# Presentation: 331444

## FDIC’s National Telephone Conference on Deposit Insurance Coverage for Revocable & Irrevocable Trust Accounts  

**Session Dates – October 23 & November 13, 2007**

## Deposit Insurance Coverage Seminar 

**Today’s Speakers **

## Eligible Ownership Categories

**EMPLOYEE**
**BENEFIT PLAN**

**GOVERNMENT**

**SINGLE**

**JOINT**

**REVOCABLE **
**TRUST**

**IRREVOCABLE**
**TRUST**

***CERTAIN ***
**RETIREMENT**

**CORPORATION**
**PARTNERSHIP**
**UNINCORPORATED **
**ASSOCIATIONS**

## Separate coverage is provided for trust accounts
Coverage is in addition to coverage provided for other accounts owned by a depositor in a different ownership capacity  
Two types of trust accounts – revocable trusts and irrevocable trusts
Revocable trust (formal and informal) coverage is based on the owner/qualifying beneficiary relationship
Irrevocable trust coverage is based on the beneficiaries’ ascertainable, non-contingent interests  

- Coverage is in addition to coverage provided for other accounts owned by a depositor in a different ownership capacity
- Two types of trust accounts – revocable trusts and irrevocable trusts
- Revocable trust (formal and informal) coverage is based on the owner/qualifying beneficiary relationship
- Irrevocable trust coverage is based on the beneficiaries’ ascertainable, non-contingent interests

**Introductory Points**

## Revocable Trust Types

**POD (Payable-on-Death) accounts or accounts with similar terms such as  “ITF”  (In-Trust-For) or “ATF” (As-Trustee-For)**

## Account title at the bank must indicate the existence of a trust relationship 
For informal trusts, beneficiaries must be named in the bank’s account records
For formal trusts, beneficiaries must be identified in the trust document
Beneficiaries must be “qualifying” 

- For _informal _trusts, beneficiaries must be named in the bank’s account records
- For _formal_ trusts, beneficiaries must be identified in the trust document
- Beneficiaries must be “qualifying”

**Revocable Trust Requirements**

## Revocable Trust Beneficiaries

- Spouse
- Children
- Grandchildren
- Parents
- Siblings
*******Includes adoptive and**
**  ****step relationships**

- Ex-spouse
- In-laws
- Great-grandchildren
- Nieces, nephews, cousins
- Friends
- Grandparents
- Organizations
- Trusts
- Other relationships not listed

**Who qualifies***

**Who does not qualify**

## Revocable Trust Coverage

- Up to $100,000 per owner per qualifying beneficiary
- For non-qualifying beneficiaries, the funds corresponding to all such beneficiaries are treated as single-ownership account funds of the revocable trust account owner.  Those funds would be added to any other single ownership account funds of the revocable trust account owner and insured up to $100,000.

## Who are the owners? 
Who are the beneficiaries? 
Are the beneficiaries qualifying? 
What is the dollar amount or percentage interest for each beneficiary? 
Are the owners and beneficiaries living? 
Is the account titled properly? 

- Who are the owners?
- Who are the beneficiaries?
- Are the beneficiaries qualifying?
- What is the dollar amount or percentage interest for each beneficiary?
- Are the owners and beneficiaries living?
- Is the account titled properly?

## Example # 1: One Owner & Two 					Beneficiaries

- 	**John Smith wishes to establish a deposit account naming his son (Mark) and his daughter (Sue) as beneficiaries.  He wants to know how much money he can deposit and be fully insured.**

## Owner?  John
How many beneficiaries? Two 
Qualifying beneficiaries? Yes, owner’s children
Equal beneficiary interests?   Yes
Everyone living?  Yes
Titling and recordkeeping? Yes.  Title: “John Smith POD.”  Bank’s records show Mark and Sue as beneficiaries.

- How many beneficiaries? **Two **
- Qualifying beneficiaries? **Yes, owner’s children**
- Equal beneficiary interests?   **Yes**
- Everyone living?  **Yes**
- Titling and recordkeeping? **Yes.  Title: “John Smith POD.”  Bank’s records show Mark and Sue as beneficiaries.**

**Determining POD Insurance Coverage**

## John Smith POD to Mark and Sue

**John’s Trust **
**Relationship**
**With Mark Up **
**to $100,000**

**John Smith POD to Mark and Sue**

**John’s Trust **
**Relationship**
**With Sue Up **
**to $100,000**

## Example # 2: POD & Single Account

**Elizabeth Brown has a POD account for $100,000, naming her niece (Linda Jones) as beneficiary **
**Elizabeth also has a checking account in her name alone with $10,000 at the same bank**
**What’s her coverage?**

## Owner?  Elizabeth
Beneficiaries? One, Linda Jones
Qualifying or non-qualifying? Niece is non-qualifying  
Equal interests?  Not applicable
Everyone alive? Yes
Titling and Recordkeeping? Yes.  “Elizabeth Brown POD.”  Bank records show Linda as beneficiary. 

