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NOTE
This file was generated by Descript 

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Samantha: Hello, this is Samantha Shares.

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This episode covers N C U A’s
Simplification of Share Insurance Rules

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The following is an audio
version of that RULE.

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This podcast is educational
and is not legal advice.

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We are sponsored by Credit Union
Exam Solutions Incorporated, whose

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team has over two hundred and
Forty years of National Credit

00:00:21.787 --> 00:00:23.647
Union  Administration experience.

00:00:24.177 --> 00:00:27.857
We assist our clients with N C
U A so they save time and money.

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If you are worried about a recent,
upcoming or in process N C U A

00:00:32.307 --> 00:00:36.757
examination, reach out to learn how they
can assist at Mark Treichel DOT COM.

00:00:37.227 --> 00:00:41.567
Also check out our other podcast called
With Flying Colors where we provide tips

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on how to achieve success with N C U A.

00:00:44.879 --> 00:00:45.739
And now the RULE.

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NATIONAL CREDIT UNION
ADMINISTRATION 12 CFR Part 745

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[N C U A-2023-0082] RIN 3133-AF53

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Simplification of Share Insurance Rules

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AGENCY: National Credit Union
Administration (N C U A).

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ACTION: Final rule.

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SUMMARY: The N C U A Board (Board)
is amending its regulations

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governing share insurance coverage.

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The final rule simplifies the share
insurance regulations by establishing

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a “trust accounts” category that will
provide for coverage of funds of both

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revocable trusts and irrevocable trusts
deposited at federally insured credit

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unions (F I C Us), provides consistent
share insurance treatment for all

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mortgage servicing account balances
held to satisfy principal and interest

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obligations to a lender, and increases
flexibility for the N C U A to consider

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various records in determining share
insurance coverage in liquidations.

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The changes also increase consistency
between the FDIC’s federal

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deposit insurance rules and the
N C U A’s share insurance rules.

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DATES: This rule is effective on December
1, 2026, except for the amendments

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to 12 CFR 745.2(c)(2) (instruction
5), 745.3 (instruction 7), and 745.14

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(instruction 13), which are effective
[INSERT DATE 30 DAYS AFTER DATE OF

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PUBLICATION IN THE FEDERAL REGISTER].

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FOR FURTHER INFORMATION CONTACT: Office
of General Counsel: Thomas Zells and

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Rachel Ackmann, Senior Staff Attorneys;
or Robert Leonard, Compliance Officer

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at (703) 518-6540 or by mail at
National Credit Union Administration,

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1775 Duke Street, Alexandria,

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Virginia 22314.

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Office of Credit Union Resources
and Expansion (CURE): Paul Dibble,

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Consumer Access Program Officer; or Rita
Woods, Director of Consumer Access at

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(703) 518- 1150 or by mail at National
Credit Union Administration, 1775 Duke

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Street, Alexandria, Virginia 22314.

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I.

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General Background and Legal Authority

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A.

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General Background

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The N C U A is an independent federal
agency that insures funds maintained

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in accounts of members or those
otherwise eligible to maintain insured

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accounts (member accounts) at F I C
Us, protects the members who own F

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I C Us, and charters and regulates
federal credit unions (F C Us).

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The N C U A protects the safety and
soundness of the credit union system by

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identifying, monitoring, and reducing
risks to the National Credit Union Share

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Insurance Fund (Share Insurance Fund).

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Backed by the full faith and credit
of the United States, the Share

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Insurance Fund provides federal
share insurance to account holders

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in all F C Us and the majority of
state- chartered credit unions.

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B.

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Legal Authority

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The Board has issued this
final rule pursuant to its

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authority under the F C U Act.

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Under the Federal Credit Union Act (F
C U Act), in the event of a F I C U’s

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failure the N C U A is responsible for
paying share insurance to any member, or

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to any person with funds lawfully held

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in a member account,1 up to the standard
maximum share insurance amount (SMSIA),

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which is currently set at $250,000.2
The F C U Act provides that the N C U A

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Board must determine the amount payable
consistently with actions taken by the

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FDIC under its deposit insurance rules.3
The F C U Act also grants the N C U A

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express authority to issue regulations
on the determination of the net amount

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of share insurance paid.4 The F C U Act
further provides that “in determining

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the amount payable to any member, there
shall be added together all accounts

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in the credit union maintained by that
member for that member’s own benefit,

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either in the member’s own name or in the
names of others.”5 However, the F C U Act

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also specifically authorizes the Board
to “define, with such classifications

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and exceptions as it may prescribe, the
extent of the share insurance coverage

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provided for member accounts, including
member accounts in the name of a

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minor, in trust, or in joint tenancy.”6

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The N C U A has implemented these
requirements by issuing regulations

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recognizing particular categories of
accounts, such as single ownership

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accounts, joint ownership accounts,
revocable trust accounts, and irrevocable

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trust accounts.7 If an account meets
the requirements for a particular

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category, the account is insured, up
to the $250,000 limit, separately from

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shares held by the member in a different
account category at the same F I C U.

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For example, provided all requirements
are met, shares in the single

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ownership category will be separately
insured from shares in the joint

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ownership category held by the
same member at the same F I C U.

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The N C U A’s share insurance
categories have been defined

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through both statute and regulation.

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Certain categories, such as the accounts
held by government depositors8 and certain

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1See 12 U.S.C.

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1752(5).

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2 12 U.S.C.

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1787(k)(1)(A), (k)(6).

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3 12 U.S.C.

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1787(k)(1)(A).

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4 12 U.S.C.

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1787(k)(1)(B).

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The F C U Act states that “[d]etermination
of the net amount of share insurance

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. . . “shall be in accordance with such
regulations as the Board may prescribe.”

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5 12 U.S.C.

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1787(k)(1)(B).

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6 12 U.S.C.

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1787(k)(1)(C).

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7 12 CFR part 745.

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8 See 12 U.S.C.

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1787(k)(2).

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retirement accounts, including individual
retirement accounts, have been expressly

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defined by Congress.9 Other categories,
such as joint accounts10 and corporate

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accounts,11 have been based on statutory
interpretation; these accounts have

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been recognized through regulations
issued in 12 CFR part 745 pursuant to

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the N C U A’s rulemaking authority.

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In addition to defining the insurance
categories, the share insurance

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regulations in part 745 provide the
criteria used to determine insurance

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coverage for shares in each category.

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Notably, the F C U Act also defines
the term “member account.” The N C U

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A insures member accounts at all F I
C Us.12 Importantly, this term is not

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limited to those persons enumerated
in the credit union’s field of

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membership who have become members.

