[Federal Register Volume 89, Number 189 (Monday, September 30, 2024)]
[Rules and Regulations]
[Pages 79397-79416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-21888]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 745

[NCUA-2023-0082]
RIN 3133-AF53


Simplification of Share Insurance Rules

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: The NCUA Board (Board) is amending its regulations governing 
share insurance coverage. The final rule simplifies the share insurance 
regulations by establishing a ``trust accounts'' category that will 
provide for coverage of funds of both revocable trusts and irrevocable 
trusts deposited at federally insured credit unions (FICUs), provides 
consistent share insurance treatment for all mortgage servicing account 
balances held to satisfy principal and interest obligations to a 
lender, and increases flexibility for the NCUA to consider various 
records in determining share insurance coverage in liquidations. The 
changes also increase consistency between the FDIC's Federal deposit 
insurance rules and the NCUA's share insurance rules.

DATES: This rule is effective on December 1, 2026, except for the 
amendments to 12 CFR 745.2(c)(2) (instruction 5), 745.3 (instruction 
7), and 745.14 (instruction 13), which are effective October 30, 2024.

FOR FURTHER INFORMATION CONTACT: Office of General Counsel: Thomas 
Zells and Rachel Ackmann, Senior Staff Attorneys; or Robert Leonard, 
Compliance Officer at (703) 518-6540 or by mail at National Credit 
Union Administration, 1775 Duke Street, Alexandria, Virginia 22314. 
Office of Credit Union Resources and Expansion (CURE): Paul Dibble, 
Consumer Access Program Officer; or Rita Woods, Director of Consumer 
Access at (703) 518-1150 or by mail at National Credit Union 
Administration, 1775 Duke Street, Alexandria, Virginia 22314.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. General Background and Legal Authority
    A. General Background
    B. Legal Authority
II. Simplification of Share Insurance Trust Rules
    A. Notice of Proposed Rulemaking
    B. Policy Objectives
    C. Background and Need for Rulemaking
    1. Evolution of Insurance Coverage of Funds Held in Trust 
Accounts
    2. Current Rules for Coverage of Funds Held in Trust Accounts
    3. Need for Further Rulemaking
    D. Final Rule
    E. Examples Demonstrating Coverage Under Current and Final Rules
    F. Discussion of Comments
III. Amendments to Mortgage Servicing Account Rule
    A. Policy Objectives
    B. Background and Need for Rulemaking
    C. Final Rule
    D. Discussion of Comments
IV. Recordkeeping Requirements
    A. Policy Objectives
    B. Background and Need for Rulemaking
    C. Final Rule
    D. Discussion of Comments
V. Regulatory Procedures
    A. Regulatory Flexibility Act
    B. Paperwork Reduction Act
    C. Executive Order 13132 on Federalism
    D. Assessment of Federal Regulations and Policies on Families
    E. Small Business Regulatory Enforcement Fairness Act 
(Congressional Review Act)

I. General Background and Legal Authority

A. General Background

    The NCUA is an independent Federal agency that insures funds 
maintained in accounts of members or those otherwise eligible to 
maintain insured accounts (member accounts) at FICUs, protects the 
members who own FICUs, and charters and regulates Federal credit unions 
(FCUs). The NCUA protects the safety and soundness of the credit union 
system by identifying, monitoring, and reducing risks to the National 
Credit Union Share Insurance Fund (Share Insurance Fund). Backed by the 
full faith and credit of the United States, the Share Insurance Fund 
provides Federal share insurance to account holders in all FCUs and the 
majority of state-chartered credit unions.

B. Legal Authority

    The Board has issued this final rule pursuant to its authority 
under the FCU Act. Under the Federal Credit Union Act (FCU Act), in the 
event of a FICU's failure the NCUA is responsible for paying share 
insurance to any member, or to any person with funds lawfully held in a 
member account,\1\ up to the standard maximum share insurance amount 
(SMSIA), which is currently set at $250,000.\2\ The FCU Act provides 
that the NCUA Board must determine the amount payable consistently with 
actions taken by the FDIC under its deposit insurance rules.\3\ The FCU 
Act also grants the NCUA express authority to issue regulations on the 
determination of the net amount of share insurance paid.\4\ The FCU Act 
further provides that ``in determining the amount payable to any 
member, there shall be added together all accounts in the credit union 
maintained by that member for that member's own benefit, either in the 
member's own name or in the names of others.'' \5\ However, the FCU Act 
also specifically authorizes the Board to ``define, with such 
classifications and exceptions as it may prescribe, the extent of the 
share insurance coverage provided for member accounts, including member 
accounts in the name of a minor, in trust, or in joint tenancy.'' \6\
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    \1\ See 12 U.S.C. 1752(5).
    \2\ 12 U.S.C. 1787(k)(1)(A), (k)(6).
    \3\ 12 U.S.C. 1787(k)(1)(A).
    \4\ 12 U.S.C. 1787(k)(1)(B). The FCU Act states that 
``[d]etermination of the net amount of share insurance . . . ``shall 
be in accordance with such regulations as the Board may prescribe.''
    \5\ 12 U.S.C. 1787(k)(1)(B).
    \6\ 12 U.S.C. 1787(k)(1)(C).
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    The NCUA has implemented these requirements by issuing regulations 
recognizing particular categories of accounts, such as single ownership 
accounts, joint ownership accounts, revocable trust accounts, and 
irrevocable trust accounts.\7\ If an account meets the requirements for 
a particular category, the account is insured, up to the $250,000 
limit, separately from shares held by the member in a different account 
category at the same FICU. For example, provided all requirements are 
met, shares in the single ownership category will be separately insured 
from shares in the joint ownership category held by the same member at 
the same FICU.
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    \7\ 12 CFR part 745.
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    The NCUA's share insurance categories have been defined through 
both statute and regulation. Certain categories, such as the accounts 
held by

[[Page 79398]]

government depositors \8\ and certain retirement accounts, including 
individual retirement accounts, have been expressly defined by 
Congress.\9\ Other categories, such as joint accounts \10\ and 
corporate accounts,\11\ have been based on statutory interpretation; 
these accounts have been recognized through regulations issued in 12 
CFR part 745 pursuant to the NCUA's rulemaking authority. In addition 
to defining the insurance categories, the share insurance regulations 
in part 745 provide the criteria used to determine insurance coverage 
for shares in each category.
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    \8\ See 12 U.S.C. 1787(k)(2).
    \9\ See 12 U.S.C. 1787(k)(3).
    \10\ 12 CFR 745.8.
    \11\ 12 CFR 745.6.
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    Notably, the FCU Act also defines the term ``member account.'' The 
NCUA insures member accounts at all FICUs.\12\ Importantly, this term 
is not limited to those persons enumerated in the credit union's field 
of membership who have become members. It also includes as member 
accounts certain nonmembers, such as other nonmember credit unions; 
nonmember public units and political subdivisions; and, in the case of 
credit unions serving predominantly low-income members, deposits of 
nonmembers generally. In other words, the NCUA provides share insurance 
coverage to members and those otherwise eligible to maintain insured 
accounts at FICUs.
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    \12\ 12 U.S.C. 1752(5).
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    Finally, in addition to specific authority to draft share insurance 
regulations under Sec.  1787 of the FCU Act, the NCUA also has general 
rulemaking authority. Under the FCU Act, the NCUA is the chartering and 
supervisory authority for FCUs and the Federal supervisory authority 
for FICUs.\13\ The FCU Act grants the NCUA a broad mandate to issue 
regulations governing both FCUs and FICUs. Section 120 of the FCU Act 
is a general grant of regulatory authority, and it authorizes the Board 
to prescribe rules and regulations for the administration of the FCU 
Act.\14\ Section 207 of the FCU Act is a specific grant of authority 
over share insurance coverage, conservatorships, and liquidations.\15\ 
Section 209 of the FCU Act is a plenary grant of regulatory authority 
to the NCUA to issue rules and regulations necessary or appropriate to 
carry out its role as share insurer for all FICUs.\16\ Accordingly, the 
FCU Act grants the Board broad rulemaking authority to ensure the 
credit union industry and the Share Insurance Fund remain safe and 
sound.
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    \13\ 12 U.S.C. 1751 et seq.
    \14\ 12 U.S.C. 1766(a).
    \15\ 12 U.S.C. 1787.
    \16\ 12 U.S.C. 1789(a)(11).
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II. Simplification of Share Insurance Trust Rules

A. Notice of Proposed Rulemaking

    At its October 19, 2023, meeting, the Board issued a proposed rule 
to simplify the regulations governing share insurance coverage 
(proposed rule).\17\ The proposed rule primarily sought to simply share 
insurance coverage rules and increase consistency with changes adopted 
by the FDIC in January 2022. The Board's overall objective was to 
facilitate the prompt payment of share insurance in accordance with the 
FCU Act. As discussed in more detail later in this preamble, the Board 
is finalizing the proposed changes to the share insurance regulations 
as proposed.
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    \17\ 88 FR 73249 (Oct. 25, 2023).
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B. Policy Objectives

    The Board is amending its regulations governing share insurance 
coverage for funds held in member accounts at FICUs in connection with 
trusts.\18\ Like the proposed rule, the amendments of the final rule 
are primarily intended to do the following: (1) provide a rule for 
trust account coverage that is easier to understand and apply; (2) 
provide parity with changes the FDIC adopted in January 2022; \19\ and 
(3) facilitate the prompt payment of share insurance in accordance with 
the FCU Act. Accomplishing these objectives will further the NCUA's 
mission in other respects, as discussed in greater detail later in this 
preamble.
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    \18\ Trusts include informal revocable trusts (commonly referred 
to as payable-on-death accounts, in-trust-for accounts, or Totten 
trusts), formal revocable trusts, and irrevocable trusts.
    \19\ 87 FR 4455 (Jan. 28, 2022).
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Clarifying Insurance Coverage for Trust Accounts
    The share insurance trust rules have evolved over time, and they 
can be difficult to apply in some circumstances. The amendments are 
intended to clarify the insurance rules and trust-account limits for 
FICUs, their employees, their accountholders, and other interested 
parties. The amendments reduce the number of rules governing coverage 
for trust accounts, and they establish a straightforward calculation to 
determine coverage. The amendments are also intended to alleviate some 
of the confusion that FICUs, their employees, and their accountholders 
may experience with respect to insurance coverage and limits.
    Under the regulations currently in effect (current rules), there 
are distinct and separate sets of rules applicable to shares of 
revocable trusts as opposed to irrevocable trusts. Each set of rules 
has its own criteria for coverage and methods by which coverage is 
calculated. Despite the NCUA's efforts to simplify the revocable trust 
rules in 2008, the consistently high volume of complex inquiries about 
trust accounts over an extended period suggests continued confusion 
about insurance limits.\20\ NCUA share insurance specialists have 
answered over 17,000 calls with questions since the fourth quarter of 
2019.\21\ The NCUA estimates that over 50 percent of these inquiries, 
which do not include those received through email, submitted through 
mycreditunion.gov, or directed to NCUA staff responsible for credit 
union liquidations, pertain to share insurance coverage for trust 
accounts (revocable or irrevocable). Additionally, comments received in 
response to the proposal also support the notion that there continues 
to be confusion regarding share insurance coverage of trust accounts.
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    \20\ 73 FR 60616 (Oct. 14, 2008).
    \21\ The NCUA's Office of Credit Union Resources and Expansion, 
which fields most share insurance inquiries, only began tracking 
calls received on October 31, 2019. The high volume of trust-related 
inquires predates this tracking.
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    To better clarify insurance limits, the amendments will further 
simplify insurance coverage of trust accounts (revocable and 
irrevocable) by harmonizing the coverage criteria for revocable and 
irrevocable trust accounts and by establishing a simplified formula for 
calculating coverage that would apply to these funds deposited at 
FICUs. The final rule uses the calculation the NCUA first adopted in 
2008 for revocable trust accounts with five or fewer beneficiaries. 
This formula is straightforward and familiar to FICUs and their 
members.\22\ The amendments will also eliminate formulas in the current 
rules for revocable trust accounts with more than five beneficiaries 
and irrevocable trust accounts.
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    \22\ In 2008, the NCUA adopted an insurance calculation for 
revocable trusts that have five or fewer beneficiaries. Under this 
rule, 12 CFR 745.4(a), each trust grantor is insured up to $250,000 
per beneficiary.
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Parity
    Adoption of the final rule will also align with changes the FDIC 
adopted in January 2022, which took effect on April 1, 2024.\23\ As the 
Board stressed in the proposed rule, as well as in the 2021 final rule 
addressing the share insurance

[[Page 79399]]

coverage of joint ownership accounts, the Board believes it is 
important to maintain parity, to the extent possible, between the 
nation's two Federal deposit and share insurance programs, which are 
backed by the full faith and credit of the United States.\24\ The Board 
believes it is important that members of the public who use trust 
accounts receive the same protection whether the accounts are 
maintained at FICUs or other federally insured institutions. 
Consistency between the FDIC's Federal deposit insurance rules and the 
NCUA's share insurance rules promotes public confidence in the safety 
of funds at depository institutions regardless of whether the 
institution is an insured bank or insured credit union.
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    \23\ 87 FR 4455 (Jan. 28, 2022).
    \24\ 86 FR 11098 (Feb. 24, 2021).
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Prompt Payment of Share Insurance
    The FCU Act requires the NCUA to pay accountholders ``as soon as 
possible'' after a FICU liquidation.\25\ However, the insurance 
determination and subsequent payment for many trust accounts can be 
delayed when NCUA staff must review complex trust agreements and apply 
various rules for determining share insurance coverage. The final 
rule's amendments are intended to facilitate more timely share 
insurance determinations for trust accounts by reducing the time needed 
to review trust agreements and determine coverage. These amendments 
should promote the NCUA's ability to pay insurance proceeds to 
accountholders more quickly following the liquidation of a FICU, 
enabling accountholders to meet their financial needs and obligations.
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    \25\ 12 U.S.C. 1787(d)(1).
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Facilitating Liquidations
    The final rule's amendments will also facilitate the liquidation of 
failed FICUs. The NCUA is routinely required to make share insurance 
determinations in connection with FICU liquidations. In many of these 
instances, however, share insurance coverage for certain trust accounts 
is based upon information that is not maintained in the FICU's account 
records. As a result, NCUA staff work with accountholders to obtain 
trust documentation following a FICU's liquidation to complete share 
insurance determinations. The difficulties associated with completing 
such a determination are exacerbated by the substantial growth in the 
use of formal trusts in recent decades. These amendments could reduce 
the time spent reviewing such information, thereby reducing potential 
delays in the completion of share insurance determinations and 
payments.