- Beneficiaries? **One, Linda Jones**
- Qualifying or non-qualifying? **Niece is** **non-qualifying**
- Equal interests?  **Not applicable**
- Everyone alive? **Yes**
- Titling and Recordkeeping? **Yes.  “Elizabeth Brown POD.”  Bank records show Linda as beneficiary.**

**Example: POD & Single Account**

## Elizabeth Brown’s Deposit Accounts

**Elizabeth Brown’s Deposit Accounts**

**Account # 1**

**Account # 2**

**Accounts are added together **
**and the total of $110,000 is **
**insured only up to $100,000****  **

**Elizabeth**
**Brown POD to**
**Linda Jones**
**$100,000**

**Elizabeth**
**Brown’s**
**Single Account**
**$10,000**

## Common Questions About POD Accounts

- Does the death of an owner or beneficiary of a POD account affect the amount of FDIC deposit insurance coverage?**   Most likely**
- When an owner of a POD deposit dies, will the FDIC intervene and calculate deposit insurance?**    No, FDIC pays insurance only in the unlikely event of a bank failure**
- Does naming a trust as the beneficiary on a POD deposit impact deposit insurance coverage?**   Yes,   because a trust is a non-qualifying beneficiary**

## Formal Revocable Trusts (Living Trusts)

**	****Coverage: Up to $100,000 per owner per **_**qualifying **_**beneficiary’s interest in the trust assuming all qualifying beneficiaries have equal beneficiary interests**
- Owner is commonly referred to as the trustor, grantor, settlor, donor, maker or creator
- Trustees, co-trustees and successor trustees are administrators of a trust and have no impact on deposit insurance coverage

## Who are the owners? 
Who are the beneficiaries? 
Are the beneficiaries qualifying? 
What is the dollar amount or percentage interest for each beneficiary? 
Are the owners and beneficiaries living? 
Is the account titled properly? 

**Who are the owners?**
**Who are the beneficiaries? **
**Are the beneficiaries qualifying?**
**What is the dollar amount or percentage interest for each beneficiary?**
**Are the owners and beneficiaries living?**
**Is the account titled properly?**

## Living Trust - One Owner With One 					 Beneficiary

**A father has a living trust leaving all trust deposits to his daughter**** **

**1 Owner  X  $100,000  X  1 Qualifying   =   $100,000**
**                     ****Beneficiary**

**Father**
**(Grantor)**

**Daughter**
**(Beneficiary)**

## Living Trust - One Owner With 						 Multiple Beneficiaries

**A mother has a living trust leaving all trust deposits **_**equally**_** to her two children **

**1 Owner  X  $100,000  X  2 Qualifying   =   $200,000**
**                     ****Beneficiaries**

**Mother**
**(Grantor)**

**Daughter**
**(Beneficiary)**

**Son**
**(Beneficiary)**

## Living Trust - Multiple Owners

**A husband and wife are joint owners (grantors) of a living trust.  The trust states that upon the death of one spouse the funds will pass to the surviving spouse, and upon the death of the last owner the funds will go to their son.**                          **	**

**2 Owners X $100,000 X 1 Beneficiary  = $200,000 **

**Father & Mother**
**(Grantors)**

**Son**
**(Beneficiary****)**

## Living Trust - Two Owners With 					 Multiple Beneficiaries

**A father and mother have a living trust leaving all trust deposits **_**equally**_** to their two children **

**2 Owners  X  $100,000  X  2 Qualifying   =   $400,000**
**                     ****Beneficiaries**

**Father & Mother**
**(Grantors)**

**Daughter**
**(Beneficiary)**

**Son**
**(Beneficiary)**

## Living Trust and a POD Account With    the Same Qualifying Beneficiaries

**Depositor with a**
**POD account**
**naming**
**3 qualifying**
**beneficiaries**

**Informal Trust**

**Formal Trust**

**Depositor with a**
**living trust account**
**identifying the same**
**3 qualifying**
**beneficiaries**

**+**

**Accounts are added together **
**Maximum insurance up to $300,000 **
**$100,000 X each owner X each beneficiary**

## The trust identifies both qualifying and           non-qualifying beneficiaries
The beneficiaries receive unequal amounts or percentages
A life-estate beneficiary is named in the trust
A beneficiary or grantor is deceased 
The trust provides for different distributions to beneficiaries at different points in time 
The trust contains ambiguous terms 
Combination of some or all of the above issues

