname@example.org |
Mary Mitchell Dunn SVP & Deputy General Counsel (202) 508-6736 email@example.com
Jeffrey Bloch Assistant General Counsel (202) 508-6732 firstname.lastname@example.org
Lilly Thomas Assistant General Counsel (202) 508-6733 email@example.com
Luke Martone Senior Regulatory Counsel (202) 508-6743 firstname.lastname@example.org