FEDERAL DEPOSIT INSURANCE CORPORATION New Trust

FEDERAL DEPOSIT INSURANCE CORPORATION

New Trust Account Rule (April 2024)

Deposit Insurance Seminar For Bankers

2022

Outline

 Part Overview of New Trust Account Rule

 Part 2 Examples of the New Trust Account Rule

 Part 3 How the New Trust Account Rule Affects Coverage

 Part 4 Complex Rules Eliminated

 Part

5 Deposit Insurance Coverage Resources

Disclaimer

The information contained in this presentation is for informational purposes

only and is provided as a public service and in an effort to enhance

understanding of the statutes and regulations administered by the FDIC. It

expresses the views and opinions of FDIC staff and is not binding on the FDIC, its

Board of Directors, or any board member, and any representation to the

contrary is expressly disclaimed.

How To Access Today's Presentation Slide Deck

 On the FDIC website at www.fdic.gov

 In the search box in the upper right

hand corner, type in "webinars" and

press enter

 Look for a link titled deposit

insurance banker webinars.

 Once on the FDIC's banker webinars

page, scroll towards the middle of the

page and look for a header titled New

Rules for Revocable and Irrevocable

Trusts and click on it.

 If you have any questions, please call

us at 1-877-275-3342.

https://ask.fdic.gov/fdicinformationandsupportcenter/s/

Seminar on Deposit Insurance Coverage

Part 1 – Overview of New Trust

Account Rule

Overview

 On January 21, 2022, the FDIC adopted a new deposit insurance rule for “trust

accounts” that is easier for bankers and depositors to understand.

 The new trust account rule does not go into effect until April 1, 2024.

 The new rule simplifies insurance coverage for trust accounts by:

 reducing the number of insurance rules for trust accounts;

 eliminating complexities from the revocable and irrevocable trust rules; and

 utilizing the same familiar, straightforward insurance calculation for both

revocable and irrevocable trusts.

Overview – Scope & Familiar Insurance Rule

 Combines categories. The new trust account rule will combine the irrevocable

trust (§330.13) and revocable trust (§330.10) categories into a single category

called “Trust Accounts”. The new trust account category will include:

 formal revocable trusts (§330.10);

 informal revocable trusts (e.g., POD/ITF accounts from 330.10); and

 irrevocable trusts (§330.13).

 Familiar insurance rule. Under the Trust Account category, each trust owner will

be insured up to $250,000 per eligible primary beneficiary, up to a maximum of

five beneficiaries.

 Similar to the current revocable trust rules, an “eligible” beneficiary can be any living

person or an IRS-recognized charity/non-profit. Only “primary” (not contingent)

beneficiaries count.

Overview – Familiar Insurance Rule

 The new trust account insurance

calculation is the same calculation the

FDIC has used since 2008 for a revocable

trust with 5 or fewer beneficiaries.

 In the new trust account category, each

trust owner’s insurance limit will be

determined by how many eligible

beneficiaries (up to 5) are in their trust(s).

 For example, a trust owner with four

eligible, primary beneficiaries is insured

up to $1,000,000 (or 1 x 4 x $250k = $1M).

Number of

trust owners

Number of

beneficiaries

Insurance

limit

1 1 $250,000

1 2 $500,000

1 3 $750,000

1 4 $1,000,000

1 5 $1,250,000

1 5+ $1,250,000

Seminar on Deposit Insurance Coverage

Part 2 – Examples of the New

Trust Account Rule

Revocable Trust Example – 1 owner, 2 beneficiaries

Owner A

Beneficiary B

Beneficiary C

Owner A has opened a revocable trust account and identified two eligible

beneficiaries - B and C.

What is the maximum amount that can be insured under the current rule?

What is the maximum amount that can be insured under the new trust rule?

Revocable Trust Example – 1 owner, 2 beneficiaries

 In this example, there is 1 trust owner

and 2 beneficiaries.

 All of the owner’s deposit accounts are

titled in their revocable trust.