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It also includes as member accounts
certain nonmembers, such as other

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nonmember credit unions; nonmember public
units and political subdivisions; and,

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in the case of credit unions serving
predominantly low-income members,

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deposits of nonmembers generally.

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In other words, the N C U A provides
share insurance coverage to members

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and those otherwise eligible to
maintain insured accounts at F I C Us.

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Finally, in addition to specific authority
to draft share insurance regulations

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under § 1787 of the F C U Act, the N C U
A also has general rulemaking authority.

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Under the F C U Act, the N C U A is the
chartering and supervisory authority for F

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C Us and the federal supervisory authority
for F I C Us.13 The F C U Act grants the N

00:08:11.424 --> 00:08:16.684
C U A a broad mandate to issue regulations
governing both F C Us and F I C Us.

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Section 120 of the F C U Act is a general
grant of regulatory authority, and it

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authorizes the Board to prescribe rules
and regulations for the administration

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of the F C U Act.14 Section 207 of
the F C U Act is a specific grant of

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authority over share insurance coverage,

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9 See 12 U.S.C.

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1787(k)(3).

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10 12 CFR 745.8.

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11 12 CFR 745.6.

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12 12 U.S.C.

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1752(5).

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13 12 U.S.C.

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1751 et seq.

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14 12 U.S.C.

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1766(a).

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conservatorships, and liquidations.15
Section 209 of the F C U Act is a plenary

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grant of regulatory authority to the
N C U A to issue rules and regulations

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necessary or appropriate to carry out its
role as share insurer for all F I C Us.16

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Accordingly, the F C U Act grants the
Board broad rulemaking authority to ensure

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the credit union industry and the Share
Insurance Fund remain safe and sound.

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II.

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Simplification of Share
Insurance Trust Rules

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A.

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Notice of Proposed Rulemaking

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At its October 19, 2023, meeting,
the Board issued a proposed rule to

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simplify the regulations governing share
insurance coverage (proposed rule).17

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The proposed rule primarily sought to
simply share insurance coverage rules

00:09:45.240 --> 00:09:50.180
and increase consistency with changes
adopted by the FDIC in January 2022.

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The Board’s overall objective
was to facilitate the prompt

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payment of share insurance in
accordance with the F C U Act.

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As discussed in more detail later in
this preamble, the Board is finalizing

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the proposed changes to the share
insurance regulations as proposed.

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B.

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Policy Objectives

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The Board is amending its regulations
governing share insurance coverage for

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funds held in member accounts at F I
C Us in connection with trusts.18 Like

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the proposed rule, the amendments of the
final rule are primarily intended to do

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the following: (1) provide a rule for
trust account coverage that is easier

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to understand and apply; (2) provide
parity with changes the FDIC adopted in

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January 2022;19 and (3) facilitate the
prompt payment of share insurance in

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15 12 U.S.C.

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1787.

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16 12 U.S.C.

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1789(a)(11).

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17 88 FR 73249 (Oct.

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25, 2023).

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18 Trusts include informal revocable
trusts (commonly referred to as

00:10:54.135 --> 00:10:58.585
payable-on-death accounts, in-trust-for
accounts, or Totten trusts), formal

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revocable trusts, and irrevocable trusts.

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19 87 FR 4455 (Jan.

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28, 2022).

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accordance with the F C U Act.

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Accomplishing these objectives will
further the N C U A’s mission in

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other respects, as discussed in
greater detail later in this preamble.

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Clarifying Insurance
Coverage for Trust Accounts

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The share insurance trust rules have
evolved over time, and they can be difF

00:11:26.644 --> 00:11:29.154
I C Ult to apply in some circumstances.

00:11:29.654 --> 00:11:33.064
The amendments are intended to
clarify the insurance rules and trust-

00:11:33.064 --> 00:11:37.044
account limits for F I C Us, their
employees, their accountholders,

00:11:37.154 --> 00:11:38.594
and other interested parties.

00:11:39.305 --> 00:11:43.245
The amendments reduce the number of rules
governing coverage for trust accounts,

00:11:43.565 --> 00:11:47.165
and they establish a straightforward
calculation to determine coverage.

00:11:47.635 --> 00:11:51.005
The amendments are also intended to
alleviate some of the confusion that

00:11:51.055 --> 00:11:55.125
F I C Us, their employees, and their
accountholders may experience with

00:11:55.125 --> 00:11:57.395
respect to insurance coverage and limits.

00:11:58.097 --> 00:12:01.267
Under the regulations currently in
effect (current rules), there are

00:12:01.267 --> 00:12:04.957
distinct and separate sets of rules
applicable to shares of revocable

00:12:04.957 --> 00:12:07.337
trusts as opposed to irrevocable trusts.

00:12:07.907 --> 00:12:11.307
Each set of rules has its own
criteria for coverage and methods

00:12:11.307 --> 00:12:13.037
by which coverage is calculated.

00:12:13.497 --> 00:12:18.957
Despite the N C U A’s efforts to simplify
the revocable trust rules in 2008, the

00:12:18.957 --> 00:12:22.997
consistently high volume of complex
inquiries about trust accounts over

00:12:22.997 --> 00:12:27.037
an extended period suggests continued
confusion about insurance limits.20

00:12:27.747 --> 00:12:32.077
N C U A share insurance specialists
have answered over 17,000 calls with

00:12:32.077 --> 00:12:37.187
questions since the fourth quarter of
2019.21 The N C U A estimates that over

00:12:37.187 --> 00:12:41.687
50 percent of these inquiries, which do
not include those received through email,

00:12:41.787 --> 00:12:46.917
submitted through mycreditunion.gov, or
directed to N C U A staff responsible

00:12:46.917 --> 00:12:51.267
for credit union liquidations, pertain
to share insurance coverage for trust

00:12:51.267 --> 00:12:53.477
accounts (revocable or irrevocable).

00:12:54.077 --> 00:12:54.777
Additionally,

00:12:55.533 --> 00:12:58.863
20 73 FR 60616 (Oct.

00:12:58.863 --> 00:13:00.393
14, 2008).

00:13:01.186 --> 00:13:05.636
21 The N C U A’s Office of Credit
Union Resources and Expansion,

00:13:05.826 --> 00:13:09.386
which fields most share insurance
inquiries, only began tracking

00:13:09.386 --> 00:13:12.536
calls received on October 31, 2019.

00:13:13.006 --> 00:13:16.566
The high volume of trust-related
inquires predates this tracking.

00:13:17.344 --> 00:13:20.664
comments received in response
to the proposal also support the

00:13:20.664 --> 00:13:24.244
notion that there continues to be
confusion regarding share insurance

00:13:24.244 --> 00:13:25.694
coverage of trust accounts.