C. Background and Need for Rulemaking

1. Evolution of Insurance Coverage of Funds Held in Trust Accounts
    The NCUA first adopted regulations governing share insurance 
coverage in 1971.\26\ Over the years, share insurance coverage has 
evolved to reflect both the NCUA's experience and changes in the credit 
union industry as well as statutory amendments.\27\
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    \26\ 36 FR 2477 (Feb. 5, 1971).
    \27\ See, 71 FR 56001 (Sept. 26, 2006) (implementing statutory 
changes in the Federal Deposit Insurance Reform Act of 2005) and 80 
FR 27109 (May 12, 2015) (implementing statutory changes in the 
Credit Union Share Insurance Fund Parity Act).
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    While the regulations addressing irrevocable trusts have undergone 
minimal change, the regulations addressing revocable trusts have seen 
numerous changes, largely aimed at providing increased flexibility and 
simplifying coverage. Notably, in 2004 the NCUA amended the revocable 
trust rules, pointing to continued confusion about the coverage for 
revocable trust deposits and the need for parity with then recent FDIC 
amendments.\28\ Specifically, the NCUA eliminated the defeating 
contingency provisions of the rules, with the result that coverage 
would be based on the interests of qualifying beneficiaries, 
irrespective of any defeating contingencies in the trust agreement.\29\ 
This more closely aligned coverage for formal revocable trust accounts 
with payable-on-death accounts. Importantly, and of relevance to this 
final rule, defeating contingency provisions were not eliminated for 
irrevocable trusts, and these provisions remain relevant for 
calculating share insurance coverage under the current irrevocable 
trust provisions.\30\ At the same time, the NCUA eliminated the 
requirement to name the beneficiaries of a formal revocable trust in 
the FICU's account records.\31\ The NCUA recognized a grantor may elect 
to change the beneficiaries or the beneficiaries' interests at any time 
before the grantor's death, and requiring a FICU to maintain a current 
record of this information would be impractical and unnecessarily 
burdensome.
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    \28\ 69 FR 8798 (Feb. 26, 2004).
    \29\ Prior to the changes adopted in 2004, if the interest of a 
qualifying beneficiary in an account established under the terms of 
a living trust agreement was contingent upon fulfillment of a 
specified condition, referred to as a defeating contingency, 
separate insurance was not available for that beneficial interest. 
Instead, the beneficial interest would be added to any individual 
account(s) of the grantor and insured up to the SMSIA, then 
$100,000. An example of a defeating contingency is where an account 
owner names his son as a beneficiary but specifies in the living 
trust document that his son's ability to receive any share of the 
trust funds is dependent upon him successfully completing college.
    \30\ 12 CFR 745.2(d).
    \31\ 69 FR 8798, 8799 (Feb. 26, 2004).
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    More recently, the NCUA's experience and adoption of similar 
revisions by the FDIC suggested further changes to the trust rules were 
necessary. In 2008, the NCUA simplified the rules in several 
respects.\32\ First, it eliminated the kinship requirement for 
revocable trust beneficiaries, instead allowing any natural person, 
charitable organization, or nonprofit to qualify for per-beneficiary 
coverage. Second, a simplified calculation was established if a 
revocable trust named five or fewer beneficiaries; in which case, 
coverage would be determined without regard to the allocation of 
interests among the beneficiaries. This simplification eliminated the 
need to discern and consider beneficial interests in many cases.
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    \32\ 73 FR 60616 (Oct. 14, 2008).
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    A different insurance calculation applied to revocable trusts with 
more than five beneficiaries. At that time, the SMSIA was $100,000; 
thus, if more than five beneficiaries were named in a revocable trust, 
coverage would be the greater of: (1) $500,000; or (2) the aggregate 
amount of all beneficiaries' interests in the trust(s), limited to 
$100,000 per beneficiary. When the SMSIA was increased to $250,000, a 
similar adjustment was made from $100,000 to $250,000 for the 
calculation of per-beneficiary coverage.
2. Current Rules for Coverage of Funds Held in Trust Accounts
    The NCUA's current rules recognize two different insurance 
categories for funds held in connection with trusts at FICUs: (1) 
revocable trusts and (2) irrevocable trusts. The current rules for 
determining insurance coverage for shares in each of these categories 
are described below. Additionally, share insurance coverage is always 
limited to FICU members and those otherwise eligible to maintain 
insured accounts at the FICU. The NCUA's longstanding position has been 
that, for revocable trust accounts, all grantors (sometimes described 
as settlors) of the trust must be members of the FICU or otherwise 
eligible to maintain an insured account.\33\ For irrevocable trust 
accounts, the NCUA has maintained the position that either all grantors 
(or settlors) or all beneficiaries of the trust

[[Page 79400]]

must be members of the FICU or otherwise eligible to maintain an 
insured account.\34\
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    \33\ See 12 CFR part 701, app. A. Art. III, sec. 6 (``Shares 
issued in a revocable trust--the settlor must be a member of this 
credit union in his or her own right.'').
    \34\ See 12 CFR part 701, app. A. Art. III, sec. 6 (``Shares 
issued in an irrevocable trust--either the settlor or the 
beneficiary must be a member of this credit union.'').
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    As described in greater detail in section II.E., in the 2023 
proposal, the NCUA requested commenters' feedback as to whether these 
positions should be revisited. This final rule will not alter these 
longstanding positions. However, the NCUA will be continuing to 
evaluate commenters' feedback and whether further changes are possible 
and necessary.
Revocable Trust Accounts
    The revocable trust category applies to funds for which the member 
has evidenced an intention that the funds shall belong to one or more 
beneficiaries upon the member's death. This category includes funds 
held in connection with formal revocable trusts--that is, revocable 
trusts established through a written trust agreement. It also includes 
funds that are not subject to a formal trust agreement, where the FICU 
makes payment to the beneficiaries identified in the FICU's records 
upon the member's death, based on account titling and applicable state 
law. The NCUA refers to these types of accounts, including Totten trust 
accounts, payable-on-death accounts, and similar accounts, as 
``informal revocable trusts.'' Funds associated with formal and 
informal revocable trusts are aggregated for the purposes of the share 
insurance rules; thus, funds that will pass from the same grantor to 
beneficiaries are aggregated and insured up to the SMSIA, currently 
$250,000, per beneficiary, regardless of whether the transfer would be 
accomplished through a written revocable trust or an informal revocable 
trust.\35\
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    \35\ 12 CFR 745.4(a).
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    Under the current revocable trust rules, beneficiaries with 
insurable interests are limited to natural persons, charitable 
organizations, and non-profit entities recognized as such under the 
Internal Revenue Code of 1986.\36\ If a named beneficiary does not 
satisfy this requirement, funds held in trust for that beneficiary are 
treated as single ownership funds of the grantor and aggregated with 
any other single ownership accounts the grantor maintains at the same 
FICU.\37\
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    \36\ 12 CFR 745.4(c).
    \37\ 12 CFR 745.4(d).
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    Certain requirements also must be satisfied for an account to be 
insured in the revocable trust category. The required intention that 
the funds shall belong to the beneficiaries upon the grantor's death 
must either be manifested in the ``title'' of the account or elsewhere 
in the account records of the credit union (using commonly accepted 
terms such as ``in trust for,'' ``as trustee for,'' ``payable-on-death 
to,'' or any acronym for these terms).\38\ For the purposes of this 
requirement, a FICU's electronic account records are included. For 
example, a FICU's electronic account records could identify the account 
as a revocable trust account through coding or a similar mechanism. In 
addition, the beneficiaries of informal trusts (that is, payable-on-
death accounts) must be named in the FICU's account records.\39\ The 
requirement to name beneficiaries in the FICU's account records does 
not apply to formal revocable trusts; the NCUA generally obtains 
information on beneficiaries of such trusts from accountholders 
following a FICU's liquidation. If a member's funds at a liquidated 
FICU held in trust accounts exceed the SMSIA, a hold will be placed on 
the portion of such funds in excess of the SMSIA until the NCUA can 
fully review the member's trust agreement and related documents to 
verify the beneficiary rules are satisfied. Therefore, this process can 
result in delays to some insured accountholders' insurance 
determinations and full insurance payments.
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    \38\ 12 CFR 745.4(b).
    \39\ Id.
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    The calculation of share insurance coverage for revocable trust 
accounts depends upon the number of unique beneficiaries named by a 
member accountholder. If five or fewer beneficiaries have been named, 
the member accountholder is insured in an amount up to the total number 
of named beneficiaries multiplied by the SMSIA, and the specific 
allocation of interests among the beneficiaries is not considered.\40\ 
If more than five beneficiaries have been named, the member 
accountholder is insured up to the greater of: (1) five times the 
SMSIA; or (2) the total of the interests of each beneficiary, with each 
such interest limited to the SMSIA.\41\ For the purposes of this 
calculation, a life estate interest is valued at the SMSIA.\42\
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    \40\ 12 CFR 745.4(a).
    \41\ 12 CFR 745.4(e).
    \42\ 12 CFR 745.4(g). For example, if a revocable trust provides 
a life estate for the member accountholder's spouse and remainder 
interests for six other beneficiaries, the spouse's life estate 
interest would be valued at the lesser of $250,000 or the amount 
held in the trust for the purposes of the share insurance 
calculation.
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    Where a revocable trust account is jointly owned, the interests of 
each account owner are separately insured up to the SMSIA per 
beneficiary.\43\ However, if the co-owners are the only beneficiaries 
of the trust, the account is instead insured under the NCUA's joint 
account rule.\44\
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    \43\ 12 CFR 745.4(f)(1).
    \44\ 12 CFR 745.4(f)(2).
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    The current revocable trust rule also contains a provision that was 
intended to reduce confusion and the potential for a decrease in share 
insurance coverage in the case of the death of a grantor. Specifically, 
if a revocable trust becomes irrevocable due to the death of the 
grantor, the trust account may continue to be insured under the 
revocable trust rules.\45\ Absent this provision, the irrevocable trust 
rules would apply following the grantor's death, as the revocable trust 
becomes irrevocable at that time, which could result in a reduction in 
coverage.\46\
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    \45\ 12 CFR 745.4(h).
    \46\ The revocable trust rules tend to provide greater coverage 
than the irrevocable trust rules because contingencies are not 
considered for revocable trusts. In addition, where five or fewer 
beneficiaries are named by a revocable trust, specific allocations 
to beneficiaries also are not considered.
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Irrevocable Trust Accounts
    Accounts maintaining funds held by an irrevocable trust that has 
been established either by written agreement or by statute are insured 
in the irrevocable trust share insurance category. Calculating coverage 
in this category requires a determination of whether beneficiaries' 
interests in the trust are contingent or non-contingent.\47\ Non-
contingent interests are interests that may be determined without 
evaluation of any contingencies, except for those covered by the 
present worth and life expectancy tables and the rules for their use 
set forth in the Internal Revenue Service (IRS) Federal Estate Tax 
Regulations.\48\ Funds held for non-contingent trust interests are 
insured up to the SMSIA for each such beneficiary.\49\ Funds held for 
contingent trust interests are aggregated and insured up to the SMSIA 
in total.\50\
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    \47\ 12 CFR 745.2(d) and 745.9-1.
    \48\ 12 CFR 745.2(d)(1). For example, a life estate interest is 
generally non-contingent, as it may be valued using the life 
expectancy tables. However, where a trustee has discretion to divert 
funds from one beneficiary to another to provide for the second 
beneficiary's medical needs, the first beneficiary's interest is 
contingent upon the trustee's discretion.
    \49\ 12 CFR 745.9-1(b).
    \50\ 12 CFR 745.2(d)(2).
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    The irrevocable trust rules do not apply to funds held for a 
grantor's retained interest in an irrevocable trust.\51\ Such funds are 
aggregated with

[[Page 79401]]

the grantor's other single ownership funds for the purposes of applying 
the share insurance limit.
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    \51\ See 12 CFR 745.2(d)(4) (The term ``trust interest'' does 
not include any interest retained by the settlor.).
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3. Need for Further Rulemaking
    As noted, the rules governing share insurance coverage for trust 
accounts have been simplified and modified on several occasions. 
However, these rules are still frequently misunderstood and can present 
some implementation challenges. The trust rules can require overly 
detailed, time-consuming, and resource-intensive reviews of trust 
documentation to obtain the information necessary to calculate share 
insurance coverage. This information is often not found in a FICU's 
records and must be obtained from members after a FICU's liquidation.
    Revision of the share insurance coverage rules for trust accounts 
will reduce the amount of information that must be provided for trust 
accounts, as well as the complexity of the NCUA's review. This revision 
should enable the NCUA to complete share insurance determinations more 
rapidly if a FICU with a large number of trust accounts is liquidated. 
Delays in the payment of share insurance can be consequential for 
accountholders, and the final rule will help to mitigate those delays.
    Several factors contribute to the challenges of making insurance 
determinations for trust accounts under the current rules. First, there 
are two different sets of rules governing share insurance coverage for 
trust accounts. Understanding the coverage for a particular account 
requires a threshold inquiry to determine which set of rules to apply--
the revocable trust rules or the irrevocable trust rules. This requires 
review of the trust agreement to determine the type of trust (revocable 
or irrevocable), and the inquiry may be complicated by innovations in 
state trust law that are intended to increase the flexibility and 
utility of trusts. In some cases, this threshold inquiry is also 
complicated by the provision of the revocable trust rules that allows 
for continued coverage under the revocable trust rules where a trust 
becomes irrevocable upon the grantor's death. The result of an 
irrevocable trust deposit being insured under the revocable trust rules 
has proven confusing for both accountholders and FICUs.
    Second, even after determining which set of rules applies to a 
particular account, it may be challenging to apply the current rules. 
For example, the revocable trust rules include unique titling 
requirements and beneficiary requirements. These rules also provide for 
two separate calculations to determine insurance coverage, depending in 
part upon whether there are five or fewer trust beneficiaries or at 
least six beneficiaries. In addition, for revocable trusts that provide 
benefits to multiple generations of potential beneficiaries, the NCUA 
needs to evaluate the trust agreement to determine whether a 
beneficiary is a primary beneficiary (immediately entitled to funds 
when a grantor dies), contingent beneficiary, or remainder beneficiary. 
Only eligible primary beneficiaries and remainder beneficiaries are 
considered when calculating NCUA share insurance coverage. The 
irrevocable trust rules may require detailed review of trust agreements 
to determine whether beneficiaries' interests are contingent and may 
also require actuarial or present value calculations. These types of 
requirements complicate the determination of insurance coverage for 
trust deposits, have proven confusing for accountholders, and extend 
the time needed to complete a share insurance determination and 
insurance payment.
    Third, the complexity and variety of account holders' trust 
arrangements adds to the difficulty of determining share insurance 
coverage under the current rules. For example, trust interests are 
sometimes defined through numerous conditions and formulas, and a 
careful analysis of these provisions may be necessary to calculate 
share insurance coverage under the current rules. Arrangements 
involving multiple trusts where the same beneficiaries are named by the 
same grantor(s) in different trusts add to the difficulty of applying 
the trust rules. The NCUA believes simplification of the share 
insurance rules presents an opportunity to more closely align the 
coverage provided for different types of trust funds. For example, the 
current revocable trust rules generally provide for a greater amount of 
coverage than the irrevocable trust rules. This outcome occurs because 
contingent interests for irrevocable trusts are aggregated and insured 
up to the SMSIA rather than up to the SMSIA per beneficiary, while 
contingencies are not considered and therefore do not limit coverage in 
the same manner for revocable trusts.
    Finally, as previously noted, adoption of this final rule will 
align with changes the FDIC adopted in January 2022, which took effect 
on April 1, 2024. The Board believes it is important to maintain parity 
between the nation's two Federal deposit and share insurance 
programs.\52\ It is imperative that members of the public who use trust 
accounts for the transfer of ownership of assets better understand the 
rules governing such accounts and receive the same protection, whether 
the accounts are maintained at FICUs or other federally insured 
institutions.
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    \52\ 12 U.S.C. 1787(k)(1)(A).
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D. Final Rule
    The final rule adopts the proposed changes to the trust account 
rules as proposed. Specifically, the NCUA is amending the rules 
governing share insurance coverage for funds held in trust accounts at 
FICUs. Generally, the amendments will do the following: (1) merge the 
revocable and irrevocable trust categories into one category; (2) apply 
a simpler, common calculation method to determine insurance coverage 
for funds held by revocable and irrevocable trusts; and (3) eliminate 
certain requirements found in the current rules for revocable and 
irrevocable trusts.
Merger of Revocable and Irrevocable Trust Categories
    As discussed above, the NCUA historically has insured revocable 
trust funds and irrevocable trust funds held at FICUs under two 
separate insurance categories. The NCUA's experience has been this 
bifurcation often confuses FICUs' staff and their members, as it 
requires a threshold inquiry to determine which set of rules to apply 
to a trust account. Moreover, all trust funds deposited at a FICU must 
be categorized before the aggregation of trust funds deposited within 
each category can be completed. The NCUA believes funds held in 
connection with revocable and irrevocable trusts are sufficiently 
similar, for the purposes of share insurance coverage, to warrant the 
merger of these two categories into one category. Under the NCUA's 
current rules, share insurance coverage is provided because the trustee 
maintains the funds for the benefit of the beneficiaries. This fact is 
true regardless of whether the trust is revocable or irrevocable. 
Merging the revocable and irrevocable trust categories will better 
conform share insurance coverage to the substance--rather than the 
legal form--of the trust arrangement. This underlying principle of the 
share insurance rules is particularly important in the context of 
trusts, as state law often provides flexibility to structure 
arrangements in different ways to accomplish a given purpose.\53\
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    \53\ For example, the NCUA currently aggregates funds in 
payable-on-death accounts and funds of written revocable trusts for 
the purposes of share insurance coverage, despite their separate and 
distinct legal mechanisms. Also, where the co-owners of a revocable 
trust are also that trust's sole beneficiaries, the NCUA instead 
insures the trust's funds as joint funds, reflecting the 
arrangement's substance rather than its legal form.

