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Federal Register / Vol. 86, No. 146 / Tuesday, August 3, 2021 / Proposed Rules would not depend upon the specific allocation of funds among beneficiaries.

deposit insurance coverage because whether contingencies exist would no longer be a factor that could affect deposit insurance.

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Example 5: Many Beneficiaries Named Depositor S establishes a deposit account at an FDIC-insured bank titled in the name of the S Living Trust.
This trust is a revocable trust naming seven beneficiariesT, U, V, W, X, Y, and Z. The grantor, S, does not maintain any other deposits at the same bank.
What is the coverage for this deposit?
Under the proposed rule, the living trust account is a deposit of a formal revocable trust and would be insured in the trust accounts category. The maximum coverage for this deposit would be equal to the SMDIA
$250,000 multiplied by the number of grantors one, because 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 deposit would be: $250,000 1 5
= $1,250,000.
This is another limited instance where the proposed rule may provide for less coverage than the current rule.
Under the current rule, because more than five beneficiaries are named, the deposit 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. Determining coverage requires review of the trust agreement to ascertain each beneficiarys interest.
Each such insurable interest is limited to the SMDIA, and the total of all of these interests is compared with $1,250,000 five times the SMDIA. 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.62 In the FDICs view, one of the key benefits of the proposed rule versus the current rule would be greater clarity and predictability in deposit insurance coverage because a single formula would be used to determine maximum coverage, and this formula 62 For example, if all of the beneficiaries interests were equal, coverage would be: $250,000 7
beneficiaries = $1,750,000. This 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 SMDIA 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.

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E. Alternatives Considered The FDIC has considered a number of alternatives to the proposed rule that could meet its objectives in this rulemaking. Some of these alternatives are described below.
Insuring Revocable Trust Deposits up to $250,000 per Grantor and Irrevocable Trust Deposits up to $250,000 per Trust The FDIC considered limiting the total amount of deposit insurance coverage for revocable trust deposits to the SMDIA currently $250,000 for each grantor and irrevocable trust deposits up to $250,000 per trust. This would dramatically simplify the trust rules because the determination of coverage would no longer require the review of trust agreements or the consideration of beneficiaries interests. This alternative would therefore provide significant benefits in terms of supporting the timely payment of deposit insurance.
However, this would substantially reduce deposit insurance coverage for many trust deposits that currently exceed $250,000. The FDIC therefore declined to pursue this proposal.
Provide Per-Beneficiary Coverage Where Beneficiary Information Is Maintained at the IDI
The FDIC considered changing the trust rules to provide coverage of $250,000 per beneficiary for trust deposits only where the trust documentation necessary to determine insurance coverage is maintained in an IDIs deposit account records. This would promote the timely payment of deposit insurance and simplify insurance determinations, as the information required to calculate coverage would be immediately available to the FDIC following the failure of an IDI. However, such a requirement could prove burdensome and difficult to comply with for IDIs and depositors. Furthermore, even if depositors were to provide the necessary documentation to IDIs, they could be unaware as to whether the IDIs are maintaining that information in their records. Accordingly, the FDIC believes that this alternative may not promote depositor confidence in the level of coverage for their deposits.
Retain Separate Trust Categories, Harmonize Rules The FDIC also considered harmonizing the rules for calculating coverage for revocable and irrevocable trusts while maintaining these two categories as separate for deposit
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insurance purposes. The use of common rules would reduce complexity to some extent. However, so long as these categories remain separate, determining the level of coverage for a trust deposit would require the threshold inquiry as to whether the trust is revocable or irrevocable. This is because the deposits in each category would still be aggregated within each deposit insurance category for purposes of applying the insurance limit. The FDIC
believes that the proposed rule provides greater benefits than this alternative.
Status Quo The FDIC is proposing amendments to the trust rules to advance the objectives discussed above, including making the rules more understandable for the public and depositors, promoting the timely payment of deposit insurance, and facilitating the administration of resolutions. The FDIC considered the status quo alternative to not amend the existing trust rules and not propose the amendments. However, for reasons previously stated in Section I.B entitled Background, the FDIC considers the proposed rule to be a more appropriate alternative.
F. Request for Comment The FDIC is requesting comment on all aspects of the proposed rule, including the alternatives presented.
Comment is specifically invited with respect to the following questions:
Would the proposed amendments to the deposit insurance rules make insurance coverage for trust deposits easier to understand for bankers and the public?
The FDIC believes that depositors generally would have the information necessary to readily calculate deposit insurance coverage for their trust deposits under the proposed rule, allowing them to better understand insurance coverage for their trust deposits. Are there instances where a depositor would not likely have the necessary information?
Are there any other types of trusts not described in this proposal whose deposits would be affected by the proposed rule if adopted? What types of trusts are those and how would they be impacted?
While the FDIC has substantial experience regarding trust arrangements, the FDIC does not possess sufficiently detailed information on depositors existing trust arrangements to allow the FDIC to project the proposed rules effects on current depositors. Are there any other sources of empirical information that the FDIC
should consider that may be helpful in
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