00:13:26.381 --> 00:13:30.291
To better clarify insurance limits,
the amendments will further simplify

00:13:30.291 --> 00:13:34.571
insurance coverage of trust accounts
(revocable and irrevocable) by harmonizing

00:13:34.571 --> 00:13:38.841
the coverage criteria for revocable
and irrevocable trust accounts and by

00:13:38.841 --> 00:13:42.791
establishing a simplified formula for
calculating coverage that would apply

00:13:42.791 --> 00:13:45.271
to these funds deposited at F I C Us.

00:13:45.761 --> 00:13:49.691
The final rule uses the calculation
the N C U A first adopted in

00:13:49.691 --> 00:13:54.031
2008 for revocable trust accounts
with five or fewer beneficiaries.

00:13:54.747 --> 00:13:58.227
This formula is straightforward
and familiar to F I C Us and their

00:13:58.227 --> 00:14:02.607
members.22 The amendments will also
eliminate formulas in the current

00:14:02.607 --> 00:14:06.417
rules for revocable trust accounts
with more than five beneficiaries

00:14:06.417 --> 00:14:08.227
and irrevocable trust accounts.

00:14:08.905 --> 00:14:09.375
Parity

00:14:10.126 --> 00:14:14.226
Adoption of the final rule will also
align with changes the FDIC adopted in

00:14:14.226 --> 00:14:20.746
January 2022, which took effect on April
1, 2024.23 As the Board stressed in the

00:14:20.746 --> 00:14:25.546
proposed rule, as well as in the 2021
final rule addressing the share insurance

00:14:25.546 --> 00:14:29.286
coverage of joint ownership accounts,
the Board believes it is important to

00:14:29.286 --> 00:14:33.896
maintain parity, to the extent possible,
between the nation’s two federal deposit

00:14:33.896 --> 00:14:37.826
and share insurance programs, which
are backed by the full faith and credit

00:14:37.826 --> 00:14:42.036
of the United States.24 The Board
believes it is important that members

00:14:42.036 --> 00:14:45.706
of the public who use trust accounts
receive the same protection whether the

00:14:45.706 --> 00:14:50.116
accounts are maintained at F I C Us or
other federally insured institutions.

00:14:50.576 --> 00:14:55.126
Consistency between the FDIC’s federal
deposit insurance rules and the N C U

00:14:55.176 --> 00:14:59.506
A’s share insurance rules promotes public
confidence in the safety of funds at

00:15:00.329 --> 00:15:06.109
22 In 2008, the N C U A adopted an
insurance calculation for revocable trusts

00:15:06.109 --> 00:15:08.239
that have five or fewer beneficiaries.

00:15:08.789 --> 00:15:14.379
Under this rule, 12 CFR 745.4(a),
each trust grantor is insured

00:15:14.379 --> 00:15:17.269
up to $250,000 per beneficiary.

00:15:18.009 --> 00:15:21.649
23 87 FR 4455 (Jan.

00:15:21.649 --> 00:15:23.469
28, 2022).

00:15:24.244 --> 00:15:27.544
24 86 FR 11098 (Feb.

00:15:27.544 --> 00:15:29.144
24, 2021).

00:15:29.881 --> 00:15:33.541
depository institutions regardless
of whether the institution is an

00:15:33.541 --> 00:15:35.991
insured bank or insured credit union.

00:15:36.700 --> 00:15:38.530
Prompt Payment of Share Insurance

00:15:39.157 --> 00:15:43.537
The F C U Act requires the N C U A
to pay accountholders “as soon as

00:15:43.537 --> 00:15:49.307
possible” after a F I C U liquidation.25
However, the insurance determination

00:15:49.307 --> 00:15:53.407
and subsequent payment for many trust
accounts can be delayed when N C U

00:15:53.407 --> 00:15:57.617
A staff must review complex trust
agreements and apply various rules for

00:15:57.617 --> 00:15:59.677
determining share insurance coverage.

00:15:59.977 --> 00:16:04.217
The final rule’s amendments are intended
to facilitate more timely share insurance

00:16:04.217 --> 00:16:07.877
determinations for trust accounts by
reducing the time needed to review

00:16:07.877 --> 00:16:10.027
trust agreements and determine coverage.

00:16:10.537 --> 00:16:14.217
These amendments should promote the
N C U A’s ability to pay insurance

00:16:14.217 --> 00:16:18.187
proceeds to accountholders more quickly
following the liquidation of a F I

00:16:18.187 --> 00:16:22.827
C U, enabling accountholders to meet
their financial needs and obligations.

00:16:23.508 --> 00:16:25.148
Facilitating Liquidations

00:16:25.793 --> 00:16:28.363
The final rule’s amendments
will also facilitate the

00:16:28.363 --> 00:16:30.463
liquidation of failed F I C Us.

00:16:31.113 --> 00:16:35.353
The N C U A is routinely required to
make share insurance determinations in

00:16:35.353 --> 00:16:37.753
connection with F I C U liquidations.

00:16:38.213 --> 00:16:41.553
In many of these instances, however,
share insurance coverage for

00:16:41.553 --> 00:16:45.253
certain trust accounts is based upon
information that is not maintained

00:16:45.253 --> 00:16:47.283
in the F I C U’s account records.

00:16:47.633 --> 00:16:51.413
As a result, N C U A staff work
with accountholders to obtain

00:16:51.413 --> 00:16:55.363
trust documentation following a
F I C U’s liquidation to complete

00:16:55.363 --> 00:16:57.153
share insurance determinations.

00:16:57.643 --> 00:17:01.353
The difF I C Ulties associated with
completing such a determination

00:17:01.383 --> 00:17:04.553
are exacerbated by the substantial
growth in the use of formal

00:17:04.553 --> 00:17:06.183
trusts in recent decades.

00:17:06.773 --> 00:17:09.783
These amendments could reduce
the time spent reviewing such

00:17:10.546 --> 00:17:12.516
25 12 U.S.C.

00:17:12.516 --> 00:17:13.246
1787(d)(1).

00:17:13.981 --> 00:17:17.991
information, thereby reducing potential
delays in the completion of share

00:17:17.991 --> 00:17:20.141
insurance determinations and payments.

00:17:20.771 --> 00:17:21.171
C.

00:17:21.651 --> 00:17:23.461
Background and Need for Rulemaking

00:17:24.286 --> 00:17:24.716
1.

