April 18, 2007

Sara W. Trexler, Senior Vice President Trust Services

State Employees' Credit Union

P. O. Box 26807

Raleigh, NC 27611-6807

Re: NCUA Share Insurance Coverage for Irrevocable Trust Accounts and
Inherited

Individual Retirement Accounts (IRA).

Dear Ms. Trexler:

You have asked if an IRA account would continue to receive NCUA share
insurance coverage after the owner's death if a designated beneficiary
who inherits the IRA is a non-member. Yes. NCUA's share insurance rules
provide continuing coverage for a designated beneficiary regardless of
membership status. You also have asked if an irrevocable trust account
with multiple grantors or beneficiaries would continue to be covered by
NCUA share insurance if one grantor or beneficiary relinquished his
membership after the account was opened. Yes. Coverage would continue
despite this action because of the nature of irrevocable trust accounts.

NCUA insures a member's traditional IRAs and Roth IRAs up to a maximum
of \$250,000. 12 C.F.R. §745.9-2(c)(1). That coverage is separate from
the coverage a member receives on other kinds of accounts he owns at the
same credit union. For insurance purposes, a member's traditional and
Roth IRAs in the same credit union will be combined together and insured
in the aggregate to \$250,000. 12 C.F.R. §745.9-2(c)(2). Share insurance
for traditional and Roth IRAs "is based on the present vested
ascertainable interest of a participant *or designated beneficiary*." Id
(emphasis added). While the participant or original owner of the IRA
would have to have been a member to open the account in the first
instance, §745.9-2(c)(2) provides coverage to a designated beneficiary
without specifically requiring the designated beneficiary to be a
member. Id.

We caution that the inheritability of an IRA, determination of who and
how many can qualify as a designated beneficiary, account distribution
options, and other issues related to tax-advantaged accounts are
governed by the Internal Revenue Code and other applicable tax laws.
These tax related issues can be complex and are outside the purview of
NCUA. We recommend members understand them as part of their overall
financial planning and account structuring for share insurance purposes.

NCUA insures trust interests in an irrevocable trust account provided,
among other things, the trust is valid under local law. 12 C.F.R.
§745.9-1; Appendix to Part 745, Subsection G. A "trust interest" means
the interest of a beneficiary in an irrevocable express trust, whether
created by instrument or statute, but does not include any interest
retained by the settlor. 12 C.F.R. §745.2(d)(4). All trust interests for
the same beneficiary created by the same settlor will be added together
and insured up to \$100,000 in the aggregate separately from other
accounts of the trustee, settlor, or beneficiary. 12 C.F.R. §745.9-1(b).
Also, certain recordkeeping requirements must be met. Notably, the
credit union's records must indicate the name of the settlor and trustee
of the trust and must contain an account signature card executed by the
trustee indicating his fiduciary capacity. Appendix to Part 745,
Subsection G. Also, the interests of the beneficiaries under the trust
must be ascertainable from the records of either the credit union or the
trustee.

An irrevocable trust would first have to be created by instrument or
statute under state law before an irrevocable trust account can be
opened at a credit union. As a creature of state law and reflecting the
wishes of the settlor, trust terms can vary greatly from state to state
and trust to trust. Typically, the settlor transfers ownership of his
property to the trust. Transferred property can include a business,
investment assets, cash, life insurance policies, and other assets.
Generally, the settlor loses control of the transferred property and
cannot terminate the trust. It is the settlor's loss of control over the
property transferred to the irrevocable trust and individuals associated
with the trust that distinguishes this kind of account from other
NCUA-insured accounts, where account owners retain more complete control
throughout the life of the accounts.

The membership requirement for NCUA share insurance coverage for all
accounts, including irrevocable trusts, is satisfied at the time of
account opening. For an irrevocable trust to qualify for share insurance
coverage from a membership perspective, the settlor or beneficiary of
the trust must be a member of the credit union. If there are two or more
settlors or beneficiaries, then either all the settlors or all the
beneficiaries must be members. Id. Generally, a sufficient membership
connection must be maintained throughout the life of any type of account
for coverage to continue. It is easily accomplished by a member with an
account he controls. This is not necessarily the case for a member who
opens an irrevocable trust account. After a valid, irrevocable trust
account with multiple settlors or beneficiaries is created, no one
settlor or beneficiary can control whether the others maintain their
membership.

Taking this into account, NCUA believes an irrevocable trust account
would continue to satisfy the membership requirement for insurance
coverage even if a settlor or beneficiary relinquished his membership
after account opening so long as other settlors or beneficiaries
maintained their membership. Otherwise, it would be unfair and against
the public policy underlying NCUA share insurance to deprive coverage to
a properly created irrevocable trust account that satisfied the
membership requirement at the time the account was opened. Accordingly,
the account will continue to be covered. Of course, if additional
settlors or beneficiaries also relinquished their membership, then the
insurability of the account would become more questionable as the
sufficiency of the membership connection becomes more attenuated. In
that unlikely event, at least one settlor or beneficiary would have to
maintain membership for coverage to continue.

Please contact Staff Attorney Frank Kressman or me with any additional
questions.

Sincerely,

/S/

Sheila A. Albin

Associate General Counsel

GC/FSK:bhs

07-0132