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4000 - Advisory Opinions
Question regarding whether a Health Savings Account can be
insured as a revocable trust Account under FDIC regulations
FDIC--05--06
November 28, 2005
Christopher L. Hencke, Counsel
This responds to your letter dated October 25, 2005, addressed to
James Williams. In that letter, you asked whether a "Health Savings
Account" ("HSA") could be insured as a revocable trust account
under the FDIC's regulations. Your letter was forwarded to me. I am an
attorney in the FDIC's Legal Division.
The insurance coverage of revocable trust accounts is governed by
12 C.F.R. § 330.10. That
section of the FDIC's regulations provides as follows: "Funds owned
by an individual and deposited into an account with respect to which
the owner evidences an intention that upon his or her death the funds
shall belong to one or more qualifying beneficiaries shall be insured
in the amount of up to $100,000 in the aggregate as to each such named
qualifying beneficiary, separately from any other accounts of the owner
or the beneficiaries." 12 C.F.R. § 330.10(a).
In a letter dated April 28, 2004 (copy enclosed), the FDIC staff
determined that this "per beneficiary" coverage for revocable
trust accounts could apply to an HSA established by a person. Such
coverage would depend upon the satisfaction of certain requirements
(discussed in detail below). The staff also found, however, that an HSA
established by an employer for employees would be insured not as a
revocable trust account but as an employee benefit plan account. The
latter type of account is not insured on a "per beneficiary"
basis. Rather, an employee benefit plan account is insured up to
$100,000 for the "non-contingent interest" of each plan
participant (i.e., employee) provided that the insured
depository institution satisfies capital requirements. See
12 C.F.R. § 330.14.
In short, your bank's HSAs will be insured on a "per
beneficiary" basis if (1) the HSA is established by a person and not
an employer; and (2) the HSA satisfies the FDIC's requirements for
revocable trust accounts. The latter requirements are discussed below.
First, the account must be structured so that the funds will pass to
named beneficiaries upon the owner's death. This could be accomplished
by completing section 4 of the "Health Savings Account
Application" (submitted with your letter). Section 4 includes spaces
for "primary beneficiaries" as well as "contingent
beneficiaries." In applying the $100,000 "per beneficiary"
insurance limit, the FDIC would disregard the interests of the
"contingent beneficiaries" (unless the "primary
beneficiaries" are deceased). See 12 C.F.R.
§ 330.10(f)(1) (providing that a beneficiary's ownership interest
must "not depend on the death of another trust beneficiary").
Also, the FDIC would assume that the interests of the "primary
beneficiaries" are equal unless section 4 provides otherwise.
Second, the beneficiaries must be "qualifying beneficiaries."
This means that the beneficiaries must be the owner's spouse,
children, grandchildren, parents or siblings. See 12 C.F.R.
§ 330.10(a). "If a named beneficiary . . . is not a qualifying
beneficiary, the funds corresponding to that beneficiary shall be
treated as individually owned (single ownership) accounts of [the]
owner(s), aggregated with any other single ownership accounts of such
owner(s), and insured up to $100,000 per owner." 12 C.F.R.
§ 330.10(c).
{{8-31-06 p.4984.119}}
Third, the title of the bank account must reflect the owner's
intention that the funds will pass to the beneficiaries upon the
owner's death. This requirement can be satisfied through the use of
"commonly accepted terms such as, but not limited to, in trust
for,' as trustee for,' payable-on-death to,' or any acronym
therefor." See 12 C.F.R. § 330.10(b). In your letter,
you mentioned that your banks HSAs are titled as follows: "John Doe,
Health Savings Account." This title is insufficient because it does
not include "POD" or similar term. A sufficient title would be
the following: "John Doe, Health Savings Account, POD Steven Doe and
Susan Doe." Also sufficient would be the following: "John Doe,
Health Savings Account/POD Account."
Fourth, the beneficiaries must be identified by name in the account
records of the insured depository institution. See id. This
requirement could be satisfied by completing section 4 of the
application.
Assuming the satisfaction of the requirements discussed above, your
bank's HSAs would be insured as revocable trust accounts. In other
words, the accounts would be insured up to $100,000 for the interest of
each "qualifying beneficiary." I hope that this information is
useful.
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