00:17:25.356 --> 00:17:28.856
Evolution of Insurance Coverage
of Funds Held in Trust Accounts

00:17:29.510 --> 00:17:33.910
The N C U A first adopted regulations
governing share insurance coverage in

00:17:33.910 --> 00:17:39.870
1971.26 Over the years, share insurance
coverage has evolved to reflect

00:17:39.960 --> 00:17:44.090
both the N C U A’s experience and
changes in the credit union industry

00:17:44.310 --> 00:17:47.240
as well as statutory amendments.27

00:17:48.000 --> 00:17:51.360
While the regulations addressing
irrevocable trusts have undergone

00:17:51.360 --> 00:17:55.050
minimal change, the regulations
addressing revocable trusts have

00:17:55.050 --> 00:17:58.590
seen numerous changes, largely
aimed at providing increased

00:17:58.590 --> 00:18:00.850
flexibility and simplifying coverage.

00:18:01.270 --> 00:18:06.280
Notably, in 2004 the N C U A amended
the revocable trust rules, pointing to

00:18:06.280 --> 00:18:10.840
continued confusion about the coverage for
revocable trust deposits and the need for

00:18:10.840 --> 00:18:16.460
parity with then recent FDIC amendments.28
Specifically, the N C U A eliminated

00:18:16.460 --> 00:18:20.490
the defeating contingency provisions of
the rules, with the result that coverage

00:18:20.490 --> 00:18:24.440
would be based on the interests of
qualifying beneficiaries, irrespective of

00:18:24.440 --> 00:18:29.420
any defeating contingencies in the trust
agreement.29 This more closely aligned

00:18:29.420 --> 00:18:33.470
coverage for formal revocable trust
accounts with payable-on-death accounts.

00:18:34.010 --> 00:18:37.980
Importantly, and of relevance to this
final rule, defeating contingency

00:18:37.980 --> 00:18:42.380
provisions were not eliminated for
irrevocable trusts, and these provisions

00:18:42.380 --> 00:18:46.220
remain relevant for calculating share
insurance coverage under the current

00:18:46.954 --> 00:18:50.564
26 36 FR 2477 (Feb.

00:18:50.754 --> 00:18:51.824
5, 1971).

00:18:52.608 --> 00:18:56.398
27 See, 71 FR 56001 (Sept.

00:18:56.398 --> 00:19:00.898
26, 2006)(implementing statutory
changes in the Federal Deposit

00:19:00.898 --> 00:19:07.348
Insurance Reform Act of 2005) and 80
FR 27109 (May 12, 2015)(implementing

00:19:07.348 --> 00:19:11.538
statutory changes in the Credit Union
Share Insurance Fund Parity Act).

00:19:12.265 --> 00:19:17.145
28 69 FR 8798 (Feb.

00:19:17.245 --> 00:19:17.955
26, 2004).

00:19:18.742 --> 00:19:23.732
29 Prior to the changes adopted in
2004, if the interest of a qualifying

00:19:23.732 --> 00:19:27.472
beneficiary in an account established
under the terms of a living trust

00:19:27.472 --> 00:19:31.042
agreement was contingent upon
fulfillment of a specified condition,

00:19:31.332 --> 00:19:35.482
referred to as a defeating contingency,
separate insurance was not available

00:19:35.482 --> 00:19:36.982
for that beneficial interest.

00:19:37.602 --> 00:19:40.882
Instead, the beneficial interest
would be added to any individual

00:19:40.882 --> 00:19:45.802
account(s) of the grantor and insured
up to the SMSIA, then $100,000.

00:19:46.342 --> 00:19:50.042
An example of a defeating contingency
is where an account owner names his

00:19:50.042 --> 00:19:54.252
son as a beneficiary but specifies
in the living trust document that his

00:19:54.252 --> 00:19:58.332
son’s ability to receive any share
of the trust funds is dependent upon

00:19:58.332 --> 00:20:00.362
him successfully completing college.

00:20:01.113 --> 00:20:06.283
irrevocable trust provisions.30 At the
same time, the N C U A eliminated the

00:20:06.283 --> 00:20:10.083
requirement to name the beneficiaries
of a formal revocable trust in the

00:20:10.083 --> 00:20:15.353
F I C U’s account records.31 The
N C U A recognized a grantor may

00:20:15.353 --> 00:20:18.943
elect to change the beneficiaries or
the beneficiaries’ interests at any

00:20:18.943 --> 00:20:23.673
time before the grantor’s death, and
requiring a F I C U to maintain a current

00:20:23.673 --> 00:20:27.913
record of this information would be
impractical and unnecessarily burdensome.

00:20:28.671 --> 00:20:33.281
More recently, the N C U A’s experience
and adoption of similar revisions by

00:20:33.281 --> 00:20:37.111
the FDIC suggested further changes
to the trust rules were necessary.

00:20:37.731 --> 00:20:43.361
In 2008, the N C U A simplified the
rules in several respects.32 First,

00:20:43.431 --> 00:20:47.221
it eliminated the kinship requirement
for revocable trust beneficiaries,

00:20:47.501 --> 00:20:52.011
instead allowing any natural person,
charitable organization, or nonprofit

00:20:52.011 --> 00:20:54.391
to qualify for per-beneficiary coverage.

00:20:54.741 --> 00:20:59.301
Second, a simplified calculation was
established if a revocable trust named

00:20:59.301 --> 00:21:03.541
five or fewer beneficiaries; in which
case, coverage would be determined

00:21:03.541 --> 00:21:06.881
without regard to the allocation of
interests among the beneficiaries.

00:21:07.501 --> 00:21:10.771
This simplification eliminated
the need to discern and consider

00:21:10.771 --> 00:21:12.881
beneficial interests in many cases.

00:21:13.634 --> 00:21:16.974
A different insurance calculation
applied to revocable trusts with

00:21:16.974 --> 00:21:18.544
more than five beneficiaries.

00:21:19.254 --> 00:21:24.704
At that time, the SMSIA was $100,000;
thus, if more than five beneficiaries

00:21:24.704 --> 00:21:30.374
were named in a revocable trust, coverage
would be the greater of: (1) $500,000;

00:21:30.754 --> 00:21:34.354
or (2) the aggregate amount of all
beneficiaries’ interests in the trust(s),

00:21:34.624 --> 00:21:37.354
limited to $100,000 per beneficiary.

00:21:38.054 --> 00:21:42.794
When the SMSIA was increased to
$250,000, a similar adjustment

00:21:42.794 --> 00:21:44.994
was made from $100,000 to

00:21:45.738 --> 00:21:49.878
$250,000 for the calculation
of per-beneficiary coverage.

00:21:50.569 --> 00:21:50.979
2.