 The insurance limit is $500,000

(1 x 2 x $250,000 = $500,000)

Number of trust

owners

Number of

beneficiaries

Insurance

limit

1 1 $250,000

1 2 $500,000

1 3 $750,000

1 4 $1,000,000

1 5 $1,250,000

1 5+ $1,250,000

 In this example, the New Trust Rule uses the exact same insurance calculation that is

used under the current rules to determine the insurance limit.

Irrevocable Trust Example – 1 owner, 2 beneficiaries

Owner A

Beneficiary B

Beneficiary C

An irrevocable trust with one owner (A) identifies

two eligible beneficiaries - B and C.

What is the maximum amount that can be insured under the current rule?

What is the maximum amount that can be insured under the New Rule?

Irrevocable Trust Example – 1 owner, 2 beneficiaries

 In this example, there is 1 trust owner

and 2 beneficiaries.

 All of the owner’s deposit accounts are

titled in their irrevocable trust.

 The insurance limit is

$500,000 (calculated as 1 x 2 x

$250,000 = $500,000).

Number of trust

owners

Number of

beneficiaries

Insurance

limit

1 1 $250,000

1 2 $500,000

1 3 $750,000

1 4 $1,000,000

1 5 $1,250,000

1 5+ $1,250,000

 Under the new Trust Rule, insurance limits for irrevocable trusts will be calculated

the same as for revocable trusts. Also, the calculation for irrevocable trust will be

simplified.

Same trust owner has both revocable and irrevocable

trust accounts

 A depositor is the sole grantor of both a revocable and irrevocable trust. All of

their bank accounts are titled as trust accounts. Some are titled in the name of the

irrevocable trust and some are titled in the name of the revocable trust.

 What are the insurance limits under the current rules (revocable and

irrevoc

able)? What will the insurance limit be under the new trust rule?

 Key facts: The revocable trust identifies 3 children as beneficiaries and the

irr

evocable trust names 2 grandchildren as beneficiaries.



Also, the irrevocable trust may have a grantor retained interest and it’s not clear if the

grandkids have ‘contingent’ or ‘non-contingent’ trust interests. A lawyer may be needed.

Same trust owner has both revocable and irrevocable

trust accounts at the same bank

 Under the new trust rule, the insurance

limit with one owner and 5 or more

eligible beneficiaries will be up to

$1,250,000 per insured bank.

 As long as the combined

balance of

their revocable and irrevocable trust

accounts is $1.25 million or less, the

depositor is fully insured.

 Insurance for the irrevocable trust

portion will be easier to figure out

under the new trust rule.

Number of trust

owners

Number of

beneficiaries

Insurance

limit

1 1 $250,000

1 2 $500,000

1 3 $750,000

1 4 $1,000,000

1 5+ $1,250,000

Revocable Trust – 2 owners, 4 beneficiaries

Owner A

Owner B

Beneficiary C

Beneficiary D

Beneficiary E

Beneficiary F

 Bank depositors – A and B – set up all of their deposit accounts as payable on

death to their two kids and two favorite charities (recognized by the IRS).

 What will their insurance limit be un

der the new trust account rule?

Example – Revocable Trust Example – 2 owners, 4 beneficiaries

 With 2 owners and 4 eligible

beneficiaries, the owners’ accounts

would be added together and the

combined balance insured up to

$2,000,000.

 In this example, the New Trust Rule

uses the exact same insurance

calculation that is used today to figure

out the insurance limit: 2 owners x 4

eligible beneficiaries x $250,000.

Number of trust

owners

Number of

beneficiaries

Insurance

limit

2 1 $500,000

2 2 $1,000,000

2 3 $1,500,000

2 4 $2,000,000

2 5+ $2,500,000

Example Summary – Key Points

 These examples used some simplifying assumptions

to help illustrate how insurance

limits

ill be calculated under the new trust account rule starting April 1, 2024.