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[[Page 79402]]

    FICU members may have various reasons for selecting a particular 
legal arrangement, but that decision should not significantly affect 
share insurance coverage. Importantly, the merger of the revocable 
trust and irrevocable trust categories into one category for share 
insurance purposes will not affect the application or operation of 
state trust law; it will only affect the determination of share 
insurance coverage for these types of trust funds in the event of a 
FICU's liquidation.
    Accordingly, the NCUA is amending Sec.  745.4 of its regulations, 
which currently applies only to revocable trust accounts, to establish 
a new ``trust accounts'' category that includes both revocable and 
irrevocable trust funds deposited at a FICU. The final rule defines the 
funds that will be included in this category as follows: (1) informal 
revocable trust funds, such as payable-on-death accounts, in-trust-for 
accounts, and Totten trust accounts; (2) formal revocable trust funds, 
defined to mean funds held pursuant to a written revocable trust 
agreement under which funds pass to one or more beneficiaries upon the 
grantor's death; and (3) irrevocable trust funds, meaning funds held 
pursuant to an irrevocable trust established by written agreement or by 
statute.
    In addition, the merger of the revocable trust and irrevocable 
trust categories eliminates the need for Sec.  745.4(h) through (i) of 
the current revocable trust rules, which provide that the revocable 
trust rules may continue to apply to an account where a formal 
revocable trust becomes irrevocable due to the death of one or more of 
the trust's grantors. These provisions were intended to benefit 
accountholders, who sometimes were unaware that a trust owner's death 
could trigger a significant decrease in insurance coverage as a 
revocable trust becomes irrevocable.
    However, in the NCUA's experience, this rule has proven complex in 
part because it results in some irrevocable trusts being insured per 
the revocable trust rules, while other irrevocable trusts are insured 
under the irrevocable trust rules.\54\ As a result, an accountholder 
could know a trust was irrevocable but not know which share insurance 
rules to apply. The final rule will insure funds of formal and informal 
revocable trusts and irrevocable trusts according to a common set of 
rules, eliminating the need for these provisions (Sec.  745.4(h) 
through (i)) and simplifying coverage for accountholders. Accordingly, 
the death of a formal revocable trust owner will not result in a 
decrease in share insurance coverage for the trust. Coverage for 
irrevocable and formal revocable trusts will fall under the same 
category and share insurance coverage will remain the same, even after 
the expiration of the six-month grace period following the death of an 
account owner.\55\
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    \54\ As noted above, if a revocable trust becomes irrevocable 
due to the death of the grantor, the account continues to be insured 
under the revocable trust rules. 12 CFR 745.4(h).
    \55\ The death of an account owner can affect share insurance 
coverage, often reducing the amount of coverage that applies to a 
family's accounts. To ensure that families dealing with the death of 
a family member have adequate time to review and restructure 
accounts if necessary, the NCUA insures a deceased owner's accounts 
as if he/she/they were still alive for a period of 6 months after 
his/her/their death. 12 CFR 745.2(e).
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    Informal revocable trust accounts will also be insured under this 
same trust account category but are unlikely to result in the creation 
of an irrevocable trust account upon an owner or co-owner's death. As 
is the case under the existing share insurance regulations, when a co-
owner of an informal revocable trust account dies, share insurance 
coverage for the deceased owner's interest in the account will cease 
after the expiration of the six-month grace period allowed for the 
death of share account owners. After the expiration of the six-month 
grace period, share insurance coverage will be calculated as if the 
deceased co-owner did not exist and the deceased co-owner's name did 
not remain on the account. This treatment of the account will be based 
on the fact that all funds in the account will be owned by one person 
(that is, the surviving co-owner).
Calculation of Coverage
    As was proposed, the final rule uses one streamlined calculation to 
determine the amount of share insurance coverage for funds of both 
revocable and irrevocable trusts. This method is already used by the 
NCUA to calculate coverage for revocable trusts that have five or fewer 
beneficiaries, and it is an aspect of the rules that is generally well 
understood by FICUs and their members. The final rule will provide that 
a grantor's trust funds are insured in an amount up to the SMSIA 
(currently $250,000) multiplied by the number of trust beneficiaries, 
not to exceed five beneficiaries. The NCUA will presume that, for share 
insurance purposes, the trust provides for equal treatment of 
beneficiaries such that specific allocation of the funds to the 
respective beneficiaries will not be relevant, consistent with the 
NCUA's current treatment of revocable trusts with five or fewer 
beneficiaries. This will, in effect, limit coverage for a grantor's 
trust funds at each FICU to a total of $1,250,000; in other words, 
maximum coverage will be equivalent to $250,000 per beneficiary for up 
to five beneficiaries. In determining share insurance coverage, the 
NCUA will continue to consider only beneficiaries who are expected to 
receive the funds held by the trust in a member account at the FICU; 
the NCUA will not consider beneficiaries who are expected to receive 
only non-deposit assets of the trust.
    The NCUA is deciding to calculate coverage in this manner, in part, 
based on its experience with the revocable trust rules after the 
modifications to these rules in 2008.\56\ The NCUA has found the share 
insurance calculation method for revocable trusts with five or fewer 
beneficiaries has been the most straightforward and is easier for 
FICUs' staff and the public to understand. This calculation provides 
for insurance in an amount up to the total number of unique grantor-
beneficiary trust relationships (that is, the number of grantors, 
multiplied by the total number of beneficiaries, multiplied by the 
SMSIA).\57\ In addition to being simpler, this calculation has proven 
beneficial in liquidations, as it leads to more prompt share insurance 
determinations and quicker access to insured funds for accountholders. 
As discussed in section II.E., commenters also supported using this 
calculation. Accordingly, the NCUA will calculate share insurance 
coverage for trust accounts based on the simpler calculation currently 
used for revocable trusts with five or fewer beneficiaries.
---------------------------------------------------------------------------

    \56\ 73 FR 60616 (Oct. 14, 2008).
    \57\ For example, two co-grantors that designate five 
beneficiaries are insured for up to $2,500,000 (2 x 5 x $250,000).
---------------------------------------------------------------------------

    The streamlined calculation that will be used to determine coverage 
for revocable trust funds and irrevocable trust funds includes a limit 
on the total amount of share insurance coverage for all of an 
accountholder's funds in the trust category at the same FICU. As was 
proposed, the final rule will provide coverage for trust funds at each 
FICU up to a total of $1,250,000 per grantor; in other words, each 
grantor's insurance limit will be $250,000 per beneficiary up to a 
maximum of five beneficiaries. The level of five beneficiaries is an 
important threshold in the current revocable trust rules, as it defines 
whether a grantor's coverage is determined using the simpler 
calculation of the number of

[[Page 79403]]

beneficiaries multiplied by the SMSIA or the more complex calculation 
involving the consideration of the amount of each beneficiary's 
specific interest (which applies when there are six or more 
beneficiaries). The current trust rules limit coverage by tying 
coverage to the specific interests of each beneficiary of an 
irrevocable trust or of each beneficiary of a revocable trust with more 
than five beneficiaries. The final rule's $1,250,000 per-grantor, per-
FICU limit is more straightforward and balances the objectives of 
simplifying the trust rules, promoting timely payment of share 
insurance, facilitating liquidations, ensuring consistency with the FCU 
Act, and limiting risk to the Share Insurance Fund. The final rule will 
also provide parity between the NCUA's regulations and those adopted by 
the FDIC in early 2022.\58\
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    \58\ 87 FR 4455 (Jan. 28, 2022).
---------------------------------------------------------------------------

    The NCUA anticipates that limiting coverage to $1,250,000 per 
grantor, per FICU, for trust funds will not have a substantial effect 
on accountholders, as most trust accounts in past FICU liquidations 
have had balances well below this level. However, because the NCUA 
lacks sufficient information to project the exact effects of the new 
limit on current accountholders, the agency requested in the proposed 
rule that commenters provide information that might be helpful in this 
regard. As discussed in greater detail in section II.E., the comments 
received did not indicate that the limit will have a substantial effect 
on accountholders.
    Under the final rule, to determine the level of insurance coverage 
that will apply to funds held in trust accounts, accountholders will 
still need to identify the grantors and the eligible beneficiaries of 
the trust. The level of coverage that applies to trust accounts will no 
longer be affected by the specific allocation of trust funds to each of 
the beneficiaries of the trust or by contingencies outlined in the 
trust agreement. Instead, the final rule will provide that a grantor's 
trust funds are insured up to a total of $1,250,000 per grantor, or an 
amount up to the SMSIA multiplied by the number of eligible 
beneficiaries, with a limit of no more than five beneficiaries.
Aggregation
    As was proposed, the final rule also provides for the aggregation 
of funds held in revocable and irrevocable trust accounts for the 
purposes of applying the share insurance limit. Under the current 
rules, funds held in informal revocable trust accounts and formal 
revocable trust accounts are aggregated for this purpose.\59\ The final 
rule will aggregate a grantor's informal and formal revocable trust 
accounts, as well as irrevocable trust accounts. For example, all 
informal revocable trusts, formal revocable trusts, and irrevocable 
trusts held for the same grantor at the same FICU will be aggregated, 
and the grantor's insurance limit will be determined by how many 
eligible and unique beneficiaries are identified among all of their 
trust accounts.\60\ The share insurance coverage provided in the 
``trust accounts'' category will remain separate from the coverage 
provided for other funds held in a different right and capacity at the 
same FICU.
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    \59\ See 12 CFR 745.4(a) (``All funds that an owner holds in 
both living trust accounts and payable-on-death accounts, at the 
same NCUA-insured credit union and naming the same beneficiaries, 
are aggregated for insurance purposes and insured to the applicable 
coverage limits . . . .'').
    \60\ For example, if a grantor maintained both an informal 
revocable trust account with three beneficiaries and a formal 
revocable trust account with three separate and unique 
beneficiaries, the two accounts would be aggregated and the maximum 
share insurance available would be $1.25 million (one grantor times 
the SMSIA times the number of unique beneficiaries, limited to 
five). However, if the same three people were the beneficiaries of 
both accounts, the maximum share insurance available would be 
$750,000 (one grantor times the SMSIA times the three unique 
beneficiaries).
---------------------------------------------------------------------------

    However, some accountholders who currently maintain both revocable 
trust and irrevocable trust deposits at the same FICU may have funds in 
excess of the insurance limit when these separate categories are 
combined. As noted in the proposed rule, the NCUA lacks data on 
accountholders' trust arrangements that allow it to estimate the number 
of accountholders who might be affected in this manner. As such, the 
NCUA requested that commenters provide information that might be 
helpful in this regard. As discussed in greater detail in section 
II.E., the comments received did not indicate that the aggregate limit 
will have a substantial effect on accountholders. The agency does not 
believe this change will impact a substantial number of accountholders 
and is finalizing it as proposed.
Eligible Beneficiaries
    Currently, the revocable trust rules provide that eligible 
beneficiaries include natural persons, charitable organizations, and 
non-profit entities recognized as such under the Internal Revenue Code 
of 1986,\61\ while the irrevocable trust rules do not establish 
criteria for beneficiaries. As stated in the proposed rule, the NCUA 
believes a single definition should be used to determine whether an 
entity is an eligible beneficiary for all trust funds and proposes to 
use the current revocable trust rule's definition. The NCUA believes 
this single definition will result in a change in share insurance 
coverage only in very rare cases.
---------------------------------------------------------------------------

    \61\ 12 CFR 754.4(c).
---------------------------------------------------------------------------

    As was proposed, the final rule will exclude from the calculation 
of share insurance coverage beneficiaries who would obtain an interest 
in a trust only if one or more named beneficiaries are deceased (often 
referred to as contingent beneficiaries). This exclusion codifies 
existing practice to include only primary, unique beneficiaries in the 
share insurance calculation.\62\ This codification does not represent a 
substantive change in coverage. Consistent with treatment under the 
current trust rules, naming a chain of contingent beneficiaries that 
would obtain trust interests only in the event of a beneficiary's death 
will not increase share insurance coverage.
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    \62\ See NCUA Your Insured Funds at page 42 (``The beneficiaries 
are the people or entities entitled to an interest in the trust. 
Contingent or alternative trust beneficiaries are not considered to 
have an interest in the trust funds and other assets as long as the 
primary or initial beneficiaries are still living, with the 
exception of revocable living trusts with a life estate 
interest.'').
---------------------------------------------------------------------------