**The beneficiaries receive unequal amounts or percentages**
**A life-estate beneficiary is named in the trust**
**A beneficiary or grantor is deceased **
**The trust provides for different distributions to beneficiaries at different points in time **
**The trust contains ambiguous terms **
**Combination of some or all of the above issues**

**Formal Revocable Trust Account Coverage Calculation May Be Complicated If:**

## A father has a living trust naming his son and nephew as equal beneficiaries of all assets 

**Father’s trust **
**relationship with**
**Son up to**
**$100,000**

**Insured in Revocable Trust  Account Category**

** ****Insured  in    Single Account Category*******

**Father’s trust **
**relationship with**
**Nephew up to**
**$100,000**

**Maximum Coverage $200,000**

*** ****Assumes Father has no single ownership accounts**

**Living Trust - Non-Qualifying Beneficiary**

## A wife has a living trust that states upon her death, her trust deposits will be distributed 60% to her daughter and 40% to her son  

**Mother**
**(Grantor)**

**Daughter**
**(60%  Interest)**

**Son**
**(40%  Interest)**

**Maximum Coverage **
**$100,000 / .60 = $166,667**

**Living Trust**** - ****Unequal Beneficiary ****	****	****	****	****	**** Interests**

## Living Trust - Life Estate Interest

**A husband has a living trust that states upon his death, his wife has the right to receive income from the trust or use the trust assets during her lifetime and, when she dies, the remaining funds go to their daughter **

**Father**
**(Grantor)**

**Wife**
**(Life Estate **
**Beneficiary)**

**Daughter**
**(Remainder**
**Beneficiary)**

**1 Owner  X  $100,000  X**
**2 Qualifying Beneficiaries  =**
**$200,000                     **

## Living Trust - Life Estate Interest With				Unequal Beneficiary Interests

**A wife has a living trust account with $400,000 at your bank.  The trust states that upon her death, her husband has the right to receive income from the trust or use the trust assets during his lifetime and, when he dies, the remaining funds go to their three daughters in respective shares of 20%, 30% and 50%.  **

**Insurance Coverage?**

## Coverage - Life Estate Interest with				   Unequal Beneficiary Interests

**Step 2:****	****Determine the life estate beneficiary’s share of the deposits.  Total deposits ($400,000) X 25% interest = $100,000**
**Step 3:****	****Subtract the husband’s interest from the total ($400,000 less $100,000 = $300,000)**
**Step 4:****	****Allocate the remaining $300,000 based on the percentage interests of the children**
**	****Child 1 – ($300,000 X 20%)****	****=     $  60,000**
**	****Child 2 – ($300,000 X 30%)****	****=     $  90,000**
**	****Child 3 – ($300,000 X 50%)****	****=     $150,000**

**Coverage - Life Estate Interest with****	****	****	****	****   Unequal Beneficiary Interests**

## Coverage - Life Estate Interest With				   Unequal Beneficiary Interests

| 
Beneficiary | Beneficiary %  Interest | Beneficiary Interest | 
Insured  | 
 Uninsured |
| --- | --- | --- | --- | --- |
| Husband |  25% |  $100,000 | $100,000 | $         0 |
| Daughter 1 | 20% of 75% = 15.0% | $  60,000 | $  60,000 | $         0 |
| Daughter 2 | 30% of 75% = 22.5% | $  90,000 | $  90,000 |   $         0 |
| Daughter 3 | 50% of 75% = 37.5% | $150,000 | $100,000 | $50,000 |
| Total | 100% | $400,000 |  $350,000 | $50,000 |

**Coverage - Life Estate Interest With****	****	****	****	****   Unequal Beneficiary Interests**

## Maximum Deposit Amount Eligible for   Full Insurance Coverage - Formula

**Maximum coverage **
**per beneficiary****	****	****     ****	****$ 100,000      **
**                                                      **
**	****	****Divided by  ****	**** ****	****	****	****	**
**Largest beneficiary interest        ****.****375**
**Maximum deposit amount **
**eligible for full coverage****	****   ****	****   $266,666.66**