00:21:51.609 --> 00:21:54.659
Current Rules for Coverage of
Funds Held in Trust Accounts

00:21:55.426 --> 00:21:58.656
30 12 CFR 745.2(d).

00:21:59.434 --> 00:22:05.064
31 69 FR 8798, 8799 (Feb.

00:22:05.064 --> 00:22:07.064
26, 2004).

00:22:07.918 --> 00:22:11.628
32 73 FR 60616 (Oct.

00:22:11.628 --> 00:22:13.048
14, 2008).

00:22:13.767 --> 00:22:17.927
The N C U A’s current rules recognize
two different insurance categories

00:22:17.927 --> 00:22:22.307
for funds held in connection with
trusts at F I C Us: (1) revocable

00:22:22.307 --> 00:22:24.357
trusts and (2) irrevocable trusts.

00:22:24.887 --> 00:22:28.437
The current rules for determining
insurance coverage for shares in each

00:22:28.437 --> 00:22:30.517
of these categories are described below.

00:22:31.280 --> 00:22:35.590
Additionally, share insurance coverage
is always limited to F I C U members

00:22:35.770 --> 00:22:39.710
and those otherwise eligible to maintain
insured accounts at the F I C U.

00:22:40.320 --> 00:22:45.020
The N C U A’s longstanding position has
been that, for revocable trust accounts,

00:22:45.190 --> 00:22:49.050
all grantors (sometimes described as
settlors) of the trust must be members

00:22:49.050 --> 00:22:54.500
of the F I C U or otherwise eligible
to maintain an insured account.33 For

00:22:54.500 --> 00:22:58.750
irrevocable trust accounts, the N C
U A has maintained the position that

00:22:58.790 --> 00:23:02.840
either all grantors (or settlors) or
all beneficiaries of the trust must

00:23:02.840 --> 00:23:08.560
be members of the F I C U or otherwise
eligible to maintain an insured account.34

00:23:09.328 --> 00:23:13.388
As described in greater detail
in section II.E., in the 2023

00:23:13.388 --> 00:23:17.738
proposal, the N C U A requested
commenters’ feedback as to whether

00:23:17.738 --> 00:23:19.468
these positions should be revisited.

00:23:20.108 --> 00:23:23.378
This final rule will not alter
these longstanding positions.

00:23:23.878 --> 00:23:27.508
However, the N C U A will be
continuing to evaluate commenters’

00:23:27.508 --> 00:23:31.208
feedback and whether further
changes are possible and necessary.

00:23:31.959 --> 00:23:33.519
Revocable Trust Accounts

00:23:34.186 --> 00:23:37.816
The revocable trust category applies
to funds for which the member has

00:23:37.816 --> 00:23:41.006
evidenced an intention that the
funds shall belong to one or more

00:23:41.006 --> 00:23:42.966
beneficiaries upon the member’s death.

00:23:43.596 --> 00:23:47.826
This category includes funds held in
connection with formal revocable trusts

00:23:48.066 --> 00:23:51.766
— that is, revocable trusts established
through a written trust agreement.

00:23:52.226 --> 00:23:55.996
It also includes funds that are not
subject to a formal trust agreement,

00:23:56.276 --> 00:24:00.996
where the F I C U makes payment to the
beneficiaries identified in the F I C U’s

00:24:00.996 --> 00:24:05.576
records upon the member’s death, based on
account titling and applicable state law.

00:24:05.996 --> 00:24:06.236
The

00:24:07.039 --> 00:24:10.509
33 See 12 CFR part 701, app.

00:24:10.839 --> 00:24:11.089
A.

00:24:11.499 --> 00:24:11.809
Art.

00:24:12.609 --> 00:24:13.249
III, sec.

00:24:13.889 --> 00:24:18.449
6 (“Shares issued in a revocable trust
— the settlor must be a member of this

00:24:18.449 --> 00:24:20.639
credit union in his or her own right.”).

00:24:21.542 --> 00:24:24.972
34 See 12 CFR part 701, app.

00:24:25.392 --> 00:24:25.652
A.

00:24:26.172 --> 00:24:26.472
Art.

00:24:27.292 --> 00:24:27.922
III, sec.

00:24:28.592 --> 00:24:33.542
6 (“Shares issued in an irrevocable trust
— either the settlor or the beneficiary

00:24:33.542 --> 00:24:35.552
must be a member of this credit union.”).

00:24:36.320 --> 00:24:40.600
N C U A refers to these types of
accounts, including Totten trust accounts,

00:24:40.880 --> 00:24:45.810
payable-on-death accounts, and similar
accounts, as “informal revocable trusts.”

00:24:46.640 --> 00:24:50.950
Funds associated with formal and informal
revocable trusts are aggregated for the

00:24:50.950 --> 00:24:55.550
purposes of the share insurance rules;
thus, funds that will pass from the same

00:24:55.550 --> 00:25:00.160
grantor to beneficiaries are aggregated
and insured up to the SMSIA, currently

00:25:00.160 --> 00:25:05.130
$250,000, per beneficiary, regardless
of whether the transfer would be

00:25:05.130 --> 00:25:09.490
accomplished through a written revocable
trust or an informal revocable trust.35

00:25:11.569 --> 00:25:15.359
Under the current revocable trust
rules, beneficiaries with insurable

00:25:15.359 --> 00:25:19.219
interests are limited to natural
persons, charitable organizations,

00:25:19.459 --> 00:25:23.449
and non-profit entities recognized as
such under the Internal Revenue Code

00:25:23.449 --> 00:25:29.939
of 1986.36 If a named beneficiary does
not satisfy this requirement, funds

00:25:29.939 --> 00:25:33.809
held in trust for that beneficiary are
treated as single ownership funds of

00:25:33.809 --> 00:25:37.589
the grantor and aggregated with any
other single ownership accounts the

00:25:37.589 --> 00:25:41.349
grantor maintains at the same F I C U.37

00:25:42.044 --> 00:25:45.644
Certain requirements also must be
satisfied for an account to be insured

00:25:45.644 --> 00:25:47.454
in the revocable trust category.

00:25:48.154 --> 00:25:51.674
The required intention that the funds
shall belong to the beneficiaries upon

00:25:51.674 --> 00:25:55.684
the grantor’s death must either be
manifested in the “title” of the account

00:25:55.684 --> 00:25:59.214
or elsewhere in the account records
of the credit union (using commonly

00:25:59.214 --> 00:26:04.624
accepted terms such as “in trust for,” “as
trustee for,” “payable-on-death to,” or

00:26:04.624 --> 00:26:10.124
any acronym for these terms).38 For the
purposes of this requirement, a F I C U’s

00:26:10.124 --> 00:26:12.234
electronic account records are included.