    Finally, as in the proposed rule, the final rule will codify an 
interpretation of the trust rules where an informal revocable trust 
designates the depositor's formal trust as its beneficiary. A formal 
trust generally does not meet the definition of an eligible beneficiary 
for share insurance purposes, but the NCUA has treated such accounts as 
revocable trust accounts under the trust rules, insuring the account as 
if it were titled in the name of the formal trust.\63\ Additionally, 
the Board wishes to clarify that if an irrevocable trust is named as 
beneficiary of an informal revocable trust account, the informal 
revocable trust account will also be treated as if titled in the name 
of that formal trust.
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    \63\ See 74 FR 55747, 55748 (Oct. 29, 2009).
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Retained Interests and Ineligible Beneficiaries' Interests
    The current trust rules provide that, in some instances, funds 
corresponding to specific beneficiaries are aggregated with a grantor's 
single ownership deposits at the same FICU for the purposes of the 
share insurance calculation. These instances include a grantor's 
retained interest in an irrevocable trust \64\ and interests of 
beneficiaries who do not satisfy the

[[Page 79404]]

definition of ``beneficiary.'' \65\ This adds complexity to the share 
insurance calculation, as a detailed review of a trust agreement may be 
required to value such interests so they may be aggregated with a 
grantor's other funds. To implement the streamlined calculation for 
funds held in trust accounts, the NCUA proposed to eliminate these 
provisions. Under the proposed rule, the grantor and other 
beneficiaries who do not satisfy the definition of ``eligible 
beneficiary'' would not be included for the purposes of the share 
insurance calculation.\66\ Importantly, this exclusion would not in any 
way limit a grantor's ability to establish such trust interests under 
state law. These interests simply would not factor into the calculation 
of share insurance coverage. The Board has decided to adopt these 
changes as proposed.
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    \64\ See 12 CFR 745.2(d)(4).
    \65\ 12 CFR 745.4(d).
    \66\ In the unlikely event a trust does not name any eligible 
beneficiaries, the NCUA would treat the funds in the trust account 
as funds held in a single ownership account. Such funds would be 
aggregated with any other single ownership funds that the grantor 
maintains at the same FICU and insured up to the SMSIA of $250,000.
---------------------------------------------------------------------------

Future Trusts Named as Beneficiaries
    Trusts often contain provisions for the establishment of one or 
more new trusts upon the grantor's death. The proposed rule sought to 
clarify share insurance coverage in these situations. Under the 
proposed rule, if a trust agreement provides that trust funds will pass 
into one or more new trusts upon the death of the grantor (or 
grantors), the future trust (or trusts) would not be treated as 
beneficiaries for the purposes of the calculation. The future trust(s) 
instead would be considered mechanisms for distributing trust funds, 
and the natural persons or organizations that receive the trust funds 
through the future trusts would be considered the beneficiaries for the 
purposes of the share insurance calculation. The Board has decided to 
adopt this position as proposed. This clarification is consistent with 
the NCUA's current interpretations and would not represent a 
substantive change in share insurance coverage.
Naming of Beneficiaries in Share Account Records
    Consistent with the current revocable trust rules and the proposed 
rule, the final rule will continue to require the beneficiaries of an 
informal revocable trust to be expressly named in the account records 
of the FICU.\67\ The NCUA does not believe this requirement imposes a 
burden on FICUs, as informal revocable trusts by their nature require 
the FICU to be able to identify the individuals or entities to which 
funds would be paid upon the accountholder's death.
---------------------------------------------------------------------------

    \67\ See 12 CFR 745.4(b).
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Presumption of Ownership
    As in the proposed rule, the final rule also states that, unless 
otherwise specified in a FICU's account records, funds held in an 
account for a trust established by multiple grantors are presumed to be 
owned in equal shares. This presumption is consistent with the current 
revocable trust rules.\68\
---------------------------------------------------------------------------

    \68\ See 12 CFR 745.4(f).
---------------------------------------------------------------------------

Funds Covered Under Other Rules
    Under the proposed rule, certain trust funds that are covered by 
other sections of the share insurance regulations would be excluded 
from coverage under Sec.  745.4. For example, employee benefit plan 
accounts are insured pursuant to current Sec.  745.9-2. In addition, if 
the co-owners of an informal or formal revocable trust are the trust's 
sole beneficiaries, funds held in connection with the trust would be 
treated as a joint ownership account under Sec.  745.8. The Board has 
decided to adopt this as proposed. In each of the provided cases, the 
NCUA is not changing the current rule.
Removal of the Appendix to Part 745
    As was proposed, the final rule will remove the appendix to part 
745, which provides examples of share insurance coverage. As noted in 
the proposed rule, the NCUA plans to update its Your Insured Funds 
brochure to reflect the amendments made to part 745.\69\ The Board 
believes the updated brochure and other updated resources available on 
mycreditunion.gov will provide a more consumer friendly and easier-to-
update avenue for providing examples of share insurance coverage.
---------------------------------------------------------------------------

    \69\ https://mycreditunion.gov/sites/default/static-files/insured-funds-brochure.pdf.
---------------------------------------------------------------------------

    The final rule also removes references to the appendix in the 
heading of part 745 and in Sec. Sec.  745.0, 745.2, and 745.13. As 
such, once this portion of the final rule has gone into effect, 
providing the appendix will no longer satisfy the notification to 
members/shareholders requirement in Sec.  745.13. Instead, FICUs will 
have to make available either the rules in part 745 of the NCUA's 
regulations or the updated Your Insured Funds brochure.
Conforming Changes
    As discussed in the proposal, the final rule's simplification of 
the calculation for insurance coverage for funds held in trust accounts 
permits the elimination of current Sec.  745.2(d) of the regulations 
addressing the valuation of trust interests. As discussed further 
below, the description of non-contingent interests in Sec.  745.2(d)(1) 
and (2) is no longer relevant to trust accounts under the final rule. 
Additionally, Sec.  745.2(d)(3) regarding the deemed pro rata 
contribution of settlors to a trust is replaced by new Sec.  
745.4(b)(4), which presumes equal allocation. Current Sec.  745.2(d)(4) 
defining a ``trust interest'' is replaced by the definition of 
``irrevocable trust'' in new Sec.  745.4(a)(3).
    Regarding non-contingent interests, as was proposed, the final rule 
moves the current description of a non-contingent interest in Sec.  
745.2(d)(1) to the definitions section of part 745. The new definition 
of ``non-contingent interest'' in Sec.  745.1 remains substantively the 
same but will now only be relevant to evaluating participants' non-
contingent interests in shares of an employee benefit plan under Sec.  
745.9-2(a). As was proposed, the new definition of ``non-contingent 
interest'' adds language to include any present worth or life 
expectancy tables that the IRS may adopt that are similar to those set 
forth in Sec.  20.2031-7 of the Federal Estate Tax Regulations (26 CFR 
20.2031-7). This change is not substantive but is instead intended to 
provide flexibility if the IRS makes any changes. As part of this 
change, the final rule also makes non-substantive changes to Sec.  
745.1 to improve readability. The final rule also removes the reference 
to Sec.  745.2 in current Sec.  745.9-2.
    Finally, the final rule redesignates current Sec.  745.9-2 as Sec.  
745.9 to reflect the elimination of current Sec.  745.9-1 governing 
irrevocable trust accounts. The reference in Sec.  745.9-2(a) to Sec.  
745.2 is also removed to reflect the elimination of the description of 
a non-contingent interest in current Sec.  745.2(d) and adoption of a 
definition of ``non-contingent interest'' in new Sec.  745.1.
Effective Date
    The effective date of the trust account changes will be delayed 
until December 1, 2026. This delayed effective date mirrors the 
timeline the FDIC used in adopting its trust account changes. It is 
intended to provide FICUs, accountholders, and the NCUA time to prepare 
for the changes in trust account share insurance coverage. FICUs will 
have an opportunity to review the changes in coverage, train employees, 
and update publications if necessary. Accountholders may review 
insurance coverage for their funds and adjust their share account 
arrangements if desired. In addition, the NCUA must update its

[[Page 79405]]

share insurance estimator and share insurance coverage publications, 
including publications that provide guidance to FICUs and 
accountholders. The Board's rationale for adopting a delayed effective 
date as was suggested in the proposal and not providing for any 
continued application of the current rules to existing accounts is 
discussed further in section II.E.

E. Examples Demonstrating Coverage Under Current and Final Rules

    To assist commenters, the NCUA is providing examples demonstrating 
how the final rule will apply to determine share insurance coverage for 
funds held in trust accounts. These examples are not intended to be 
all-inclusive; they merely address a few possible scenarios involving 
funds held in trust accounts. The NCUA expects that, for most 
accountholders, insurance coverage will not change under the final 
rule. The examples here highlight a few instances where coverage could 
be reduced to ensure the public is aware of them. The examples mirror 
those provided in the proposed rule.
    In addition, all examples involve members or those otherwise 
entitled to maintain insured accounts at the FICU. Again, share 
insurance coverage is only available to FICU members and those 
otherwise entitled to maintain insured accounts. For revocable trust 
accounts, all grantors must be members of the FICU or otherwise 
eligible to maintain an insured account to receive share insurance 
coverage. In the case of an irrevocable trust account, all grantors or 
all beneficiaries must be members of the FICU or otherwise eligible to 
maintain an insured account to receive share insurance coverage. Where 
a revocable trust account has become irrevocable because of the death 
of a grantor, the deceased grantor's membership will continue to 
satisfy their membership requirement as long as the trust account 
continues to be maintained at the FICU.
Example 1: Payable-On-Death Account
    Member A establishes a payable-on-death account at a FICU. Member A 
has designated three beneficiaries for this account--B, C, and D--who 
will receive the funds upon member A's death and listed all three on a 
form provided to the FICU. The only other share account that member A 
maintains at the same FICU is a share draft account with no designated 
beneficiaries. What is the maximum amount of share insurance coverage 
for member A's shares at the FICU?
    Under the final rule, member A's payable-on-death account 
represents an informal revocable trust and would be insured in the 
trust accounts category. The maximum coverage for this account would be 
equal to the SMSIA (currently $250,000) multiplied by the number of 
grantors (in this case one because member A established the account) 
multiplied by the number of beneficiaries, up to a maximum of five 
(here three, the number of beneficiaries is less than five). Member A's 
payable-on-death account would be insured for up to ($250,000) x (1) x 
(3) = $750,000.
    The coverage for member A's payable-on-death account is separate 
from the coverage provided for member A's share draft account, which 
would be insured in the single ownership category because she has not 
named any beneficiaries for that account. The single ownership share 
draft account would be insured up to the SMSIA, $250,000. Member A's 
total insurance coverage for shares at the FICU would be $750,000 + 
$250,000 = $1,000,000. Notably, this level of coverage is the same as 
that provided by the current share insurance rules.
Example 2: Formal Revocable Trust and Informal Revocable Trust
    Members E and F jointly establish a payable-on-death account at a 
FICU. Members E and F have designated three beneficiaries for this 
account--G, H, and I--who will receive the funds after both members E 
and F are deceased. They list these beneficiaries on a form provided to 
the FICU. Members E and F also jointly establish an account titled in 
the name of the ``E and F Living Trust'' at the same FICU. Members E 
and F are the grantors of the living trust, a formal revocable trust 
that includes the same three beneficiaries, G, H, and I. The grantors, 
members E and F, do not maintain any other share accounts at this same 
FICU. What is the maximum amount of share insurance coverage for 
members E and F's shares?
    Under the final rule, members E and F's payable-on-death account 
represents an informal revocable trust and would be insured in the 
trust accounts category. Members E and F's living trust account 
constitutes a formal revocable trust and would also be insured in the 
trust accounts category. To the extent the funds in these accounts 
would pass from the same grantor (E or F) to beneficiaries (G, H, and 
I), the funds would be aggregated for the purpose of applying the share 
insurance limit. As under the current rules, it would be irrelevant 
that the grantors' shares are divided between the payable-on-death 
account and the living trust account.
    The maximum coverage for members E and F's shares would be equal to 
the SMSIA ($250,000) multiplied by the number of grantors (two, because 
members E and F are the grantors with respect to both accounts) 
multiplied by the number of unique beneficiaries, up to a maximum of 
five (here three, the number of beneficiaries, is less than five). 
Therefore, the coverage for E and F's trust accounts would be 
($250,000) x (2) x (3) = $1,500,000. This level of coverage is the same 
as that provided by the current share insurance rules.
Example 3: Two-Owner Trust and a One-Owner Trust
    Members J and K jointly establish a payable-on-death account at a 
FICU. Members J and K have designated three beneficiaries for this 
account--L, M, and N--who will receive the funds after both J and K are 
deceased. They list these beneficiaries on a form provided to the FICU. 
At the same FICU, Member J establishes a payable-on-death account and 
designates Member K as the beneficiary upon J's death. What is the 
maximum amount of coverage for members J and K's shares?
    Under the final rule, both accounts would be insured under the 
trust account category. To the extent these shares would pass from the 
same grantor (J or K) to beneficiaries (such as L, M, and N), they 
would be aggregated for the purpose of applying the share insurance 
limit. For example, member K identified three beneficiaries (L, M, and 
N), and therefore, member K's insurance limit is $750,000 (or (1) x (3) 
x ($250,000)). Member K would be fully insured as long as one-half 
interest of the co-owned trust account was $750,000 or less, which is 
the same level of coverage provided under current rules. In this 
example, member J's situation differs from member K's because J has a 
second trust account, but the insurance calculation remains the same. 
Specifically, member J has two trust accounts and identified four 
unique beneficiaries (L, M, N, and K); therefore, member J's insurance 
limit is $1,000,000 (or (1) x (4) x ($250,000)). Member J would remain 
fully insured as long as J's trust shares--equal to one-half of the co-
owned trust account plus J's personal trust account--total no more than 
$1,000,000. This methodology and level of coverage is the same as that 
provided by the current share insurance rules.
Example 4: Revocable and Irrevocable Trusts
    Member O establishes a share account at a FICU titled the ``O 
Living Trust.'' Member O is the grantor of this living trust, a formal 
revocable trust that includes three beneficiaries--P, Q, and R. The 
grantor, member O, also

