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Federal Register / Vol. 86, No. 146 / Tuesday, August 3, 2021 / Proposed Rules
the beneficiaries of informal trusts i.e., payable-on-death accounts must be named in the IDIs deposit account records.29 Since 2004, the requirement to name beneficiaries in the IDIs deposit account records has not applied to formal revocable trusts; the FDIC
generally obtains information on beneficiaries of such trusts from depositors following an IDIs failure.
Therefore, if a formal revocable trust deposit exceeds $250,000 and the depositors IDI were to fail, this will likely result in a hold being placed on the deposit until the FDIC can review the trust agreement and verify that the beneficiary rules are satisfied, thereby delaying insurance determinations and payments to insured depositors.
The calculation of deposit insurance coverage for revocable trust deposits depends upon the number of unique beneficiaries named by a depositor. If five or fewer beneficiaries have been named, the depositor is insured in an amount up to the total number of named beneficiaries multiplied by the SMDIA, and the specific allocation of interests among the beneficiaries is not considered.30 If more than five beneficiaries have been named, the depositor is insured up to the greater of:
1 Five times the SMDIA; or 2 the total of the interests of each beneficiary, with each such interest limited to the SMDIA.31 For purposes of this calculation, a life estate interest is valued at the SMDIA.32
Where a revocable trust deposit is jointly owned by multiple co-owners, the interests of each account owner are separately insured up to the SMDIA per beneficiary.33 However, if the co-owners are the only beneficiaries of the trust, the account is instead insured under the FDICs joint account rule.34

The current revocable trust rule also contains a provision that was intended to reduce confusion and the potential for a decrease in deposit 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 trusts deposit may continue to be insured under the revocable trust rules.35 Absent this provision, the irrevocable trust rules would apply following the grantors death, as the revocable trust becomes irrevocable at that time, which could result in a reduction in coverage.36
Irrevocable Trust Deposits Deposits held by an irrevocable trust that has been established either by written agreement or by statute are insured in the irrevocable trust deposit insurance category. Calculating coverage for deposits insured in this category requires a determination of whether beneficiaries interests in the trust are contingent or non-contingent. Noncontingent 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 IRS Federal Estate Tax Regulations.37 Funds held for noncontingent trust interests are insured up to the SMDIA for each such beneficiary.38 Funds held for contingent trust interests are aggregated and insured up to the SMDIA in total.39
The irrevocable trust rules do not apply to deposits held for a grantors retained interest in an irrevocable trust.40 Such deposits are aggregated with the grantors other single ownership deposits for purposes of applying the deposit insurance limit.
Deposits Held by an IDI as Trustee of an Irrevocable Trust For deposits held by an IDI in its capacity as trustee of an irrevocable trust, deposit insurance coverage is 35 12

CFR 330.10h.
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.
37 12 CFR 330.1m. 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 beneficiarys medical needs, the first beneficiarys interest is contingent upon the trustees discretion.
38 12 CFR 330.13a.
39 12 CFR 330.13b.
40 See 12 CFR 330.1r definition of trust interest does not include any interest retained by the settlor.
36 The
29 12

CFR 330.10b2.
CFR 330.10a.
31 12 CFR 330.10e.
32 12 CFR 330.10g. For example, if a revocable trust provides a life estate for the depositors spouse and remainder interests for six other beneficiaries, the spouses life estate interest would be valued at $250,000 for purposes of the deposit insurance calculation.
33 12 CFR 330.10f1.
34 12 CFR 330.10f2.

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governed by section 7i of the FDI Act, a provision rooted in the Banking Act of 1935. Section 7i provides that trust funds held on deposit by an insured depository institution in a fiduciary capacity as trustee pursuant to any irrevocable trust established pursuant to any statute or written trust agreement shall be insured in an amount not to exceed the standard maximum deposit insurance amount . . . for each trust estate. 41
The FDICs regulations governing coverage for deposits held by an IDI in its capacity as trustee of an irrevocable trust are found in 330.12. The rule provides that trust funds held by an IDI in its capacity as trustee of an irrevocable trust, whether held in the IDIs trust department or another department, or deposited by the fiduciary institution in another IDI, are insured up to the SMDIA for each owner or beneficiary represented.42 This coverage is separate from the coverage provided for other deposits of the owners or the beneficiaries,43 and deposits held for a grantors retained interest are not aggregated with the grantors single ownership deposits.
Given the statutory basis for coverage, the FDIC is not proposing any changes to 330.12.
4. Part 370 and Recordkeeping at the Largest IDIs Simplification of the deposit insurance rules would make deposit insurance coverage easier to understand and improve the FDICs ability to resolve insurance claims in a timely manner, broadly benefiting the public and IDIs, and it would have particular significance for the large IDIs that are subject to part 370 of the FDICs regulations. Part 370 was adopted in 2016 to promote the timely payment of deposit insurance in the event of the failure of a large IDI.44 Its development was prompted by the FDICs goal of ensuring a timely insurance determination in the event a large IDI
with a high volume of deposit accounts fails. Part 370 requires covered institutions, which generally include IDIs with two million or more deposit accounts, to maintain complete and accurate depositor information and to configure their information technology systems so as to permit the FDIC to calculate deposit insurance coverage 41 12

U.S.C. 1817i.
330 defines trust funds as funds held by an insured depository institution as trustee pursuant to any irrevocable trust established pursuant to any statute or written trust agreement.
12 CFR 330.1q.
43 12 CFR 330.12a.
44 81 FR 87734 Dec. 5, 2016.
42 Part
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