00:26:12.764 --> 00:26:16.834
For example, a F I C U’s electronic
account records could identify the

00:26:16.834 --> 00:26:20.974
account as a revocable trust account
through coding or a similar mechanism.

00:26:21.624 --> 00:26:25.574
In addition, the beneficiaries of informal
trusts (that is, payable-on- death

00:26:25.574 --> 00:26:30.864
accounts) must be named in the F I C U’s
account records.39 The requirement to name

00:26:30.864 --> 00:26:35.554
beneficiaries in the F I C U’s account
records does not apply to formal revocable

00:26:35.554 --> 00:26:40.484
trusts; the N C U A generally obtains
information on beneficiaries of such

00:26:40.484 --> 00:26:42.604
trusts from accountholders following a

00:26:43.331 --> 00:26:46.991
35 12 CFR 745.4(a).

00:26:47.705 --> 00:26:51.495
36 12 CFR 745.4(c).

00:26:52.191 --> 00:26:55.901
37 12 CFR 745.4(d).

00:26:56.650 --> 00:27:00.300
38 12 CFR 745.4(b).

00:27:01.113 --> 00:27:01.973
39 Id.

00:27:02.735 --> 00:27:04.265
F I C U’s liquidation.

00:27:04.755 --> 00:27:08.865
If a member’s funds at a liquidated
F I C U held in trust accounts exceed

00:27:08.865 --> 00:27:13.055
the SMSIA, a hold will be placed on
the portion of such funds in excess of

00:27:13.055 --> 00:27:17.595
the SMSIA until the N C U A can fully
review the member’s trust agreement

00:27:17.695 --> 00:27:21.385
and related documents to verify the
beneficiary rules are satisfied.

00:27:22.145 --> 00:27:25.515
Therefore, this process can
result in delays to some insured

00:27:25.515 --> 00:27:29.295
accountholders’ insurance determinations
and full insurance payments.

00:27:29.920 --> 00:27:33.280
The calculation of share insurance
coverage for revocable trust

00:27:33.280 --> 00:27:36.450
accounts depends upon the number
of unique beneficiaries named

00:27:36.450 --> 00:27:37.770
by a member accountholder.

00:27:38.290 --> 00:27:42.060
If five or fewer beneficiaries have
been named, the member accountholder

00:27:42.060 --> 00:27:46.230
is insured in an amount up to the total
number of named beneficiaries multiplied

00:27:46.230 --> 00:27:50.790
by the SMSIA, and the specific allocation
of interests among the beneficiaries

00:27:50.790 --> 00:27:55.310
is not considered.40 If more than five
beneficiaries have been named, the

00:27:55.310 --> 00:27:59.360
member accountholder is insured up
to the greater of: (1) five times the

00:27:59.360 --> 00:28:03.940
SMSIA; or (2) the total of the interests
of each beneficiary, with each such

00:28:03.940 --> 00:28:09.400
interest limited to the SMSIA.41 For
the purposes of this calculation, a life

00:28:09.400 --> 00:28:12.890
estate interest is valued at the SMSIA.42

00:28:13.702 --> 00:28:17.712
Where a revocable trust account is jointly
owned, the interests of each account

00:28:17.712 --> 00:28:23.152
owner are separately insured up to the
SMSIA per beneficiary.43 However, if the

00:28:23.152 --> 00:28:27.732
co-owners are the only beneficiaries of
the trust, the account is instead insured

00:28:27.732 --> 00:28:31.302
under the N C U A’s joint account rule.44

00:28:32.100 --> 00:28:36.090
The current revocable trust rule also
contains a provision that was intended

00:28:36.090 --> 00:28:40.400
to reduce confusion and the potential for
a decrease in share insurance coverage

00:28:40.400 --> 00:28:42.220
in the case of the death of a grantor.

00:28:42.700 --> 00:28:46.650
Specifically, if a revocable trust
becomes irrevocable due to the death

00:28:46.650 --> 00:28:50.340
of the grantor, the trust account
may continue to be insured under the

00:28:50.340 --> 00:28:53.610
revocable trust rules.45 Absent this

00:28:54.372 --> 00:28:57.782
40 12 CFR 745.4(a).

00:28:58.495 --> 00:29:02.165
41 12 CFR 745.4(e).

00:29:02.963 --> 00:29:06.623
42 12 CFR 745.4(g).

00:29:07.013 --> 00:29:11.083
For example, if a revocable trust
provides a life estate for the member

00:29:11.083 --> 00:29:15.043
accountholder’s spouse and remainder
interests for six other beneficiaries,

00:29:15.363 --> 00:29:18.753
the spouse’s life estate interest
would be valued at the lesser of

00:29:19.547 --> 00:29:23.727
$250,000 or the amount held in
the trust for the purposes of

00:29:23.727 --> 00:29:25.537
the share insurance calculation.

00:29:26.362 --> 00:29:30.152
43 12 CFR 745.4(f)(1).

00:29:30.925 --> 00:29:34.825
44 12 CFR 745.4(f)(2).

00:29:35.717 --> 00:29:39.497
45 12 CFR 745.4(h).

00:29:40.214 --> 00:29:44.174
provision, the irrevocable trust rules
would apply following the grantor’s

00:29:44.174 --> 00:29:48.804
death, as the revocable trust becomes
irrevocable at that time, which could

00:29:48.804 --> 00:29:51.974
result in a reduction in coverage.46

00:29:52.662 --> 00:29:54.292
Irrevocable Trust Accounts

00:29:54.957 --> 00:29:58.527
Accounts maintaining funds held by
an irrevocable trust that has been

00:29:58.527 --> 00:30:03.107
established either by written agreement or
by statute are insured in the irrevocable

00:30:03.107 --> 00:30:04.947
trust share insurance category.

00:30:05.517 --> 00:30:09.287
Calculating coverage in this category
requires a determination of whether

00:30:09.287 --> 00:30:13.097
beneficiaries’ interests in the trust
are contingent or non-contingent.47

00:30:13.657 --> 00:30:18.197
Non-contingent interests are interests
that may be determined without evaluation

00:30:18.197 --> 00:30:22.297
of any contingencies, except for those
covered by the present worth and life

00:30:22.297 --> 00:30:26.167
expectancy tables and the rules for
their use set forth in the Internal

00:30:26.167 --> 00:30:31.427
Revenue Service (IRS) Federal Estate
Tax Regulations.48 Funds held for

00:30:31.427 --> 00:30:35.397
non-contingent trust interests are
insured up to the SMSIA for each such

00:30:35.437 --> 00:30:40.647
beneficiary.49 Funds held for contingent
trust interests are aggregated and

00:30:40.647 --> 00:30:43.557
insured up to the SMSIA in total.50

00:30:44.258 --> 00:30:48.078
The irrevocable trust rules do not
apply to funds held for a grantor’s

00:30:48.118 --> 00:30:53.048
retained interest in an irrevocable
trust.51 Such funds are aggregated

00:30:53.048 --> 00:30:56.458
with the grantor’s other single
ownership funds for the purposes of

00:30:56.458 --> 00:30:58.248
applying the share insurance limit.