[[Page 79406]]

establishes an irrevocable trust for the benefit of the same three 
beneficiaries. The trustee of the irrevocable trust maintains a share 
account at the same FICU as the living trust account, titled in the 
name of the irrevocable trust. Neither member O nor the trustee 
maintains other share accounts at the same FICU. What is the insurance 
coverage for these accounts?
    Under the final rule, the living trust account is a formal 
revocable trust and would be insured in the trust accounts category. 
The account containing the funds from the irrevocable trust account 
would also be insured in the trust accounts category. To the extent 
these shares would pass from the same grantor (member O) to 
beneficiaries (P, Q, or R), they would be aggregated for the purposes 
of applying the share insurance limit. It would be irrelevant that the 
shares are divided between the living trust account and the irrevocable 
trust account. The maximum coverage for these shares would be equal to 
the SMSIA ($250,000) multiplied by the number of grantors (one, because 
member O is the grantor with respect to both accounts) multiplied by 
the number of beneficiaries, up to a maximum of five (here three, the 
number of beneficiaries, is less than five). Therefore, the maximum 
coverage for the shares in the trust accounts would be ($250,000) x (1) 
x (3) = $750,000.
    This example is one of the few instances where the final rule may 
provide a reduced amount of coverage as a result of the aggregation of 
revocable and irrevocable trust accounts, depending on the structure of 
the trust agreement. Under the current rules, member O would be insured 
for up to $750,000 for revocable trust shares and separately insured 
for up to $750,000 for irrevocable trust shares (assuming non-
contingent beneficial interests), resulting in $1,500,000 in total 
coverage. If that were the case, current coverage would exceed that 
provided by the final rule. However, the terms of irrevocable trusts 
sometimes lead to less coverage than expected. It is often the case 
that irrevocable trust accounts are only insured up to $250,000 under 
the current rules due to contingencies in the trust agreement, but 
determining this with certainty often requires careful consideration of 
the trust agreement's contingency provisions. Under the current rule, 
if contingencies existed, current coverage would exceed that provided 
by the final rule, as member O would be insured up to $1,000,000; 
$750,000 for the revocable trust and $250,000 for the irrevocable 
trust. In the NCUA's view, one of the key benefits of the final rule 
versus the current rule will be greater clarity and predictability in 
share insurance coverage because whether contingencies exist will no 
longer be a factor that could affect share insurance.
Example 5: Many Beneficiaries Named
    Member S establishes a share account at a FICU titled in the name 
of the ``S Living Trust.'' This trust is a revocable trust naming seven 
beneficiaries--T, U, V, W, X, Y, and Z. The grantor, member S, does not 
maintain any other shares at the same FICU. What is the coverage for 
this account?
    Under the final rule, the living trust is a formal revocable trust 
and would be insured in the trust accounts category. The maximum 
coverage for this account would be equal to the SMSIA ($250,000) 
multiplied by the number of grantors (one, because member S is the sole 
grantor) multiplied by the number of beneficiaries, up to a maximum of 
five. Here the number of named beneficiaries (seven) exceeds the 
maximum (five), so insurance is calculated using the maximum (five). 
Coverage for the account would be ($250,000) x (1) x (5) = $1,250,000.
    This example is another instance where the final rule may provide 
for less coverage than the current rule. Under the current rule, 
because more than five beneficiaries are named, the account is insured 
up to the greater of the following: (1) five times the SMSIA; or (2) 
the total of the interests of each beneficiary, with each such interest 
limited to the SMSIA. Determining coverage requires a review of the 
trust agreement to ascertain each beneficiary's interest. Each such 
insurable interest is limited to the SMSIA, and the total of all these 
interests is compared with $1,250,000 (five times the SMSIA). The 
current rule provides coverage in the greater of these two amounts. The 
result would fall into a range from $1,250,000 to $1,750,000, depending 
on the precise allocation of trust interests among the 
beneficiaries.\70\ In the NCUA's view, one of the key benefits of the 
final rule versus the current rule is greater clarity and 
predictability in share insurance coverage because a single formula is 
used to determine maximum coverage, and this formula will not depend 
upon the specific allocation of funds among beneficiaries.
---------------------------------------------------------------------------

    \70\ For example, if all the beneficiaries' interests were 
equal, coverage would be $250,000 x (7 beneficiaries) = $1,750,000. 
This amount is the maximum coverage possible under the current rule. 
Conversely, if a few beneficiaries had a large interest in the 
trust, the total of all beneficiaries' interests (limited to the 
SMSIA per beneficiary) could be less than $1,250,000, in which case 
the current rule would provide a minimum of $1,250,000 in coverage. 
Depending upon the precise allocation of interests, the amount of 
coverage provided would fall somewhere within this range.
---------------------------------------------------------------------------

F. Discussion of Comments

Overview of the Comments
    The NCUA received 13 comments on the proposed rule, 11 of which 
provided relevant substantive feedback. Comments were received from 
individuals, a FICU, state credit union leagues and national trade 
associations, a law firm, and an association of state credit union 
supervisors. All 11 substantive comments supported the proposed rule, 
with a number providing additional feedback regarding potential 
revisions or other matters to contemplate further. As described below, 
common issues commenters spoke to were parity with FDIC coverage, the 
merger of the trust account categories, the proposed trust calculation, 
and membership issues.
Parity With FDIC Coverage
    Six commenters addressed the importance of parity with FDIC 
coverage. One deemed it crucial for maintaining consistency and 
fairness in the financial system. Another opined that if FDIC coverage 
is easier to understand or provides additional coverage, it could 
result in funds being moved to banks and could introduce reputational 
risk to the credit union system. A commenter noted that while parity is 
not reason enough to adopt a change, they recognized its importance, 
particularly because the public tends to be more familiar with the FDIC 
than the NCUA. As stated in both the proposed rule and this final rule, 
ensuring parity between the share insurance and deposit insurance 
regimes is an important basis for the NCUA making these changes to the 
trust account rules.
Effects of the Changes on Understanding of the Trust Rules
    Commenters universally believed the proposed amendments would make 
insurance coverage for trust accounts easier to understand. One 
commenter said trust accounts are already more complex than individual 
share accounts, and the current rules increase the likelihood of 
misunderstanding coverage by adding complexity with different rules and 
calculation methods due to the type of trust, number of beneficiaries, 
or other factors. A national trade association said its member FICUs 
have reported the current system, with distinct rules for revocable and 
irrevocable trusts, has caused significant confusion and led to

[[Page 79407]]

a high volume of complex inquiries. The association believed the 
proposal will offer clear and straightforward guidance for FICUs, their 
employees, and their accountholders. One commenter emphasized that 
making share insurance coverage easier to understand is important 
because the public is generally less familiar with the NCUA than the 
FDIC. The commenter supported changes to enhance visibility or, at a 
minimum, to make it easier for a consumer to understand the 
similarities between FDIC and NCUA coverage.
    The Board appreciates commenters' confirmation that the changes 
will make share insurance for trust accounts easier to understand. In 
the proposal, the Board also stated it believes that under the proposal 
accountholders generally would have the information necessary to 
readily calculate share insurance coverage for their trust accounts, 
better allowing them to understand insurance coverage for their trust 
accounts. However, the Board also asked if there were instances where 
an accountholder would not likely have the necessary information.
    Two commenters cited instances where accountholders may lack the 
necessary information to calculate share insurance coverage under the 
proposal. The first cited an accountholder whose trust is not readily 
accessible, such as if it is old and maintained by a third party; this 
commenter suggested the NCUA apprise accountholders of the rule and 
remind them to find necessary documents. The second said complex trust 
structures or changes in beneficiaries could cause a lack of necessary 
information, particularly if the accountholder does not have immediate 
access to updated details. The commenter believed this could make 
determining the beneficiaries challenging, particularly in trusts 
involving multiple generations or those set up for estate planning.
    The Board agrees with commenters that fact-specific circumstances 
related to individual accountholders' trust accounts may result in 
individual situations where an accountholder lacks the necessary 
information to readily calculate their share insurance coverage. 
However, the situations described, and others like them, relate to 
complexities in accountholders' individual trust arrangements that 
would be difficult or impossible to ameliorate in regulations governing 
share insurance. Instead, it is up to accountholders and those 
maintaining these trusts to ensure their understanding of them, so they 
can apply the share insurance regulations to them in evaluating their 
share insurance coverage. The Board agrees with the commenter that 
requested that the NCUA apprise accountholders of the rule changes and 
remind them to locate necessary documents. The NCUA will be providing 
publicly available resources to notify accountholders of the rule 
changes and explain them. In doing so, the NCUA will also reiterate the 
importance of understanding trust arrangements and maintaining 
necessary trust documents.
Merger of the Trust Categories
    Seven commenters specifically supported merging the revocable and 
irrevocable trust account categories. Commenters believed this would 
reduce confusion, minimize the number of questions to the NCUA, reduce 
regulatory burden, and improve operational processes. One national 
trade association said its member FICUs did not anticipate the merger 
would result in reduced insurance coverage in practice. However, they 
asked the NCUA to track any such outcomes in liquidations and suggested 
revisiting the rule if stakeholder input or liquidations show reduced 
coverage.
    The Board agrees the merger of the trust categories should simplify 
insurance coverage of trust accounts, reduce confusion, and alleviate 
burden on FICUs, accountholders, and the NCUA. While the Board 
appreciates the suggestion to track outcomes in liquidations where the 
merger of the trust categories causes a reduction in insurance 
coverage, it declines to create a formal process for doing so. 
Simultaneously calculating insurance coverage under the current and new 
trust rules would negate many of the efficiency and simplification 
benefits the changes are intended to provide. While there will not be a 
formal mechanism for tracking such results, should the agency become 
aware of the trust account changes creating an unanticipated level of 
decreased share insurance coverage, either during evaluation of 
liquidations or through public input, the Board will consider whether 
additional changes are needed, in consultation with the FDIC.
Methodology for Calculating Trust Coverage
    Six commenters specifically supported the proposed method for 
calculating trust account coverage. Commenters believed the more 
straightforward uniform method would enhance transparency, as well as 
FICU and member understanding; make it easier to inform members of 
their coverage; provide consistency with FDIC coverage; and benefit 
from FICUs and members being already familiar with it. One national 
trade association said its member FICUs did not think the $1,250,000-
per-grantor cap was too low, as the vast majority of accounts are well 
below that level, but did ask the NCUA to track liquidations to ensure 
the cap is not too low. Additionally, one commenter suggested 
clarifying in the final rule that a trust with more than one grantor--
such as a husband and wife--would have maximum coverage of $1,250,000 
per grantor.
    The Board agrees with commenters that the calculation method should 
provide the described benefits. The Board also agrees the $1,250,000-
per-grantor cap is unlikely to be too low.\71\ However, as the 
commenter requested, the agency does plan to continue to track 
uninsured amounts in liquidations, if any, and can explore further 
changes should it become warranted. Finally, the Board believes the 
proposed rule was clear that a single grantor is eligible for a maximum 
of $1,250,000 for all their trust interests. However, it reiterates 
that is the case here. In other words, where a husband and wife 
maintained one account at a FICU, a co-owned revocable trust account 
with five named eligible beneficiaries, the account would be eligible 
for up to $1,250,000 per grantor, for a total of $2,500,000.
---------------------------------------------------------------------------

    \71\ See Average Inheritance: How Much Are Retirees Leaving to 
Heirs? [verbar] Boldin (stating that the median size of a trust fund 
is around $285,000), citing the U.S. Federal Reserve's Survey of 
Consumer Finances (SCF),'' Nov. 2023.
---------------------------------------------------------------------------

Examples of Trust Account Coverage
    One commenter encouraged the NCUA to maintain communications with 
FICUs to ensure its examples sufficiently cover ownership structures 
implemented by members. The Board agrees the NCUA should communicate 
with FICUs about this issue and the agency will do so.
Effects on Call Report Filings
    One commenter was concerned that reporting of insured shares on the 
Call Report is inaccurate. The commenter said FICU computer systems 
tend not to code trust accounts correctly for reporting insured shares, 
causing them to go unreported as insured shares or to be missing some 
beneficiaries. The commenter said many FICUs do not include 
beneficiaries in their computer systems and only maintain that data in 
paper records, which excludes many beneficiaries that would be included 
in reporting insured shares. The commenter believed it might be more 
accurate to take total outstanding shares and apply a factor to compute 
insured

[[Page 79408]]

shares. While outside the scope of this rulemaking, this concern will 
be evaluated by staff.
Effects on Other Types of Accounts
    In the proposal, the NCUA asked if there are types of trusts not 
described in the proposal whose funds maintained in FICU accounts would 
be affected by the proposed changes. One commenter said the proposal 
might not fully address trusts like charitable remainder trusts or 
special needs trusts, noting they have unique characteristics that 
could affect insurance coverage. The commenter also said trusts 
operating under state-specific laws or provisions might have aspects 
not contemplated in the rule, necessitating a broader consideration.
    As the commenter noted, many trusts operate under state-specific 
laws, which can vary. As such, the share insurance regulations could 
not fully accommodate each and every type of trust. With regard to 
special needs trusts and charitable remainder trusts, coverage will 
depend upon the exact details of each trust arrangement, including 
whether the trust names eligible beneficiaries.
Comments Addressing Other Changes to the Trust Rules
    Two commenters supported the proposal to eliminate certain 
requirements in the current trust account rules as a pragmatic step 
towards reducing unnecessary regulatory burdens, leading to more 
efficient operations and improved customer experience. One commenter 
supported the proposed removal of the appendix to part 745 in favor of 
updates to NCUA guidance. The commenter believed this would make it 
easier for members to understand share insurance coverage.
Continued Application of the Current Rules to Existing Accounts or a 
Delayed Effective Date
    In the proposal, the Board noted it prefers a delayed effective 
date for the trust account changes over continuing the coverage under 
current rules for accounts existing at the time the final rule goes 
into effect. This situation was referred to as ``grandfathering'' 
accounts under the current rules in the proposal. It is referred to as 
``legacy coverage'' in this final rule. The proposal reasoned that 
providing both legacy coverage for existing accounts and separate 
coverage under the new rules for new accounts would result in 
significantly greater complexity for the period when two sets of rules 
could apply to accounts--especially in conducting liquidations. The 
Board's belief was and remains that a delayed implementation date 
allows stakeholders to make necessary adjustments for the new rules, 
without the complications of two sets of rules coexisting. In 
recognition that there could be instances that may not be easily 
restructured without adverse consequences to the accountholder, such as 
trusts holding share certificates or other account relationships, the 
proposal asked whether there are fact patterns where legacy coverage 
for existing accounts may be appropriate. The proposal also asked if 
this approach would be appropriate with respect to the proposed rule's 
coverage limit of $1,250,000 per FICU for an accountholder's funds held 
in trust accounts.
    Three commenters supported some form of legacy coverage for 
existing accounts. Two urged providing legacy coverage at current 
levels for existing trust accounts, such as if a member is the grantor 
of both a revocable and an irrevocable trust at the same FICU. One of 
these commenters argued that consumers with open accounts expect to 
maintain their current coverage, providing legacy coverage for existing 
accounts should not increase loss risk to the Share Insurance Fund 
relative to current policy, and a reduction in coverage represents a 
reputational risk to NCUA share insurance that could reduce public 
confidence in the credit union system. The other said that providing 
legacy coverage for existing accounts may increase complexity in 
liquidations but believed it may be the best solution to avoid adverse 
consequences to members. A third commenter said this legacy coverage 
may be appropriate in certain scenarios to protect members, such as in 
trusts with long-term investments like share certificates where 
restructuring could lead to financial losses, or in complex estate 
planning trusts requiring significant legal and administrative changes.
    Four commenters supported a delayed effective date. One said that 
if the NCUA avoids providing legacy coverage for existing accounts, it 
should adopt an appropriately delayed implementation that recognizes 
the potential hardships and allows stakeholders to make necessary 
changes. Another believed that even with legacy coverage for existing 
accounts, a delayed implementation date would be essential for FICUs to 
review trust relationships and notify any negatively affected members. 
A third opposed providing legacy coverage for existing accounts, 
reasoning the intricacies involved could present challenges. The 
commenter also stated, ``concerns arise regarding the potential 
limitations of studying credit unions, as these may not fully capture 
the dynamics of larger credit unions, potentially leading to adverse 
effects on the relationships between [m]embers and credit unions.''
    The Board has strongly considered the comments received and the 
effects the new trust account rules will have on accountholders. The 
Board continues to believe providing legacy coverage for existing 
accounts poses complications and burdens to FICUs, accountholders, and 
the NCUA that make such a system unworkable. The Board believes that by 
providing a substantially delayed effective date that is in excess of 
two years, FICUs and their accountholders should have enough time to 
make any needed changes to their accounts to ensure adequate share 
insurance coverage. Further, the Board remains doubtful the changes 
will result in reduced coverage in most instances.\72\ Providing a 
delay in effect for the changes that matches the one the FDIC provided 
to insured depository institutions and their accountholders should 
provide both FICUs and their accountholders with sufficient time to 
complete any necessary adjustments.
---------------------------------------------------------------------------

