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Federal Register / Vol. 86, No. 146 / Tuesday, August 3, 2021 / Proposed Rules
to determine insurance coverage for deposits held by revocable and irrevocable trusts; and eliminate certain requirements found in the current rules for revocable and irrevocable trusts.
Merger of Revocable and Irrevocable Trust Categories
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As discussed above, the FDIC
historically has insured revocable trust deposits and irrevocable trust deposits under two separate insurance categories.
Staffs experience has been that this bifurcation often confuses depositors and bankers, as it requires a threshold inquiry to determine which set of rules to apply to a trust deposit. Moreover, each trust deposit must be categorized before the aggregation of trust deposits within each category can be completed.
The FDIC believes that trust deposits held in connection with revocable and irrevocable trusts are sufficiently similar, for purposes of deposit insurance coverage, to warrant the merger of these two categories into one category. Under the FDICs current rules, deposit insurance coverage is provided because the trustee maintains the deposit for the benefit of the beneficiaries. This is true regardless of whether the trust is revocable or irrevocable. Merger of the revocable and irrevocable trust categories would better conform deposit insurance coverage to the substancerather than the legal formof the trust arrangement. This underlying principle of the deposit 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.46
Depositors may have a variety of reasons for selecting a particular legal arrangement, but that decision should not significantly affect deposit insurance coverage. Importantly, the proposed merger of the revocable trust and irrevocable trust categories into one category for deposit insurance purposes would not affect the application or operation of state trust law; this only would affect the determination of deposit insurance coverage for these types of trust deposits in the event of an IDIs failure.
Accordingly, the FDIC is proposing to amend 330.10 of its regulations, which currently applies only to revocable trust 46 For example, the FDIC currently aggregates deposits in payable-on-death accounts and deposits of written revocable trusts for purposes of deposit insurance coverage, despite their separate and distinct legal mechanisms. Also, where the coowners of a revocable trust are also that trusts sole beneficiaries, the FDIC instead insures the trusts deposits as joint deposits, reflecting the arrangements substance rather than its legal form.

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deposits, to establish a new trust accounts category that would include both revocable and irrevocable trust deposits. The proposed rule defines the deposits that would be included in this category: 1 Informal revocable trust deposits, such as payable-on-death accounts, in-trust-for accounts, and Totten trust accounts; 2 formal revocable trust deposits, defined to mean deposits held pursuant to a written revocable trust agreement under which a deposit passes to one or more beneficiaries upon the grantors death;
and 3 irrevocable trust deposits, meaning deposits held pursuant to an irrevocable trust established by written agreement or by statute. Section 330.10
would not apply to deposits maintained by an IDI in its capacity as trustee of an irrevocable trust; these deposits would continue to be insured separately pursuant to section 7i of the FDI Act and 330.12 of the deposit insurance regulations.
In addition, the merger of the revocable trust and irrevocable trust categories eliminates the need for 330.10hi of the current revocable trust rules, which provides that the revocable trust rules may continue to apply to a deposit where a revocable trust becomes irrevocable due to the death of one or more of the trusts grantors. These provisions were intended to benefit depositors, who sometimes were unaware that a trust owners death could also trigger a significant decrease in insurance coverage as a revocable trust becomes irrevocable. However, in the FDICs 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.47 As a result, a depositor could know a trust was irrevocable but not know which deposit insurance rules to apply. The proposed rule would insure deposits of revocable trusts and irrevocable trusts according to a common set of rules, eliminating the need for these provisions 330.10hi and simplifying coverage for depositors. Accordingly, the death of a revocable trust owner would not result in a decrease in deposit insurance coverage for the trust.
Coverage for irrevocable and revocable trusts would fall under the same category and deposit insurance coverage would remain the same, even after the expiration of the six-month grace period 47 As noted above, if a revocable trust becomes irrevocable due to the death of the grantor, the trusts deposit continues to be insured under the revocable trust rules. 12 CFR 330.10h.

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following the death of a deposit owner.48
Calculation of Coverage The FDIC is proposing to use one streamlined calculation to determine the amount of deposit insurance coverage for deposits of revocable and irrevocable trusts. This method is already utilized by the FDIC 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 bankers and trust depositors.
The proposed rule would provide that a grantors trust deposits are insured in an amount up to the SMDIA currently $250,000 multiplied by the number of trust beneficiaries, not to exceed five beneficiaries. The FDIC would presume that, for deposit 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 FDICs current treatment of revocable trusts with five or fewer beneficiaries. This would, in effect, limit coverage for a grantors trust deposits at each IDI to a total of $1,250,000; in other words, maximum coverage would be equivalent to $250,000 per beneficiary up to five beneficiaries. In determining deposit insurance coverage, the FDIC would continue to only consider beneficiaries that are expected to receive the deposit held by the trust in the IDI; the FDIC
would not consider beneficiaries who are expected to receive only non-deposit assets of the trust.
The FDIC is proposing to calculate coverage in this manner based on its experience with the revocable trust rules after the most recent modifications to these rules in 2008. The FDIC has found that the deposit insurance calculation method for revocable trusts with five or fewer beneficiaries has been the most straightforward and is easy for bankers and the public to understand.
This calculation provides for insurance in an amount up to the total number of unique grantor-beneficiary trust relationships i.e., the number of grantors, multiplied by the total number of beneficiaries, multiplied by the SMDIA.49 In addition to being simpler, 48 The death of an account owner can affect deposit insurance coverage, often reducing the amount of coverage that applies to a familys accounts. To ensure that families dealing with the death of a family member have adequate time to review and restructure accounts if necessary, the FDIC insures a deceased owners accounts as if he or she were still alive for a period of six months after his or her death. 12 CFR 330.3j.
49 For example, two co-grantors that designate five beneficiaries are insured for up to $2,500,000
2 5 $250,000.

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