 Some depositors with more complicated account structures, e.g., depositors A and

B have co-owned trust accounts and in addition, Depositor A has some one-owner

trust accounts. Whether under the current rules or when the new rules are in effect,

if the account structure is complex, the analysis may be as well. Please contact us if

you need some assistance in determining your depositor's insurance coverage

 As you saw in some examples, the current insurance rules and the new insurance rule

were exactly the same. As you will see in the next few slides, in other examples, the

new trust rule will be different.

Seminar on Deposit Insurance Coverage

Part 3 – How the New Trust Account Rule,

Affects Coverage

Depositors Whose Coverage Will Not Be Affected

 A significant percentage of depositors will not be directly impacted by the

trust account insurance rule. For example:

 Any depositor with a total deposit of $250,000 or less per bank.

 Depositors with accounts in the other ownership categories:

New Trust Rules – Change to only Deposit Insurance Ownership Categories

Single Accounts (no beneficiaries) Public Bond Accounts

Joint Accounts (no beneficiaries) IDIs As Trustee of an Irrevocable Trust

Certain Retirement Accounts, e.g., IRAs Annuity Contract Accounts

Employee Benefit Plan Accounts Custodial Accounts for Native Americans

Corps., Partnerships and Unincorporated

Assoc.

Bank Accounts related to DOE Program

Government Accounts

* The Mortgage Servicing Account ownership category was amended as part of the simplification

rule FIL-07-2022

Depositors Whose Coverage Will Not Be Affected

 Even for depositors with trust accounts – revocable or irrevocable – many

will not see a change in their insurance limit.

 Example 1: A revocable trust owner who is fully insured under the current

revocable trust rules for

five or fewer beneficiaries will remain insured

under the new trust rules

. They have no irrevocable trusts on deposit.

Number of trust

owners

Number of

beneficiaries

Insurance

limit

1 1 $250,000

1 2 $500,000

1 3 $750,000

1 4 $1,000,000

1 5 $1,250,000

Depositors Whose Coverage Will Not Be Affected

 Example 2: A revocable trust owner(s) with 6 or more eligible beneficiaries and is

currently insured up to $1.25 million. They have no irrevocable trusts. Under the

new rule, their coverage remains up to $1.25 million per owner, per bank.

 Example 3: A revocable trust owner(s) with 6 or more eligible beneficiaries who

want

to insure no more than

$1.25 million per bank, per owner. They have no

irrevocable trusts. Under the new rule, their coverage remains the same.

 Example 4: An irrevocable trust owner with less than $250,000 and no revocable

trus

t deposits. Under the new rule, their coverage remains the same.

 Example 5: An irrevocable trust owner, up to five beneficiaries with non-

con

tingent trust interests and no revocable trust deposits. Under the new rule,

their coverage remains the same.

Coverage May Decrease For Some Depositors

 In limited situations, coverage will decrease and your depositors may

ask about the new trust account rule:

 Example #1: A single depositor who is insured under the current

revo

cable trust rules for more than

$1.25 million per bank. Under the

new trust rule, the limit will be up to $1.25 million per bank (even if you

have a trust with more than five beneficiaries).

 Example #2: Two

co-grantors who are insured under the current

revocable trust account category for more than

$2.5 million per

bank. The new trust rule, the limit will be up to $2.5 million per bank

(even with you have a trust with more than 5 beneficiaries).

Coverage May Increase For Some Depositors

 In other cases, deposit insurance limits will increase and the

calculation will be easier for bankers and depositors.

 Example #1: Under

current rules, even if an irrevocable trust has

multiple beneficiaries, insurance coverage for irrevocable trusts is

usually limited to $250,000

per bank because the beneficial interests

typically have contingencies attached. It's often complicated.

 Under the new trust rule, the insurance limit with one owner and

thr

ee eligible beneficiaries will be up to $750,000 per bank. It will be

easier to determine coverage for irrevocable trusts.

Seminar on Deposit Insurance Coverage

Part 4 - Complex Rules Eliminated

Complex Revocable Rules Eliminated

 The new rules eliminate the current revocable trust rule for six or

more beneficiaries (§330.10(e)).