    \72\ See footnote 71.
---------------------------------------------------------------------------

Membership
    Several commenters addressed the membership requirements for trust 
accounts. One commenter advocated simplifying membership requirements 
to establish a more straightforward approach with the goal of 
redefining the criteria determining the eligibility of individuals or 
entities for share insurance coverage, especially in the context of 
trust accounts. One commenter said membership should be satisfied for 
trust accounts if at least one member is on the account.
    One commenter expressed support for the NCUA's efforts to simplify 
share insurance coverage but believed that meeting the agency's goals 
of providing clarity to FICUs and members and of providing parity with 
the FDIC's treatment of trust accounts required clarifying membership 
requirements for two types of accounts: (1) revocable trust accounts 
where not all settlors are members; and (2) irrevocable trust accounts 
where no settlors are members.
    On revocable trust accounts where not all settlors are members, the 
commenter believed the NCUA should provide coverage to nonmember co-
owners of a revocable trust account. The commenter correctly noted the 
NCUA's position has long been that joint accounts where there is a 
right of survivorship, which do not have beneficiaries, qualify for

[[Page 79409]]

share insurance for interests of both depositors even where there is a 
nonmember co-owner; whereas a nonmember co-owner's interest in a 
revocable trust account, such as a payable-on-death account, is not 
eligible for share insurance. The commenter believed the addition of a 
payable-on-death beneficiary should not defeat the extension of share 
insurance to a nonmember co-owner. The commenter also said this 
position is not explicitly contained in the regulations and is only 
documented in the NCUA's Share Insurance Estimator FAQ, which is not 
legally binding. The commenter emphasized that the FDIC clearly 
delineates that all payable-on-death beneficiaries are treated the same 
for insurance purposes, and the commenter believed the divergence from 
FDIC regulations is contrary to the NCUA's parity goal. The commenter 
concluded the proposed rule provides an opportunity to provide clear 
instructions for calculating coverage for joint accounts with payable-
on-death beneficiaries or any other revocable trust account with one or 
more nonmember settlors.
    To clarify, the NCUA's longstanding position is that nonmembers may 
be joint owners of a joint account with a right of survivorship (an 
account with no beneficiaries) and have an insurable interest if one 
joint owner of the account is a member. This position is based on a 
specific statutory provision that allows for nonmembers to be co-owners 
with a member if the account is held with a right of survivorship.\73\ 
In other words, the NCUA provides share insurance coverage to nonmember 
owners of joint accounts (an account with no beneficiaries) where there 
is a right of survivorship based upon a statutory exception to the 
normal limitation that the NCUA only provides coverage to members. This 
coverage for nonmember owners of joint accounts with a right of 
survivorship (an account with no beneficiaries) is expressly provided 
for in the NCUA's regulations.\74\
---------------------------------------------------------------------------

    \73\ See 12 U.S.C. 1759(a).
    \74\ See 12 CFR 745.8(e).
---------------------------------------------------------------------------

    Conversely, the NCUA has not recognized a statutory exception for 
providing share insurance coverage to nonmember co-owners of revocable 
trust accounts, which are different from joint accounts with no 
beneficiaries under the share insurance regulations. Unlike the 
coverage for nonmember joint account owners expressly provided for in 
the NCUA's regulations, the NCUA's regulations do not contain any 
provision related to nonmember co-owners of revocable trust accounts 
that negates the normal limitation that share insurance coverage is 
provided to members. Instead, the agency's longstanding position has 
been that co-owned revocable trust accounts are different from joint 
accounts held with a right of survivorship; and as such, they require 
co-owners (settlors of the trust) to be members to receive insurance 
coverage for their interests in the revocable trust account. It is also 
worth noting that while parity with FDIC coverage is an important aim, 
the NCUA's coverage is generally limited to member accounts. Because 
the FDIC coverage is not so limited, instances will inevitably occur 
where coverage is not parallel.
    In addressing irrevocable trust accounts where no settlors are 
members, the commenter erroneously concluded the NCUA's position as to 
membership requirements for irrevocable trust accounts would pose an 
issue under the proposal. The commenter correctly noted that under the 
current rules, irrevocable trust accounts can be established as long as 
either all settlors or all beneficiaries are members of the FICU. The 
commenter concluded that because the proposal would calculate coverage 
for irrevocable and revocable trusts in aggregate to $1.25 million per 
grantor, the NCUA would not provide coverage to an account where the 
settlors were not members, but all beneficiaries were members. This 
conclusion is incorrect. While coverage would be limited to $1.25 
million in aggregate for a grantor, any interest related to an 
irrevocable trust where all the beneficiaries were members would still 
be insured based on the beneficiaries' membership status. The 
limitation would only be related to interests for one grantor being 
limited to $1.25 million, irrespective of the grantor's lack of 
membership.
Other Comments
    Two commenters agreed the changes should help facilitate the prompt 
payment of share insurance. One commenter noted that, while NCUA Board 
Members will often accurately say no member has ever lost one penny of 
funds insured by the Share Insurance Fund, members have lost funds they 
thought were insured due to misunderstanding the coverage rules. As 
noted, the Board's goal with this rulemaking is to reduce this 
confusion.
    In response to the NCUA's request for input regarding empirical 
information the agency should consider to help it understand the 
effects of its proposed rule, a commenter provided an article detailing 
an empirical study of the jurisdictional competition for trust funds. 
Of most relevance, the article notes the difficulty of empirically 
studying inter vivos (living) trusts due to various factors, including 
these trusts' private nature and complexity.

III. Amendments to Mortgage Servicing Account Rule

A. Policy Objectives

    The NCUA's regulations governing share insurance coverage include 
specific rules on accounts maintained at FICUs by mortgage 
servicers.\75\ These rules are intended to be easy to understand and 
apply in determining the amount of share insurance coverage for a 
mortgage servicer's account (MSA). The NCUA generally strives to 
maintain parity with FDIC's regulations in furtherance of this aim.
---------------------------------------------------------------------------

    \75\ 12 CFR 745.3(a)(3).
---------------------------------------------------------------------------

    The NCUA proposed an amendment to its rules governing insurance 
coverage for accounts maintained at FICUs by mortgage servicers that 
consist of mortgagors' principal and interest payments. The proposed 
change would mirror a change made by the FDIC in early 2022 that became 
effective in April 2024, and which was intended to address a servicing 
arrangement that is not addressed in the current rules.\76\ 
Specifically, some servicing arrangements may permit or require 
servicers to advance their own funds to the lenders when mortgagors are 
delinquent in making principal and interest payments, and servicers 
might commingle such advances in the MSA with principal and interest 
payments collected directly from mortgagors. The FDIC reasoned that the 
factors that motivated the FDIC to establish its current rules for 
MSAs, which the NCUA also adopted and are further described below, 
weigh in favor of treating funds advanced by a mortgage servicer to 
satisfy mortgagors' principal and interest obligations to the lender as 
if such funds were collected directly from borrowers. The FDIC also 
noted it seeks to avoid uncertainty concerning the extent of deposit 
insurance coverage for such accounts. The proposed rule noted the NCUA 
concurs with the importance of avoiding uncertainty regarding the 
extent of insurance coverage and believes that an important aspect of 
avoiding uncertainty is maintaining parity between the share insurance 
and deposit insurance regimes.
---------------------------------------------------------------------------

    \76\ 87 FR 4455 (Jan. 28, 2022).
---------------------------------------------------------------------------

    After reviewing the comments received on this proposed change, the 
Board has decided to finalize the change as proposed. As discussed 
further

[[Page 79410]]

below, the Board has also decided to make this change effective 30 days 
after publication in the Federal Register.

B. Background and Need for Rulemaking

    The NCUA's rules governing coverage for MSAs were last amended in 
2008, which corresponded to changes made by the FDIC. More 
specifically, in 2008 the FDIC recognized securitization methods and 
vehicles for mortgages had become more complex, exacerbating the 
difficulty of determining the ownership of deposits consisting of 
principal and interest payments by mortgagors and extending the time 
required to make a deposit insurance determination for deposits of a 
mortgage servicer in the event of an insured depository institution's 
(IDI's) failure.\77\ The FDIC expressed concern that a lengthy 
insurance determination could lead to continuous withdrawal of deposits 
of principal and interest payments from IDIs and unnecessarily reduce a 
funding source for such institutions. The FDIC therefore amended its 
rules to provide coverage to lenders based on each mortgagor's payments 
of principal and interest into the MSA, up to its standard maximum 
deposit insurance amount per mortgagor (currently $250,000). The FDIC 
did not amend the rule for coverage of tax and insurance payments, 
which continued to be insured to each mortgagor on a pass-through basis 
and aggregated with any other deposits maintained by each mortgagor at 
the same IDI in the same right and capacity. The NCUA agreed that this 
treatment of principal and interest payments provided greater and 
fairer coverage for credit union members and decided to apply the same 
approach in its share insurance rules.\78\
---------------------------------------------------------------------------

    \77\ See 73 FR 61658, 61658-59 (Oct. 17, 2008).
    \78\ 73 FR 62856, 62857 (Oct. 22, 2008).
---------------------------------------------------------------------------

    Importantly, the 2008 amendments to the rules for MSAs did not 
provide for the fact that servicers may be required to advance their 
own funds to make payments of principal and interest on behalf of 
delinquent borrowers to the lenders. However, in its recent rulemaking 
the FDIC identified that advancing their own funds is required of 
mortgage servicers in some instances. For example, the FDIC noted that 
some IDIs identified challenges to implementing certain recordkeeping 
requirements with respect to MSA deposit balances because of the way in 
which servicer advances are accounted for and administered.\79\
---------------------------------------------------------------------------

    \79\ The FDIC noted that, to fulfill their contractual 
obligations with investors, covered IDIs maintain mortgage principal 
and interest balances at a pool level and remittances, advances, 
advance reimbursements, and excess funds applications that affect 
pool-level balances are not allocated back to individual borrowers.
---------------------------------------------------------------------------

    The NCUA's current rules, which mirror the FDIC's rules that were 
in effect until April 1, 2024, provide coverage for principal and 
interest funds only to the extent ``paid into the account by the 
mortgagors''; they do not provide coverage for funds paid into the 
account from other sources, such as the servicer's own operating funds, 
even if those funds satisfy mortgagors' principal and interest 
payments. As a result, advances are not provided the same level of 
coverage as other deposits in an MSA consisting of principal and 
interest payments directly from the borrower, which are insured up to 
the SMSIA for each borrower. Instead, the advances are aggregated and 
insured to the servicer as corporate funds for a total of $250,000. In 
adopting changes to its rule in early 2022, the FDIC expressed concern 
that this inconsistent treatment of principal and interest amounts 
could result in financial instability during times of stress, and could 
further complicate the insurance determination process, a result that 
is inconsistent with their policy objective. As noted in the proposal, 
the NCUA shares these concerns and believes it is important that parity 
is maintained between the insurance regimes.

C. Final Rule

    The NCUA is finalizing the rule as proposed with no changes. The 
final rule will amend the rules governing coverage for funds in MSAs to 
provide parity with the FDIC's regulation and provide consistent share 
insurance treatment for all MSA balances held to satisfy principal and 
interest obligations to a lender, regardless of whether those funds are 
paid into the account by borrowers or paid into the account by another 
party (such as the servicer) to satisfy a periodic obligation to remit 
principal and interest due to the lender. Under the final rule, 
accounts maintained by a mortgage servicer in an agency, custodial, or 
fiduciary capacity, which consist of payments of principal and 
interest, will be insured for the cumulative balance paid into the 
account to satisfy principal and interest obligations to the lender, 
whether paid directly by the borrower or by another party, up to the 
limit of the SMSIA per mortgagor. Mortgage servicers' advances of 
principal and interest funds on behalf of delinquent borrowers will 
therefore be insured up to the SMSIA per mortgagor, consistent with the 
coverage rules for payments of principal and interest collected 
directly from borrowers.
    The composition of an MSA attributable to principal and interest 
payments will also include collections by a servicer, such as 
foreclosure proceeds, that are used to satisfy a borrower's principal 
and interest obligation to the lender. In some cases, foreclosure 
proceeds may not be paid directly by a mortgagor. The current rule does 
not address whether foreclosure collections represent payments of 
principal and interest by a mortgagor. Under the final rule, 
foreclosure proceeds used to satisfy a borrower's principal and 
interest obligation will be insured up to the limit of the SMSIA per 
mortgagor.
    The final rule does not make any changes to the share insurance 
coverage provided for MSAs comprised of payments from mortgagors of 
taxes and insurance premiums. Such aggregate escrow accounts are held 
separately from the principal and interest MSAs, and the funds therein 
are held for the mortgagors until such time as tax and insurance 
payments are disbursed by the servicer on the borrower's behalf. Under 
the final rule, such funds will continue to be insured based on the 
ownership interest of each mortgagor in the account and aggregated with 
other funds maintained by the mortgagor at the same FICU in the same 
capacity and right.
    The Board is opting to make this change effective 30 days after 
publication in the Federal Register. Given the change provides more 
expansive coverage and should not impose additional burden on FICUs or 
accountholders, the Board does not see a reason to delay its effect.

