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FDIC Law, Regulations, Related Acts

[Main Tabs]     [Table of Contents - 4000]     [Index]     [Previous Page]     [Next Page]     [Search] 4000 - Advisory Opinions Debit Balances Reflected on Individual (Personal) Trust Account Ledgers--Position Statement FDIC-88-29 March 18, 1988 Walter P. Doyle, Counsel {{4-28-89 p.4325}}   The present assessment rule as to offsetting a debit (cash) balance in a personal trust account administered by an insured bank against a credit (cash) balance in the same trust is that the offset is not permitted unless shown to be expressly authorized by the trust instrument. The captioned position paper proposes to change the rule to disallow such offset, even where so authorized, in any trust having multiple beneficiaries. Offset would be permitted only in a trust having only one beneficiary.   The *** proposed new rule seems to be based upon the implicit assumption that the present value of all beneficial interests in personal trusts administered by a bank are determinable without reference to any contingency other than life expectancy. However, to the extent any such interests cannot be so determined (or "quantified"), they would be combined for insurance purposes and insured, in the aggregate, up to $100,000. As to such undeterminable trust interests, of course, there should be no problem in offsetting credit and debit balances in the same trust, because the interests are not separately insurable and such balances are, in essence, treated for insurance purposes as the property of one legal entity, the trust estate itself.   Since many personal trust instruments would contain one or more contingencies (other than life expectancy), including powers to revoke or amend the trust, to invade principal on behalf of income beneficiaries, or to allocate or use principle and/or income based on the needs of individual beneficiaries, or other similar provisions, it seems that a theoretically pure application of the proposed new rule would require a careful scrutiny of the terms of each governing trust instrument so as to ascertain whether or not the beneficial interests created thereby are determinable and therefore separately insurable. If so, offset of debit and credit balances owned by different determinable interests would not be permissible. If such interests are not determinable and, therefore, not separately insurable, offset would seem permissible since the debit and credit balances would be attributable to the same trust interest ( viz., trust estate) and part of the same personal trust account.   Assuming that such scrutiny of individual trust documents would not be feasible, the proposed new rule would preclude offset in cases involving trusts with multiple beneficiaries where the beneficial interests are not separately insurable (because not determinable) and as to which such offset would not seem to be legally objectionable under section 7(a)(4) of our Act. Of course, the present rule may occasionally permit offset (because authorized by the instrument), even though the respective beneficial interests are determinable and separately insurable. Nevertheless, because of the prevalence of contingencies, powers to revoke and to invade principal and the like (as noted above), it seems that the proposed rule would probably go too far in the direction of disallowing offset where it really should be permitted. Short of examining the terms of each trust, the present rule seems closer to the mark than the proposed one. [Main Tabs]     [Table of Contents - 4000]     [Index]     [Previous Page]     [Next Page]     [Search]

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