 Currently, the most complex revocable trust calculations involve

six

or more beneficiaries and complex trust agreements.

 Calculating insur

ance will be much easier under the new rule,

even with a complex trust with six or more eligible beneficiaries.

 Some rare but complicated rules will also be eliminated—for

ample, beneficial interests outside the definition of beneficiary

(§330.10(d)). One example of such a rule was how do the insurance

rules work when a trust owner identifies a pet as a beneficiary.

Complex Revocable Rules Eliminated

 Under the new trust rules, insurance limits for revocable trusts that

become irrevocable will be less complicated to apply since the

springing trust rules will be eliminated (§330.10(h) - (i)).

 The springing trust rule helps reduce confusion in some cases, but

it can a

lso be complicated and confusing in other situations.

 The new trust rule will further reduce confusion and make it

easi

er to determine coverage when a revocable trust becomes

irrevocable due to a trust owner's death.

Complex Revocable Rules Eliminated

 Under the current rules for informal revocable trusts (POD/ITFs),

bank records must indicate the account is a POD/ITF account.

 Consumers often have difficulty verifying that

POD/ITF (or

something similar) is in the bank's records, e.g., a bank may code

informal trust accounts a particular way as a proxy for POD/ITF.

 The new trust rule does not include this tit

ling requirement for

informal revocable trusts. While POD or ITF are no longer

required, the beneficiaries of informal trusts still have to

be identified in bank records.

Complex Irrevocable Trust Rules Eliminated

 Contingent vs Non-Contingent Trust interests (§330.13(a)-(b)). Under the current

rules, depositor may need legal or financial advice to determine the terms of their

trust and calculation coverage. These terms will no longer be considered in

determining coverage.

 Non-contingent trust interest – “a trust interest capable of determination without

evaluation of contingencies except for those covered by the present worth tables and

rules of calculation for their use set forth in § 20.2031-7 of the Federal Estate Tax

Regulations (26 CFR 20.2031-7) or any similar present worth or life expectancy tables

which may be adopted by the Internal Revenue Service.”

 Grantor retained interest & “trust interest”. Currently, if an irrevocable trust grantor

retains an interest in their irrevocable trust, that interest must be valued precisely

and insured under the single account category (not the irrevocable trust

category). This will no longer be considered in determining coverage.

Clarifying Updates to the Trust Rules

 Informal revocable trusts payable on death to formal trusts.

Consistent with our current approach, these accounts will be treated as if they

are titled in the name of the formal trust. For example:

 An account title

d "A POD to A's Revocable Living Trust"

 An account titled "A or B POD to A and B'

s Revocable Living Trust"

 Identifying trusts as beneficiaries

. We hear from consumers who say their

trust identifies other trusts (not people) as beneficiaries, e.g., a

special needs trust or credit shelter trust. Consistent with our current

approach, under the new trust regulation the FDIC will look through

the "future trust" to identify "eligible" beneficiaries.

Seminar on Deposit Insurance Coverage

Part 5 - Deposit Insurance Coverage Resources

Deposit Insurance Coverage Resources

 Many of the FDIC’s deposit insurance resources are available on FDIC’s Deposit

Insurance Coverage homepage -

fdic.gov/resources/deposit-insurance/.

 FDIC’s Electronic Deposit Insurance Estimator (EDIE) - http

s://edie.fdic.gov/index.html.

 FDIC’s Your Insured Deposits – a written guide for use and distribution to depositors -

https://www.fdic.gov/deposit/deposits/brochures/your-insured-deposits-english.html.

 Financial Institution Employee’s Guide to Deposit Insurance (Employee’s Guide) –

https://www.fdic.gov/deposit/DIGuideBankers/index.html.

 FDIC’s Online Product Catalogue – http

s://catalog.fdic.gov/.

 FDIC’s toll free number 1-877-ASK-FDIC or 1-877-275-3342

FDIC Information and Support Center

https://ask.fdic.gov/fdicinformationandsupportcenter/s/

Thank you for participating in the seminar!