D. Discussion of Comments

    Six commenters expressly supported the proposed rule's changes to 
insurance of MSAs. In terms of the benefits cited, four commenters 
noted the importance of parity with FDIC coverage. Three cited the 
benefits of a standardized approach and fair and equitable treatment. 
Five noted the greater clarity provided for FICUs and members. Two said 
the change represents improved protection of the interests of all 
parties, aligns with best practices, and offers additional security. 
One stressed the change simplifies the complex landscape and enables 
FICUs to manage MSAs more confidently and efficiently. That commenter 
believed the change was crucial for maintaining the integrity and 
reliability of the MSA system, as the change recognizes the practical 
realities of servicing arrangements and the various sources of

[[Page 79411]]

funds that may be used to satisfy borrowers' obligations. The commenter 
thought the inclusion of foreclosure collections particularly 
important, as the current rule does not address it. Two commenters 
stated the change would help promote financial stability. One said the 
change would reduce financial institutions' counterparty risk exposure, 
which also reduces liquidity risk to the FICU holding the MSAs. Another 
said providing insurance for these advanced funds supports the mortgage 
market and broader financial system's stability.
    One national trade association reported its FICU members expressed 
initial concerns with increased Share Insurance Fund costs due to 
larger insured balances from covering funds paid by mortgage servicers. 
However, after members reviewed the potential effect in greater detail, 
they concluded any such increase in cost would be nominal. The 
commenter urged the NCUA to monitor this change to ensure it does not 
lead to an excessive increase in Share Insurance Fund-related 
liquidation costs. The Board concurs that this change should only 
nominally increase any Share-Insurance-Fund related liquidation costs. 
However, the agency will continue to monitor such costs.
    Only one commenter addressed the NCUA's request regarding whether a 
delayed effective date is necessary. The commenter believed a delayed 
effective date appropriate but had no concern with an earlier date. As 
discussed, the Board is opting to make this change effective 30 days 
after publication in the Federal Register. The comments received do not 
give the Board the impression that commenters were opposed to the 
change becoming effective without delay. Further, given the change only 
clarifies and expands share insurance coverage, the NCUA does not 
believe the change should impose any burden on FICUs or accountholders.

IV. Recordkeeping Requirements

A. Policy Objectives

    The NCUA's regulations governing share insurance coverage include 
general principles applicable in determining insurance of accounts.\80\ 
Among these general principles are provisions addressing 
recordkeeping.\81\ The NCUA intends for these provisions to clearly 
articulate the records the agency will look to when evaluating 
insurance coverage. As discussed in more detail below, over time it has 
become apparent that the recordkeeping provisions do not clearly 
address all situations and may be especially unclear as to accounts 
maintained by an agent, custodian, fiduciary, or other party on behalf 
of a member or beneficial owner eligible to maintain an insured account 
at a FICU. To better address these situations, the NCUA proposed to 
amend the recordkeeping requirements.
---------------------------------------------------------------------------

    \80\ 12 CFR 745.2.
    \81\ 12 CFR 745.2(c).
---------------------------------------------------------------------------

    After reviewing the comments received on this proposed change, the 
Board has decided to finalize the change as proposed. As discussed 
further below, the Board has also decided to make this change effective 
30 days after publication in the Federal Register.

B. Background and Need for Rulemaking

    Section 745.2(c) of the NCUA's regulations addresses general 
recordkeeping requirements. Other recordkeeping requirements applicable 
to specific account types are addressed as needed in the relevant 
sections of part 745. Current Sec.  745.2(c)(1) provides that, as a 
general matter, the account records of the FICU shall be conclusive as 
to the existence of any relationship pursuant to which the funds in the 
account are deposited and on which a claim for insurance coverage is 
founded. Examples would be trustee, agent, custodian, or executor. No 
claim for insurance based on such a relationship will be recognized in 
the absence of such disclosure.
    Section 745.2(c)(2) provides that, if the account records of a FICU 
disclose the existence of a relationship which may provide a basis for 
additional insurance, as required under Sec.  745.2(c)(1), the details 
of the relationship and the interest of other parties in the account 
must be ascertainable either from the records of the FICU or the 
records of the member maintained in good faith and in the regular 
course of business. It is this provision that has raised questions 
regarding accounts maintained by an agent, fiduciary, or similar party. 
The NCUA has received several questions regarding whether records 
maintained by an agent, fiduciary, or similar third party on behalf of 
the member or beneficial owner eligible to maintain an insured account 
would qualify as the ``records of the member.'' Due to the frequency 
with which these agent or fiduciary arrangements will involve a party 
other than the FICU or member maintaining records on the FICU's or 
member's behalf, the NCUA proposed to add language explicitly 
clarifying that such records, when maintained in good faith and in the 
regular course of business, can be looked to when evaluating the 
details of the relationship and the interest of other parties in the 
account at the FICU.

C. Final Rule

    The NCUA is adopting the proposed rule as proposed with no changes. 
Section 745.3(a)(2) of the NCUA's current regulations provides that 
when an account is held by an agent or nominee, funds owned by a 
principal and deposited in one or more accounts in the name or names of 
agents or nominees shall be added to any individual account of the 
principal and insured up to the SMSIA in the aggregate. The NCUA will 
also generally look to the principal or beneficial owner for satisfying 
the membership requirement or other eligibility to maintain an insured 
account at the FICU. As such, records maintained by an agent or nominee 
on behalf of the member principal or beneficial owner may not clearly 
be considered ``records of the member'' for the purpose of ascertaining 
their interests in the account under current Sec.  745.2(c)(2).
    The NCUA has previously issued a legal opinion stating that where 
an agent or custodian ``has an agreement with the beneficial owner/
member to maintain custody of the beneficial owner/member's records, 
[the] NCUA would consider those records to be `records of the member' 
within the meaning of 12 [CFR] 745(c)(2).'' \82\ However, as the NCUA 
acknowledged in the proposed rule, it would be beneficial for the 
regulation to more clearly address this situation to allow the details 
of the relationship and the interests of other parties in the account 
to be ascertainable either from the account records of the FICU or from 
records maintained, in good faith and in the regular course of 
business, by the member or by some person who or entity that has 
undertaken to maintain such records for the member.
---------------------------------------------------------------------------

    \82\ NCUA Legal Op. 97-0909 (Feb. 6, 1998), available at https://www.ncua.gov/regulation-supervision/legal-opinions/1997/pass-through-insurance.
---------------------------------------------------------------------------

    Accordingly, the NCUA is adopting this change as proposed. This 
change will provide greater clarity, particularly in the event of 
multi-tiered fiduciary relationships, and would more closely compare to 
language previously adopted by the FDIC.\83\ Importantly, the NCUA 
retains discretion to determine when records are maintained on behalf 
of a member, in good faith and in the regular course of business. 
Ultimately, the NCUA must be able to establish ownership interests in 
the account by following the chain of records

[[Page 79412]]

maintained by parties at each level of the relationship from the 
account records maintained at the FICU.
---------------------------------------------------------------------------

    \83\ 12 CFR 330.5(b)(2).
---------------------------------------------------------------------------

    Additionally, Sec.  745.2(c)(3) of the current regulations provides 
that the account records of a FICU in connection with a trust account 
shall disclose the name of both the settlor (grantor) and the trustee 
of the trust and shall contain an account signature card executed by 
the trustee. This requirement goes beyond the recordkeeping 
requirements of Sec.  745.2(c)(1) through (2) and poses an unnecessary 
burden on FICUs and their members. Further, the FDIC previously 
eliminated a similar requirement.\84\ To eliminate unnecessary 
recordkeeping complexity and provide parity with the FDIC, the NCUA is 
eliminating current Sec.  745.2(c)(3), as was proposed.
---------------------------------------------------------------------------

    \84\ 51 FR 21137 (June 11, 1986).
---------------------------------------------------------------------------

    Section 745.2(c)(4) states that the interests of the co-owners of a 
joint account shall be deemed equal, unless otherwise stated on the 
insured credit union's records in the case of a tenancy in common. As 
proposed, the NCUA is not making any substantive amendments to this 
provision but is moving it to Sec.  745.2(c)(3) given the elimination 
of the current requirement in that section.
    Finally, Sec.  745.14(a)(2) notes that interest on lawyers' trust 
accounts (IOLTAs) and other similar escrow accounts are subject to the 
recordkeeping requirements of Sec.  745.2(c)(1) and (2). In doing so, 
Sec.  745.14(a)(2) provides an example of how the details of the 
relationship between the attorney or escrow agent and their clients and 
principals must be ascertainable from the records of the FICU or from 
records maintained, in good faith and in the regular course of 
business, by the member attorney or member escrow agent administering 
the account. As was proposed, the final rule amends this description to 
conform to the change to Sec.  745.2(c)(2) to explicitly state that the 
records detailing the relationship and the interest of other parties in 
the account must be maintained, in good faith and in the regular course 
of business, by: (1) the FICU; or (2) the member attorney or member 
escrow agent, or a person or entity acting on their behalf.

D. Discussion of Comments

    All seven commenters who addressed the proposed recordkeeping 
requirement changes supported the changes. Two commenters stated 
requiring the details of a relationship and the interests of other 
parties in an account to be ascertainable from records maintained in 
good faith is a sound practice, which should ensure transparency and 
accountability. One said the proposal would provide an approach 
consistent with FDIC pass-through deposit insurance expectations for 
various types of ``other similar escrow account'' that may exist, 
including sweep accounts. One commenter noted many FICU members rely on 
trusted third parties for recordkeeping as part of their estate 
planning. The commenter also believed this change should reduce 
inquiries to the NCUA.
    One commenter noted support for the proposed removal of the 
requirement that the account records of a FICU in connection with a 
trust account shall disclose the name of both the grantor and the 
trustee of the trust and shall contain an account signature card 
executed by the trustee. The commenter agreed the requirement poses an 
unnecessary burden on FICUs and members.
    Four commenters said the change provides FICUs adequate clarity as 
to the records the NCUA will look to when evaluating the details of 
account relationships and the interests of other parties in accounts 
maintained at FICUs. One urged the Board to finalize the change as 
proposed. Another understood there to be only limited confusion 
regarding the issue but noted support for reduced burden and enhanced 
usability of the rules.
    In response to the proposal's questions on the subject, one 
commenter said that, while the proposed change is a significant step 
towards clarity and provides essential guidance in complex account 
management scenarios, there may be alternative or additional steps that 
could further align with the NCUA's policy objectives, including the 
following: (1) adopting a definition of ``account records'' similar to 
the FDIC's definition of ``deposit account records'' to standardize the 
documentation framework, ensure uniformity, and reduce ambiguity in 
what constitutes necessary records; (2) adopting specific detailed 
provisions for multi-tiered fiduciary relationships akin to those 
adopted by the FDIC, which would help clarify the responsibilities and 
recordkeeping obligations in complex arrangements involving multiple 
parties; and (3) adopting broader definitions and illustrative examples 
for various account relationships, such as joint accounts or trusts 
with multiple beneficiaries. The commenter said it is imperative to 
ensure the recordkeeping regulations remain relevant and effective as 
technology advances and banking evolves into a more digital domain. The 
commenter suggested adding a periodic review and update clause for the 
recordkeeping requirements to ensure regulations stay current with the 
evolving banking practices. The commenter believed this would be 
especially pertinent for handling international accounts or accounts 
involved in complex transactions.
    The Board will take these additional recommendations into 
consideration as it continues to evaluate ways to improve the NCUA's 
share insurance regulations. The Board notes that NCUA staff routinely 
review rules for effectiveness, including through its annual review of 
one-third of its regulations and the Economic Growth and Regulatory 
Paperwork Reduction Act (also known as EGRPRA) process that the NCUA 
voluntarily undertakes every ten years.
    The proposal also requested comment on whether the NCUA should 
consider adoption of heighted recordkeeping requirements, akin to those 
the FDIC adopted in part 370 of its regulations, to facilitate prompt 
payment of insurance when large institutions fail. Six commenters 
addressed the possibility. None of the commenters supported adoption of 
such requirements, but some did provide recommendations if the NCUA 
were to adopt a similar regime. The Board will take this feedback into 
consideration as it further studies the possibility of proposing 
similar requirements.
    The proposed rule asked about whether there was any reason to delay 
the effective date of the recordkeeping change. This question intended 
to elicit comments on whether a delayed effective date for the proposed 
recordkeeping requirements changes would allow more flexibility when 
evaluating share insurance coverage by clarifying that the NCUA can 
look to records maintained by a third party on a member's behalf if 
they are maintained in good faith and in the regular course of 
business. One commenter believed a delayed effective date for those 
changes appropriate but had no concern with an earlier date.
    Another commenter seemingly interpreted this question as asking 
about a delayed effective date for potential NCUA adoption of a regime 
similar to the FDIC's, as was asked about in the previous question in 
the proposal, rather than about a delayed effective date for the 
proposed changes to the recordkeeping requirements. This commenter 
believed timing pivotal and suggested the NCUA grant FICUs an extended 
period to comply because of the intricacies of compliance, especially 
in terms of recordkeeping, and need to

[[Page 79413]]

effectively adapt FICU processes and systems without experiencing undue 
burden.\85\ Given the proposed changes would not increase burden on 
FICUs or members, but instead clarify that the NCUA will look to more 
expansive records to evaluate parties' interest in insured accounts, 
the concerns the commenter raised do not seem applicable to the changes 
proposed.
---------------------------------------------------------------------------

    \85\ This commenter specifically responded to this question. 
However, it seems likely the commenter interpreted the question as 
asking whether a delayed effective date would be appropriate for 
adopting a part 370 type regime, which was asked about in the 
preceding question.
---------------------------------------------------------------------------

    As discussed, the Board is opting to make this change effective 30 
days after publication in the Federal Register. The comments received 
do not give the Board the impression that commenters were opposed to 
the change becoming effective without delay. Further, given the change 
only clarifies that the NCUA has additional flexibility to look to 
additional records to determine parties' interests in an account, the 
Board does not believe that it will impose any burden on FICUs or their 
members. The Board believes that clarifying that the NCUA has this 
greater discretion to look to additional records will only provide 
benefit.

V. Regulatory Procedures

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires that, in 
connection with a final rulemaking, an agency prepare and make 
available for public comment a final regulatory flexibility analysis 
that describes the effect of the final rule on small entities. A 
regulatory flexibility analysis is not required, however, if the agency 
certifies that the rule will not have a significant economic effect on 
a substantial number of small entities (defined for the purposes of the 
RFA to include credit unions with assets less than $100 million) \86\ 
and publishes its certification and a short, explanatory statement in 
the Federal Register together with the rule.
---------------------------------------------------------------------------

    \86\ See 80 FR 57512 (Sept. 24, 2015).
---------------------------------------------------------------------------

    The Board fully considered the potential economic effect of the 
changes made by this final rule during its development. As noted in the 
preamble, the final rule simplifies the NCUA's current share insurance 
regulations covering types of trust accounts. It also provides more 
flexibility on the coverage of MSAs. Finally, it explicitly provides 
for additional flexibility in what records the NCUA can look to when 
determining the details of account relationships and various parties' 
interests in the accounts.
    In short, the Board believes the principal consequence of the final 
rule will be to streamline its administrative procedures for insurance 
payouts on trust accounts when FICUs fail. Though the final rule will 
require FICUs and their members to be familiar with the new trust rules 
and the coverage limits imposed on trust accounts, the NCUA believes 
this will not impose any new significant burden on FICUs, may ease some 
existing requirements, and should reduce the complexity of questions 
FICUs receive from their members on share insurance coverage.
    Additionally, FICUs and their members are familiar with the new 
formula as it is already applied to revocable trust accounts with five 
or fewer beneficiaries. The formula is also simpler to understand and 
implement than the previous rules governing revocable trust accounts 
with six or more beneficiaries and irrevocable trusts.
    Ultimately, the changes to the rule governing coverage of MSAs and 
the changes to the recordkeeping requirements should only provide 
greater flexibility for coverage of these accounts and should not cause 
any new burden on FICUs or their members. Accordingly, the NCUA 
certifies that this final rule will not have a significant economic 
effect on a substantial number of small FICUs.

