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Federal Register / Vol. 86, No. 146 / Tuesday, August 3, 2021 / Proposed Rules
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Under the proposed rule, Depositor As payable-on-death account represents an informal revocable trust and would be insured in the trust accounts category. The maximum coverage for this deposit would be equal to the SMDIA currently $250,000 multiplied by the number of grantors in this case, one because A established the account herself multiplied by the number of beneficiaries, up to a maximum of five here three, the number of beneficiaries, is less than five. As payable-on-death account would be insured for up to:
$250,000 1 3 = $750,000.
The coverage for As payable-on-death account is separate from the coverage provided for As checking account, which would be insured in the single ownership category because she has not named any beneficiaries for that account. The single ownership checking account would be insured up to the SMDIA, $250,000. As total insurance coverage for her deposits at the bank would be: $750,000 + $250,000 =
$1,000,000. Notably, this level of coverage is the same as that provided by the current deposit insurance rules.
Example 2: Formal Revocable Trust and Informal Revocable Trust Depositors E and F jointly establish a payable-on-death account at an FDICinsured bank. E and F have designated three beneficiaries for this depositG, H and Iwho will receive the funds after both E and F are deceased. They list these beneficiaries on a form provided to the bank. E and F also jointly establish an account titled in the name of the E and F Living Trust at the same bank. 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, E and F, do not maintain any other deposit accounts at this same bank.
What is the maximum amount of deposit insurance coverage for E and Fs deposits?
Under the proposed rule, E and Fs payable-on-death account represents an informal revocable trust and would be insured in the trust accounts category. E
and Fs living trust account constitutes a formal revocable trust and also would be insured in the trust accounts category. To the extent these deposits would pass from the same grantor E or F to beneficiaries G, H, and I, they would be aggregated for purposes of applying the deposit insurance limit. As under the current rules, it would be irrelevant that the grantors deposits are divided between the payable-on-death account and the living trust account.
The maximum coverage for E and Fs deposits would be equal to the SMDIA

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$250,000 multiplied by the number of grantors two, because E and F are the grantors with respect to both deposits 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 Fs trust deposits would be: $250,000 2 3 =
$1,500,000. This level of coverage is the same as that provided by the current deposit insurance rules.
Example 3: Two-Owner Trust and a One-Owner Trust Depositors J and K jointly establish a payable-on-death account at an FDICinsured bank. J and K have designated three beneficiaries for this depositL, M and Nwho will receive the funds after both J and K are deceased. They list these beneficiaries on a form provided to the bank. At the same FDICinsured bank, J establishes a payable-ondeath account and designates K as the beneficiary upon Js death. What is the maximum amount of coverage for J and Ks deposits?
Under the proposed rule, both accounts would be insured under the trust account category. To the extent these deposits would pass from the same grantor J or K to beneficiaries such as L, M, and N, they would be aggregated for purposes of applying the deposit insurance limit. For example, K
identified three beneficiaries L, M and N, and therefore, Ks insurance limit is $750,000 or 1 3 SMDIA. 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, Js situation differs from K because J has a second trust account, but the insurance calculation remains the same. Specifically, J has two trust accounts and identified four unique beneficiaries L, M, N, and K;
therefore, Js insurance limit is $1,000,000 or 1 4 SMDIA. J would remain fully insured as long as Js trust depositsequal to one-half of the coowned trust account plus Js personal trust accounttotal no more than $1,000,000. This methodology and level of coverage is the same as that provided by the current deposit insurance rules.
Example 4: Revocable and Irrevocable Trusts Depositor O establishes a deposit account at an FDIC-insured bank titled the O Living Trust. O is the grantor of this living trust, a formal revocable trust that includes three beneficiaries P, Q, and R. The grantor, O, also establishes an irrevocable trust for the
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benefit of the same three beneficiaries.
The trustee of the irrevocable trust maintains a deposit account at the same bank as the living trust account, titled in the name of the irrevocable trust.
Neither O nor the trustee maintains other deposit accounts at the same bank.
What is the insurance coverage for these deposits?
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 deposit of the irrevocable trust also would be insured in the trust accounts category.
To the extent these deposits would pass from the same grantor O to beneficiaries P, Q, or R, they would be aggregated for purposes of applying the deposit insurance limit. It would be irrelevant that the deposits are divided between the living trust account and the irrevocable trust account. The maximum coverage for these deposits would be equal to the SMDIA $250,000
multiplied by the number of grantors one, because O is the grantor with respect to both deposits 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 trust deposits would be:
$250,000 1 3 = $750,000.
This is one of the isolated instances where the proposed rule may provide a reduced amount of coverage as a result of the aggregation of revocable and irrevocable trust deposits, depending on the structure of the trust agreement.
Under the current rules, O would be insured for up to $750,000 for revocable trust deposits and separately insured for up to $750,000 for irrevocable trust deposits 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 proposed rule.
However, the terms of irrevocable trusts sometimes lead to less coverage than depositors might expect. FDIC staffs experience is that irrevocable trust deposits are often insured only 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 agreements contingency provisions. Under the current rule, if contingencies existed, current coverage would exceed that provided by the proposed rule, as O would be insured up to $1,000,000; $750,000 for his revocable trust and $250,000 for his irrevocable trust. In the FDICs view, one of the key benefits of the proposed rule versus the current rule would be greater clarity and predictability in
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