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4000 - Advisory Opinions
Deposit insurance coverage available for a living trust account
held in connection with a joint living trust.
FIDC--04--08
December 9, 2004
Joseph A. DiNuzzo, Counsel
This addresses the summary of deposit insurance coverage provided in
your letter (copy enclosed). The summary reflects the telephone
conversations you and I have had on the deposit insurance coverage that
would be available, per FDIC-insured institution, for a living trust
account held in connection with the joint living trust you have with
your wife.
Based on the materials you have provided, the joint trust will
divide into three trusts after the death of the first spouse: the
survivor's trust, the marital trust and the bypass trust. The
survivor's trust will consist of the surviving spouse's separate
property and the surviving spouse's interest in the settlors'
community estate. Upon the surviving spouse's death, the remaining
funds in the survivor's trust will pass under the surviving spouse's
will. The marital trust will consist of an amount equal to the federal
estate tax marital deduction. This trust will provide for a life estate
interest in the surviving spouse and a power to invade the trust
principal for the surviving spouse's benefit. The bypass trust will be
funded with the remaining funds of the estate. The surviving spouse and
the settlors'
{{12-30-04 p.4984.102}}child are the beneficiaries of the
bypass trust. The beneficiaries each will have life estate interest in
the bypass trust during the life of the surviving spouse. On the
surviving spouse's death, funds in the bypass trust will be used as
follows: $15,000 will be paid to each of the settlors' two
grandchildren; $10,000 to the settlors' friend named in the bypass
trust; and the remainder will be paid to the settlors' son.
When Both Spouses Are Alive
When both settlors are alive the maximum coverage on the living
trust account would be $240,000. That's because, under the FDIC's
revised living trust rules, we determine coverage based on the
qualifying beneficiaries who receive the trust assets upon
the death of the last settlor. 1
Here that information is in the bypass trust, providing that the
settlors' son, two grandchildren and friend will receive the assets
when both settlors have died. Coverage is provided up to $100,000 per
settlor, per qualifying beneficiary. Thus, coverage provided as to the
settlors' son would be up to $200,000. Because the grandchildren's
interests in the trust are limited to $15,000 each, coverage would be
provided up to $30,000, assuming there are two living grandchildren.
The friend is not a qualifying beneficiary, so when both settlors are
alive, no additional revocable trust account coverage would
be provided based on the presence of that beneficiary in the trust;
however, the insurance rules provide that funds attributable to
non-qualifying beneficiaries are insured as the settlor's
single-ownership funds. 12 CFR 330.10(c). Coverage provided in
connection with the friend's interest in the trust, therefore, would
be up to $10,000, as the single-ownership account coverage afforded to
the settlors (assuming the settlors have no other single-ownership
funds at the same bank).
When One Spouse Dies
When the first spouse dies, coverage likely would change, depending
on the amount in each of the three trusts created (and funded) upon the
first spouse's death. Please note that the following information
centers on the maximum deposit insurance coverage potentially available
for the funds in each of the three trusts. The actual coverage would
depend on the funds actually placed in (or attributable to) each
respective trust upon the first spouse's death.
The funds in the survivor's trust would be insured as
the survivor's single-ownership funds. That's because the survivor's
trust is a revocable trust that names no qualifying beneficiaries. As
noted, under the FDIC's regulations, funds of a revocable trust naming
no qualifying beneficiaries are considered the single-ownership funds
of the sector. Assuming the surviving spouse has no other
single-ownership funds at the same bank, the funds in the survivor's
trust would be insured to a maximum of $100,000. The funds in the
marital trust (an irrevocable trust) would be insured based
on each settlor's contribution to the marital trust. The funds
contributed by the deceased spouse would be insured up to $100,000
relative to the present value of the life interest in the trust created
for the surviving spouse. (The value of that life estate interest would
be based on the life expectancy tables in the Internal Revenue Code.)
Also as to the deceased spouse's contribution to the trust, the
interest of the other beneficiaries of the marital trust would be
insured to a combined limit of $100,000. The interests of these
beneficiaries would be insured to a maximum of $100,000 because the
surviving spouse has a power to invade the marital trust's assets for
his or her benefit; thus, the beneficiaries' interests are contingent
and, under the FDIC's regulations, contingent interest of an
irrevocable trust are combined and insured to a limit of $100,000.
12 CFR 330.13(b).
As to the surviving spouse's contribution to the marital trust, the
amount attributable to the surviving spouse's life estate interest in
the trust would be considered a "retained interest" in the trust
and thus insured, not as irrevocable trust funds, but as the settlor's
single-ownership account funds, to a limit of $100,000 (combined with
any other single-ownership funds the settlor might hold at the same
insured bank). The remaining
{{6-30-05 p.4984.103}}funds contributed by the surviving
settlor would be insured to a maximum of $100,000 because of the
contingent nature of the other trust beneficiaries' interests, as
explained above.
Funds, if any, in the bypass trust would be insured separately from
the funds in the survivor's and marital trusts. The insurance
determination would be similar to that used for the marital trust:
coverage would be based on each settlor's contribution to the trust.
Because during the surviving spouse's lifetime the spouse and the
settlors' son will each have a life estate interest in the bypass
trust, the overall coverage for the funds in the bypass trust, upon the
death of the first settlor, could be up to $400,000 (combining the
value of the beneficiaries' life estate interests and the surviving
spouse's retained interest in the trust). But the actual amount likely
would be much less depending upon, first, the amount in the bypass
trust and, second, the value of the beneficiaries' life estate
interests.
In summary, the total maximum coverage for the three trusts upon the
death of the first settlor could be substantially higher than the
coverage available when both settlors are alive, but the actual
available coverage at the time might be much less than the amount
potentially available, depending on both the actual amount in each of
the trusts and on the present value of the beneficiaries' life estate
interests in the trust assets. Thus, upon the death of the first
spouse, it would be advisable for the surviving spouse (or the trustee
of the living trust) to consider afresh the deposit insurance coverage
available on the deposit account(s) held in connection with the living
trust. In this connection, please note that the FDIC's regulations
provide a six-month grace period upon the death of a depositor. So, for
example, if a settlor of a revocable trust dies, the coverage available
on that account would remain the same (as if the settlor had not died)
up until six months after the settlor's death, assuming that the funds
are not withdrawn from the account and the account is not restructured
prior to the end of the six months. 12 CFR 330.3(j).
When Both Spouses Have Died
Upon the death of the second settlor, coverage would be limited to
the funds in the (irrevocable) bypass trust, the only remaining trust.
The grandchildren's entitlement to $15,000 each would be fully insured
and the settlors' friend's entitlement to $10,000 would be fully
insured. The settlors' son's remainder interest would be insured to a
maximum of $200,000 ($100,000 per settlor per non-contingent interest
of each beneficiary). The total maximum coverage at that point,
therefore, would be $240,000.
Trustee
In response to your final question, please note that the available
deposit insurance coverage on your accounts does not depend on who the
trustee of the trusts is, as long as the person or entity is a
permissible trustee under the applicable state law. Changing the
trustee, for example, from an insurance company to one of the
beneficiaries would not affect the account coverage, as long as it is
lawful for a beneficiary to serve as the trustee of the trust. You can
check on this state law issue with the Attorney General of the State of
California.
I hope this information is helpful. Feel free to contact me at
202-898-7349 with any additional
questions.
112 C.F.R.
330.10(f), as revised at 69 Fed. Reg. 2825, 2829
(Jan. 21, 2004). Go Back to Text
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