B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency by rule creates a new paperwork burden on regulated 
entities or modifies an existing burden.\87\ For the purposes of the 
PRA, a paperwork burden may take the form of a reporting, disclosure, 
or recordkeeping requirement, each referred to as an information 
collection. The NCUA may not conduct or sponsor, and the respondent is 
not required to respond to, an information collection unless it 
displays a currently valid Office of Management and Budget (OMB) 
control number.
---------------------------------------------------------------------------

    \87\ 44 U.S.C. 3507(d).
---------------------------------------------------------------------------

    The final rule does not contain information collection requirements 
that require approval by OMB under the PRA. The final rule will not 
create new or modify any existing paperwork burdens. Rather, the final 
rule will simplify the share insurance regulations by merging the 
revocable and irrevocable trust account categories into one trust 
account category and applying a simpler, common calculation method to 
determine insurance coverage for funds held in revocable and 
irrevocable trust accounts. The final rule will also provide consistent 
share insurance treatment for all MSA balances held to satisfy 
principal and interest obligations to a lender, regardless of whether 
those funds are paid into the account by borrowers or paid into the 
account by another party (such as the servicer) to satisfy a periodic 
obligation to remit principal and interest due to the lender. Finally, 
the final rule will explicitly allow the NCUA, when undertaking share 
insurance determinations, to look to records held in the normal course 
of business that are maintained by parties other than a FICU and its 
members on their behalf. As such, no PRA submissions to OMB will be 
made with respect to this final rule.

C. Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the effect of their actions on state and local interests. The 
NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), 
voluntarily complies with the principles of the Executive Order to 
adhere to fundamental federalism principles. This final rule will only 
impact the NCUA's regulations related to share insurance coverage; it 
will not affect state law related to trust accounts. The final rule 
will also not alter the NCUA's relationship or division of 
responsibilities with state regulatory agencies or bodies because the 
final rule will affect the NCUA's Federal share insurance 
determinations exclusively. This final rule will not have a substantial 
direct effect on the states, on the connection between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. The NCUA has 
determined that this final rule does not constitute a policy that has 
federalism implications for the purposes of the Executive Order.

D. Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this rule will not affect family well-
being within the meaning of section 654 of the Treasury and General 
Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681 
(1998). Under this statute, if the agency determines the final 
regulation may negatively affect family well-being, then the agency 
must provide an adequate rationale for its implementation.
    The NCUA has determined that the implementation of this rule will 
not negatively affect family well-being. The NCUA believes that any 
negative effect

[[Page 79414]]

will be limited because the trust changes may not affect many accounts, 
and members or others maintaining those accounts will have time and 
notice to modify the accounts before the final rule goes into effect. 
Further, the MSA and recordkeeping changes offset negative effects 
because they will instead provide the NCUA more flexibility to provide 
share insurance coverage with respect to funds dedicated to pay loans 
and other obligations related to family homes and businesses. If the 
NCUA ultimately finds that the rule does have a negative effect as the 
statute describes, it believes the benefits that the preamble describes 
in simplifying coverage and potentially reducing costs for the NCUA and 
for FICUs would support implementing the rule.

E. Small Business Regulatory Enforcement Fairness Act (Congressional 
Review Act)

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(Pub. L. 104-121) (SBREFA) generally provides for congressional review 
of new agency rules that qualify as ``major'' under criteria specified 
in the Act.\88\ The NCUA's analysis indicates the rule falls short of 
qualifying as ``major'' under SBREFA's criteria. As required by SBREFA, 
the NCUA is submitting this final rule and its economic impact analysis 
to OMB for concurrence on the ``not major'' determination. The NCUA 
also will file all other appropriate congressional reports.
---------------------------------------------------------------------------

    \88\ 5 U.S.C. 801-804.
---------------------------------------------------------------------------

List of Subjects in 12 CFR Part 745

    Credit, Credit Unions, Share Insurance.

    By the National Credit Union Administration Board on September 
19, 2024.
Melane Conyers-Ausbrooks,
Secretary of the Board.

    For the reasons discussed in the preamble, the Board is amending 12 
CFR part 745 as follows:

PART 745--SHARE INSURANCE COVERAGE

0
1. The authority citation for part 745 continues to read as follows:

    Authority: 12 U.S.C. 1752(5), 1757, 1765, 1766, 1781, 1782, 
1787, 1789; title V, Pub. L. 109-351;120 Stat. 1966.


0
2. The heading for part 745 is revised to read as set forth above.


Sec.  745.0  [Amended]

0
3. Amend Sec.  745.0 in the first sentence by removing the words ``and 
appendix''.

0
4. Revise Sec.  745.1 to read as follows:


Sec.  745.1  Definitions.

    For the purposes of this part:
    Account or accounts mean share, share certificate, or share draft 
accounts (or their equivalent under state law, as determined by the 
Board in the case of insured state-chartered credit unions) of a member 
(which includes other credit unions, public units, and nonmembers where 
permitted under the Act) in a credit union of a type approved by the 
Board which evidences money or its equivalent received or held by a 
credit union in the usual course of business and for which it has given 
or is obligated to give credit to the account of the member.
    Member or members mean those persons enumerated in the credit 
union's field of membership who have been elected to membership in 
accordance with the Act or state law in the case of state-chartered 
credit unions. It also includes those nonmembers permitted under the 
Act to maintain accounts in an insured credit union, including 
nonmember credit unions and nonmember public units and political 
subdivisions.
    Non-contingent interest means an interest capable of determination 
without evaluation of contingencies except for those covered by the 
present worth tables and rules of calculation for their use set forth 
in Sec.  20.2031-7 of the Federal Estate Tax Regulations (26 CFR 
20.2031-7) or any similar present worth or life expectancy tables which 
may be adopted by the Internal Revenue Service.
    Political subdivision includes any subdivision of a public unit, as 
defined in paragraph (c) of this section, or any principal department 
of such public unit,
    (1) The creation of which subdivision or department has been 
expressly authorized by state statute;
    (2) To which some functions of government have been delegated by 
state statute; and
    (3) To which funds have been allocated by statute or ordinance for 
its exclusive use and control. It also includes drainage, irrigation, 
navigation improvement, levee, sanitary, school or power districts and 
bridge or port authorities, and other special districts created by 
state statute or compacts between the states. Excluded from the term 
are subordinate or nonautonomous divisions, agencies, or boards within 
principal departments.
    Public unit means the United States, any state of the United 
States, the District of Columbia, the Commonwealth of Puerto Rico, the 
Panama Canal Zone, any territory or possession of the United States, 
any county, municipality, or political subdivision thereof, or any 
Indian Tribe as defined in section 3(c) of the Indian Financing Act of 
1974.
    Standard maximum share insurance amount referred to as the 
``SMSIA'' hereafter, means $250,000 adjusted pursuant to subparagraph 
(F) of section 11(a)(1) of the Federal Deposit Insurance Act (12 U.S.C. 
1821(a)(1)(F)).

0
5. Effective October 30, 2024, amend Sec.  745.2 by revising paragraph 
(c)(2) to read as follows:


Sec.  745.2  General principles applicable in determining insurance of 
accounts.

* * * * *
    (c) * * *
    (2) If the account records of an insured credit union disclose the 
existence of a relationship which may provide a basis for additional 
insurance, the details of the relationship and the interest of other 
parties in the account must be ascertainable either from the records of 
the credit union or the records of the member, maintained in good faith 
and in the regular course of business by the member or by some person 
who or entity that has undertaken to maintain such records for the 
member.
* * * * *

0
6. Further amend Sec.  745.2 by:
0
a. Revising paragraph (a);
0
b. Removing paragraph (c)(3);
0
c. Redesignating paragraph (c)(4) as paragraph (c)(3);
0
d. Removing paragraph (d); and
0
e. Redesignating paragraphs (e) and (f) as paragraphs (d) and (e).
    The revision reads as follows:


Sec.  745.2  General principles applicable in determining insurance of 
accounts.

    (a) General. This part provides for determination by the Board of 
the amount of members' insured accounts. The rules for determining the 
insurance coverage of accounts maintained by members in the same or 
different rights and capacities in the same insured credit union are 
set forth in the following provisions of this part. While the 
provisions of this part govern in determining share insurance coverage, 
to the extent local law enters into a share insurance determination, 
the local law of the jurisdiction in which the insured credit union's 
principal office is located will control over the local law of other 
jurisdictions where the insured

[[Page 79415]]

credit union has offices or service facilities.
* * * * *

0
7. Effective October 30, 2024, amend Sec.  745.3 by revising paragraph 
(a)(3) to read as follows:


Sec.  745.3  Single ownership accounts.

    (a) * * *
    (3) Mortgage servicing accounts. Accounts maintained by a mortgage 
servicer, in a custodial or other fiduciary capacity, which are 
comprised of payments of principal and interest, shall be insured for 
the cumulative balance paid into the account by mortgagors, or in order 
to satisfy mortgagors' principal or interest obligations to the lender, 
up to the limit of the SMSIA per mortgagor. Accounts maintained by a 
mortgage servicer, in a custodial or other fiduciary capacity, which 
are comprised of payments by mortgagors of taxes and insurance premiums 
shall be added together and insured in accordance with paragraph (a)(2) 
of this section for the ownership interest of each mortgagor in such 
accounts.
* * * * *

0
8. Revise Sec.  745.4 to read as follows:


Sec.  745.4  Trust accounts.

    (a) Scope and definitions. This section governs coverage for funds 
held in connection with informal revocable trusts, formal revocable 
trusts, and irrevocable trusts. For the purposes of this section:
    (1) Informal revocable trust means a trust under which deposited 
funds pass directly to one or more beneficiaries upon the owner's death 
without a written trust agreement, commonly referred to as a payable-
on-death account, in-trust-for account, or Totten trust account.
    (2) Formal revocable trust means a revocable trust established by a 
written trust agreement under which deposited funds pass to one or more 
beneficiaries upon the grantor's death.
    (3) Irrevocable trust means an irrevocable trust established by 
statute or a written trust agreement, except as described in paragraph 
(e) of this section.
    (b) Calculation of coverage--(1)General calculation. Deposited 
trust funds are insured in an amount up to the SMSIA multiplied by the 
total number of beneficiaries identified by each grantor, up to a 
maximum of five beneficiaries.
    (2) Aggregation for purposes of insurance limit. Deposited trust 
funds that pass from the same grantor to beneficiaries are aggregated 
for the purposes of determining coverage under this section, regardless 
of whether those funds are held in connection with an informal 
revocable trust, formal revocable trust, or irrevocable trust.
    (3) Separate insurance coverage. The share insurance coverage 
provided under this section is separate from coverage provided for 
other funds at the same federally insured credit union.
    (4) Equal allocation presumed. Unless otherwise specified in the 
account records of the federally insured credit union, deposited funds 
held in connection with a trust established by multiple grantors are 
presumed to have been owned or funded by the grantors in equal shares.
    (c) Number of beneficiaries. The total number of beneficiaries for 
trust funds deposited under paragraph (b) of this section will be 
determined as follows:
    (1) Eligible beneficiaries. Subject to paragraph (c)(2) of this 
section, beneficiaries include natural persons, as well as charitable 
organizations and other non-profit entities recognized as such under 
the Internal Revenue Code of 1986, as amended.
    (2) Ineligible beneficiaries. Beneficiaries do not include:
    (i) The grantor of a trust; or
    (ii) A person or entity that would only obtain an interest in the 
deposited funds if one or more named beneficiaries are deceased.
    (3) Future trust(s) named as beneficiaries. If a trust agreement 
provides that trust funds will pass into one or more new trusts upon 
the death of the grantor(s) (``future trusts''), the future trust(s) 
are not treated as beneficiaries of the trust; rather, the future 
trust(s) are viewed as mechanisms for distributing trust funds, and the 
beneficiaries are the natural persons or organizations that shall 
receive the trust funds through the future trusts.
    (4) Informal trust account payable to member's formal trust. If an 
informal revocable trust designates the account owner's formal trust as 
its beneficiary, the informal revocable trust account will be treated 
as if titled in the name of the formal trust.
    (d) Account records--(1) Informal revocable trusts. The 
beneficiaries of an informal revocable trust must be specifically named 
in the account records of the federally insured credit union.
    (2) Formal revocable trusts. The title of a formal trust account 
must include terminology sufficient to identify the account as a trust 
account, such as ``family trust'' or ``living trust,'' or must 
otherwise be identified as a testamentary trust in the account records 
of the federally insured credit union. If eligible beneficiaries of 
such formal revocable trust are specifically named in the account 
records of the federally insured credit union, the NCUA shall presume 
the continued validity of the named beneficiaries' interest in the 
trust.
    (e) Deposited funds excluded from coverage under this section--(1) 
Revocable trust co-owners that are sole beneficiaries of a trust. If 
the co-owners of an informal or formal revocable trust are the trust's 
sole beneficiaries, deposited funds held in connection with the trust 
are treated as joint ownership funds under Sec.  745.8.
    (2) Employee benefit plan deposits. Deposited funds of employee 
benefit plans, even if held in connection with a trust, are treated as 
employee benefit plan funds under Sec.  745.9.


Sec.  745.9-1  [Removed]

0
9. Remove Sec.  745.9-1.


Sec.  745.9-2  [Redesignated as Sec.  745.9]

0
10. Redesignate Sec.  745.9-2 as Sec.  745.9.


Sec.  745.9  [Amended]

0
11. Amend newly designated Sec.  745.9 in paragraph (a) by removing the 
phrase ``, in accordance with Sec.  745.2 of this part''.


Sec.  745.13  [Amended]

0
12. Amend Sec.  745.13 in the second sentence by removing ``, the 
appendix,''.

0
13. Effective October 30, 2024, amend Sec.  745.14 by revising 
paragraph (a)(2) to read as follows:


Sec.  745.14  Interest on lawyers trust accounts and other similar 
escrow accounts.

    (a) * * *
    (2) Pass-through coverage will only be available if the 
recordkeeping requirements of Sec.  745.2(c)(1) and the relationship 
disclosure requirements of Sec.  745.2(c)(2) are satisfied. In the 
event those requirements are satisfied, funds attributable to each 
client and principal will be insured on a pass-through basis in 
whatever right and capacity the client or principal owns the funds. For 
example, an IOLTA or other similar escrow account must be titled as 
such, and the underlying account records of the insured credit union 
must sufficiently indicate the existence of the relationship on which a 
claim for insurance is founded. The details of the relationship between 
the attorney or escrow agent and their clients and principals must be 
ascertainable from the records of the insured credit union or from 
records maintained, in good faith and in the regular course of 
business, by the attorney or the escrow

[[Page 79416]]

agent administering the account, or by some person who or entity that 
has undertaken to maintain such records for the attorney or escrow 
agent. The NCUA will determine, in its sole discretion, the sufficiency 
of these records for an IOLTA or other similar escrow account.
* * * * *

Appendix to Part 745 [Removed]

0
14. Remove the appendix to part 745.

[FR Doc. 2024-21888 Filed 9-27-24; 8:45 am]
BILLING CODE 7535-01-P