00:30:59.076 --> 00:30:59.486
3.

00:30:59.876 --> 00:31:01.386
Need for Further Rulemaking

00:31:02.159 --> 00:31:05.999
46 The revocable trust rules
tend to provide greater coverage

00:31:05.999 --> 00:31:09.269
than the irrevocable trust rules
because contingencies are not

00:31:09.269 --> 00:31:11.129
considered for revocable trusts.

00:31:11.719 --> 00:31:15.459
In addition, where five or fewer
beneficiaries are named by a revocable

00:31:15.459 --> 00:31:19.819
trust, specific allocations to
beneficiaries also are not considered.

00:31:20.644 --> 00:31:26.714
47 12 CFR 745.2(d) and 745.9-1.

00:31:27.577 --> 00:31:31.187
48 12 CFR 745.2(d)(1).

00:31:31.717 --> 00:31:36.067
For example, a life estate interest is
generally non-contingent, as it may be

00:31:36.067 --> 00:31:38.577
valued using the life expectancy tables.

00:31:39.017 --> 00:31:43.197
However, where a trustee has discretion
to divert funds from one beneficiary

00:31:43.197 --> 00:31:47.317
to another to provide for the second
beneficiary’s medical needs, the first

00:31:47.317 --> 00:31:50.837
beneficiary’s interest is contingent
upon the trustee’s discretion.

00:31:51.606 --> 00:31:55.506
49 12 CFR 745.9-1(b).

00:31:56.325 --> 00:31:59.875
50 12 CFR 745.2(d)(2).

00:32:00.665 --> 00:32:07.635
51 See 12 CFR 745.2(d)(4) (The term
“trust interest” does not include any

00:32:07.635 --> 00:32:09.235
interest retained by the settlor.).

00:32:10.006 --> 00:32:13.396
As noted, the rules governing
share insurance coverage for trust

00:32:13.396 --> 00:32:16.806
accounts have been simplified and
modified on several occasions.

00:32:17.336 --> 00:32:20.536
However, these rules are still
frequently misunderstood and can

00:32:20.536 --> 00:32:22.636
present some implementation challenges.

00:32:23.126 --> 00:32:26.786
The trust rules can require
overly detailed, time-consuming,

00:32:26.906 --> 00:32:30.546
and resource-intensive reviews
of trust documentation to obtain

00:32:30.546 --> 00:32:33.996
the information necessary to
calculate share insurance coverage.

00:32:34.346 --> 00:32:39.196
This information is often not found in a F
I C U’s records and must be obtained from

00:32:39.196 --> 00:32:41.796
members after a F I C U’s liquidation.

00:32:42.492 --> 00:32:46.482
Revision of the share insurance coverage
rules for trust accounts will reduce

00:32:46.482 --> 00:32:50.432
the amount of information that must be
provided for trust accounts, as well as

00:32:50.432 --> 00:32:52.882
the complexity of the N C U A’s review.

00:32:53.512 --> 00:32:57.832
This revision should enable the N C U A
to complete share insurance determinations

00:32:57.832 --> 00:33:02.412
more rapidly if a F I C U with a large
number of trust accounts is liquidated.

00:33:02.842 --> 00:33:06.082
Delays in the payment of share
insurance can be consequential for

00:33:06.082 --> 00:33:09.952
accountholders, and the final rule
will help to mitigate those delays.

00:33:10.641 --> 00:33:13.311
Several factors contribute
to the challenges of making

00:33:13.311 --> 00:33:16.771
insurance determinations for trust
accounts under the current rules.

00:33:17.311 --> 00:33:20.651
First, there are two different sets
of rules governing share insurance

00:33:20.651 --> 00:33:22.121
coverage for trust accounts.

00:33:22.671 --> 00:33:26.211
Understanding the coverage for a
particular account requires a threshold

00:33:26.211 --> 00:33:30.001
inquiry to determine which set of
rules to apply — the revocable trust

00:33:30.001 --> 00:33:32.361
rules or the irrevocable trust rules.

00:33:32.721 --> 00:33:36.091
This requires review of the trust
agreement to determine the type of

00:33:36.091 --> 00:33:40.261
trust (revocable or irrevocable),
and the inquiry may be complicated

00:33:40.261 --> 00:33:43.701
by innovations in state trust law
that are intended to increase the

00:33:43.701 --> 00:33:45.831
flexibility and utility of trusts.

00:33:46.421 --> 00:33:50.751
In some cases, this threshold inquiry is
also complicated by the provision of the

00:33:50.751 --> 00:33:54.801
revocable trust rules that allows for
continued coverage under the revocable

00:33:54.801 --> 00:33:58.821
trust rules where a trust becomes
irrevocable upon the grantor’s death.

00:33:59.441 --> 00:34:03.541
The result of an irrevocable trust
deposit being insured under the revocable

00:34:03.541 --> 00:34:07.901
trust rules has proven confusing for
both accountholders and F I C Us.

00:34:08.564 --> 00:34:11.914
Second, even after determining
which set of rules applies to

00:34:11.914 --> 00:34:13.654
a particular account, it may

00:34:14.412 --> 00:34:16.632
be challenging to apply the current rules.

00:34:17.162 --> 00:34:20.402
For example, the revocable
trust rules include unique

00:34:21.178 --> 00:34:23.768
titling requirements and
beneficiary requirements.

00:34:24.408 --> 00:34:27.998
These rules also provide for two
separate calculations to determine

00:34:27.998 --> 00:34:31.038
insurance coverage, depending
in part upon whether there are

00:34:31.038 --> 00:34:34.848
five or fewer trust beneficiaries
or at least six beneficiaries.

00:34:35.228 --> 00:34:39.538
In addition, for revocable trusts that
provide benefits to multiple generations

00:34:39.538 --> 00:34:44.138
of potential beneficiaries, the N C U
A needs to evaluate the trust agreement

00:34:44.138 --> 00:34:48.368
to determine whether a beneficiary is a
primary beneficiary (immediately entitled

00:34:48.368 --> 00:34:52.968
to funds when a grantor dies), contingent
beneficiary, or remainder beneficiary.