**÷**

**=**

## Maximum Deposit Amount Eligible for   Full Insurance Coverage - Allocation

| 
Beneficiary | Beneficiary %  Interest | Account Balance | Trust Allocation | 
 Uninsured |
| --- | --- | --- | --- | --- |
| Husband |  25% |  $ 266,666 | $ 66,666 | $         0 |
| Daughter 1 | 20% of 75% = 15.0% | $ 266,666 | $ 40,000 | $         0 |
| Daughter 2 | 30% of 75% = 22.5% | $ 266,666 | $ 60,000 |   $         0 |
| Daughter 3 | 50% of 75% = 37.5% | $ 266,666 | $100,000 | $         0 |
| Total | 100% |  |  $266,666 | $         0 |

**Maximum Deposit Amount Eligible for   Full Insurance Coverage - Allocation**

## A father has a living trust leaving all funds to his son.      If the son predeceases the father, all funds are distributed equally to the son’s five children.

**Father**
**(Grantor)**

**Son**
**(Primary Beneficiary)**

**Grandchild**
**(Alternative **
**Beneficiary)**

**Grandchild**
**(Alternative **
**Beneficiary)**

**Grandchild**
**(Alternative **
**Beneficiary)**

**Grandchild**
**(Alternative **
**Beneficiary)**

**Grandchild**
**(Alternative **
**Beneficiary)**

**Coverage: Up to $100,000 (if son is living)**
**1 Owner X $100,000 X    1 Beneficiary = $100,000**

**Coverage: Up to $500,000 (if son predeceases father)**
** ****1 Owner  X  $100,000  X  5 Beneficiaries = $500,000**

**Living Trust - Beneficiary Dies**

## A father has a living trust leaving all funds equally to his  five children only if they all graduate from college

**Father**
**(Grantor)**

**Child  1**
**(Beneficiary)**

**Coverage: Up to $500,000 (while owner is living)**
** ****1 Owner  X  $100,000  X  5 Beneficiaries = $500,000**
**Insured as a Revocable Living Trust**

**Child  2**
**(Beneficiary)**

**Child  3**
**(Beneficiary)**

**Child  4**
**(Beneficiary)**

**Child  5**
**(Beneficiary)**

**Upon Grantor’s Death **
**Account Insured as an Irrevocable Trust**** **
**Coverage: Up to $100,000 - After Six Month Grace Period**

**Living Trust – Owner Dies**

## Irrevocable Trust Accounts

- Irrevocable trust may be created through:
- 	Death of grantor of revocable living trust
-  	Execution of irrevocable trust agreement
-  	Statute or court order
- Irrevocable means that the owner (person who created trust) does not possess power to terminate or revoke the trust

## Irrevocable Trust Coverage

- $100,000 per beneficiary (regardless of relationship between grantors and beneficiaries)
- However, no per beneficiary coverage if:
-  	Grantor retains interest (if so, funds are insured 	to grantor in the single account category)
-   Interests of beneficiaries are contingent or not 	ascertainable (if so, all such interests are added 	together and insured up to $100,000)

## Contingencies

- The trust agreement provides that a beneficiary will receive no funds unless certain conditions are satisfied
- The trust agreement provides that a particular beneficiary may invade principal (for example, in the case of medical needs), with the result that the funds available for the other beneficiaries may be reduced or eliminated
- The trust agreement provides that the trustee may exercise discretion in allocating funds among the beneficiaries, with the result that the future distributions to each beneficiary are impossible to predict

**Contingencies**

## Irrevocable Trust Coverage 

- Don’t try to analyze trust agreement
- Give conservative advice:
-   If grantor is living, funds may be added to the 	grantor’s single accounts
-   If grantor is deceased, coverage may be limited 	to $100,000 for the entire trust
-   For more information, consult with the lawyer 	or financial advisor who drafted the trust

## Summary

*Separate coverage* is provided for trust accounts
- Coverage is in addition to coverage provided for other accounts owned by a depositor in a different ownership capacity
- Two types of trust accounts – revocable trusts and irrevocable trusts
- Revocable trust (formal and informal) coverage is based on the owner/qualifying beneficiary relationship
- Irrevocable trust coverage is based on the beneficiaries’ ascertainable, non-contingent interests

**Questions**
**and **
**Answers**