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Federal Register / Vol. 86, No. 146 / Tuesday, August 3, 2021 / Proposed Rules beneficiaries interests in formal and informal revocable trusts to be vested in order to qualify for separate insurance coverage, meaning that, after a grantors death, there was no condition attached to the beneficiarys interest that would make the interest contingent referred to as a defeating contingency.17 Staff reasoned that only a vested trust interest could establish a reasonable expectation that the revocable trust deposit shall belong to the beneficiary, as the regulation required.
In 1996, the FDIC sought public comment on potential simplification of the deposit insurance rules, noting that its experience with bank and savings association failures and a steady volume of inquiries on deposit insurance coverage suggested that simplification could be beneficial.18 Among other changes, the FDIC proposed specific amendments to the rules for revocable trust deposits. Certain of these changes were finalized in 1998, when a provision was added to the rules defining the conditions that would constitute a defeating contingency.19
Soon afterward, the FDIC expanded the list of beneficiaries that would qualify for per-beneficiary coverage to include siblings and parents, noting that some depositors had lost money in bank failures because they had named nonqualifying beneficiaries.20
In 2003, the FDIC proposed amending the revocable trust rules, pointing to continued confusion about the coverage for revocable trust deposits.21
Specifically, the FDIC proposed to eliminate 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.
The FDIC subsequently adopted this change, noting that it more closely aligned coverage for living trust accounts with payable-on-death accounts.22 Defeating contingency provisions were not eliminated for irrevocable trusts. At the same time, the FDIC also eliminated the requirement to name the beneficiaries of a formal revocable trust in the IDIs deposit
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17 See,
e.g., Advisory Opinion 9432, Guidelines for Insurance Coverage of Revocable Trust Accounts Including Living Trust Accounts, May 18, 1994. While the vested interest requirement applied to both formal and informal trusts, interests in informal trusts were generally considered to be vested because they automatically passed to the designated beneficiaries upon the death of the last grantor.
18 61 FR 25596 May 22, 1996.
19 63 FR 25750 May 11, 1998.
20 64 FR 15653 Apr. 1, 1999.
21 68 FR 38645 June 30, 2003.
22 69 FR 2825 Jan. 21, 2004.

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account records.23 Because the FDIC
had to obtain and review trust agreements from depositors following an IDIs failure to determine the eligibility of the beneficiaries and allocation of funds to each beneficiary, eliminating this requirement was based on the conclusion that also requiring IDIs to maintain records of trust beneficiaries, or requiring grantors to inform IDIs of changes in their trust agreements, was unnecessary and burdensome. Though the additional information might expedite deposit insurance payments, the FDIC
determined that removing this recordkeeping requirement would support ongoing efforts under the Economic Growth and Regulatory Paperwork Reduction Act to eliminate unnecessary regulatory requirements.
The FDICs experience with making deposit insurance determinations during the early stages of the most recent financial crisis suggested that further changes to the trust rules were necessary. In 2008, the FDIC simplified the rules in several respects.24 First, it eliminated the kinship requirement for revocable trust beneficiaries, instead allowing any natural person, charitable organization, or non-profit, to qualify for per-beneficiary coverage. Second, a simplified calculation was established if a revocable trust named five or fewer beneficiaries; coverage would be determined without regard to the allocation of interests among the beneficiaries. This eliminated the need to discern and consider beneficial interests in many cases.
A different insurance calculation applied to revocable trusts with more than five beneficiaries. Specifically, at that time, the SMDIA was $100,000 and 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 trusts, limited to $100,000 per beneficiary.
When the SMDIA was increased to $250,000, a similar adjustment was made from $100,000 to $250,000 for the calculation of per beneficiary coverage.
3. Current Rules for Coverage of Trust Deposits The FDIC currently recognizes three different insurance categories for deposits held in connection with trusts:
1 Revocable trusts; 2 irrevocable trusts; and 3 irrevocable trusts with an IDI as trustee. The current rules for determining insurance coverage for
deposits in each of these categories are described below.
Revocable Trust Deposits The revocable trust category applies to deposits for which the depositor has evidenced an intention that the deposit shall belong to one or more beneficiaries upon his or her death. This category includes deposits held in connection with formal revocable truststhat is, revocable trusts established through a written trust agreement. It also includes deposits that are not subject to a formal trust agreement, where the IDI makes payment to the beneficiaries identified in the IDIs records upon the depositors death based on account titling and applicable state law. The FDIC refers to these types of deposits, including Totten trust accounts, payable-on-death accounts, and similar accounts, as informal revocable trusts. Deposits associated with formal and informal revocable trusts are aggregated for purposes of the deposit insurance rules;
thus, deposits that will pass from the same grantor to beneficiaries are aggregated and insured up to the SMDIA, currently $250,000, per beneficiary, regardless of whether the transfer would be accomplished through a written revocable trust or an informal revocable trust.25
Under the current revocable trust rules, beneficiaries include natural persons, charitable organizations, and non-profit entities recognized as such under the Internal Revenue Code of 1986.26 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 that the grantor maintains at the same IDI.27
Certain requirements also must be satisfied for a deposit to be insured in the revocable trust category. The required intention that the funds shall belong to the beneficiaries upon the depositors death must be manifested in the title of the account using commonly accepted terms such as in trust for, as trustee for, payable-ondeath to, or any acronym for these terms. For purposes of this requirement, title includes the IDIs electronic deposit account records. For example, an IDIs electronic deposit account records could identify the account as a revocable trust account through coding or a similar mechanism.28 In addition, 25 12

CFR 330.10a.
CFR 330.10c.
27 12 CFR 330.10d.
28 12 CFR 330.10b1.
26 12

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FR 2825, 2828 Jan. 21, 2004.
FR 56706 Sep. 30, 2008.

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