00:34:53.558 --> 00:34:57.038
Only eligible primary beneficiaries
and remainder beneficiaries are

00:34:57.038 --> 00:35:00.608
considered when calculating N
C U A share insurance coverage.

00:35:01.208 --> 00:35:05.428
The irrevocable trust rules may require
detailed review of trust agreements to

00:35:05.428 --> 00:35:09.738
determine whether beneficiaries’ interests
are contingent and may also require

00:35:09.738 --> 00:35:12.398
actuarial or present value calculations.

00:35:12.658 --> 00:35:16.558
These types of requirements complicate
the determination of insurance coverage

00:35:16.558 --> 00:35:21.418
for trust deposits, have proven confusing
for accountholders, and extend the time

00:35:21.418 --> 00:35:25.208
needed to complete a share insurance
determination and insurance payment.

00:35:26.016 --> 00:35:29.246
Third, the complexity and
variety of account holders’ trust

00:35:29.246 --> 00:35:33.166
arrangements adds to the difF I C
Ulty of determining share insurance

00:35:33.166 --> 00:35:34.846
coverage under the current rules.

00:35:35.406 --> 00:35:38.626
For example, trust interests are
sometimes defined through numerous

00:35:38.626 --> 00:35:42.806
conditions and formulas, and a careful
analysis of these provisions may be

00:35:42.806 --> 00:35:46.696
necessary to calculate share insurance
coverage under the current rules.

00:35:47.226 --> 00:35:50.596
Arrangements involving multiple
trusts where the same beneficiaries

00:35:50.596 --> 00:35:54.296
are named by the same grantor(s) in
different trusts add to the difF I

00:35:54.296 --> 00:35:56.476
C Ulty of applying the trust rules.

00:35:56.926 --> 00:36:00.946
The N C U A believes simplification
of the share insurance rules presents

00:36:00.946 --> 00:36:04.216
an opportunity to more closely
align the coverage provided for

00:36:04.216 --> 00:36:05.826
different types of trust funds.

00:36:06.246 --> 00:36:09.736
For example, the current revocable
trust rules generally provide

00:36:09.736 --> 00:36:13.146
for a greater amount of coverage
than the irrevocable trust rules.

00:36:13.556 --> 00:36:17.386
This outcome occurs because contingent
interests for irrevocable trusts

00:36:17.386 --> 00:36:21.426
are aggregated and insured up to the
SMSIA rather than up to the SMSIA

00:36:21.426 --> 00:36:25.306
per beneficiary, while contingencies
are not considered and therefore

00:36:25.306 --> 00:36:28.676
do not limit coverage in the
same manner for revocable trusts.

00:36:29.416 --> 00:36:33.586
Finally, as previously noted, adoption
of this final rule will align with

00:36:33.586 --> 00:36:39.756
changes the FDIC adopted in January
2022, which took effect on April 1, 2024.

00:36:40.366 --> 00:36:43.916
The Board believes it is important to
maintain parity between the nation’s

00:36:43.916 --> 00:36:48.836
two federal deposit and share insurance
programs.52 It is imperative that

00:36:48.836 --> 00:36:52.506
members of the public who use trust
accounts for the transfer of ownership

00:36:52.506 --> 00:36:56.286
of assets better understand the rules
governing such accounts and receive

00:36:56.286 --> 00:37:00.436
the same protection, whether the
accounts are maintained at F I C Us or

00:37:00.436 --> 00:37:02.576
other federally insured institutions.

00:37:03.299 --> 00:37:03.549
D.

00:37:03.819 --> 00:37:04.539
Final Rule

00:37:05.274 --> 00:37:09.784
The final rule adopts the proposed changes
to the trust account rules as proposed.

00:37:10.469 --> 00:37:14.129
Specifically, the N C U A is
amending the rules governing share

00:37:14.129 --> 00:37:17.819
insurance coverage for funds held
in trust accounts at F I C Us.

00:37:18.369 --> 00:37:22.199
Generally, the amendments will do the
following: (1) merge the revocable

00:37:22.199 --> 00:37:26.759
and irrevocable trust categories into
one category; (2) apply a simpler,

00:37:26.889 --> 00:37:30.959
common calculation method to determine
insurance coverage for funds held by

00:37:30.959 --> 00:37:35.399
revocable and irrevocable trusts; and
(3) eliminate certain requirements

00:37:35.399 --> 00:37:38.889
found in the current rules for
revocable and irrevocable trusts.

00:37:39.583 --> 00:37:42.873
Merger of Revocable and
Irrevocable Trust Categories

00:37:43.606 --> 00:37:47.576
As discussed above, the N C U A
historically has insured revocable

00:37:47.576 --> 00:37:51.916
trust funds and irrevocable trust
funds held at F I C Us under two

00:37:51.916 --> 00:37:53.586
separate insurance categories.

00:37:54.156 --> 00:37:58.796
The N C U A’s experience has been this
bifurcation often confuses F I C Us’

00:37:58.796 --> 00:38:03.156
staff and their members, as it requires
a threshold inquiry to determine which

00:38:03.156 --> 00:38:05.426
set of rules to apply to a trust account.

00:38:06.215 --> 00:38:11.175
Moreover, all trust funds deposited at
a F I C U must be categorized before

00:38:11.175 --> 00:38:15.545
the aggregation of trust funds deposited
within each category can be completed.

00:38:16.145 --> 00:38:18.415
The N C U A believes funds held in

00:38:19.184 --> 00:38:21.074
52 12 U.S.C.

00:38:21.074 --> 00:38:22.154
1787(k)(1)(A).

00:38:22.837 --> 00:38:26.877
connection with revocable and irrevocable
trusts are sufficiently similar,

00:38:27.147 --> 00:38:30.757
for the purposes of share insurance
coverage, to warrant the merger of

00:38:30.757 --> 00:38:33.037
these two categories into one category.

00:38:33.829 --> 00:38:37.909
Under the N C U A’s current rules,
share insurance coverage is provided

00:38:37.909 --> 00:38:41.639
because the trustee maintains the funds
for the benefit of the beneficiaries.

00:38:42.209 --> 00:38:46.689
This fact is true regardless of whether
the trust is revocable or irrevocable.

00:38:47.169 --> 00:38:51.199
Merging the revocable and irrevocable
trust categories will better conform

00:38:51.199 --> 00:38:54.539
share insurance coverage to the
substance — rather than the legal

00:38:54.539 --> 00:38:56.059
form — of the trust arrangement.

00:38:56.369 --> 00:39:00.089
This underlying principle of the
share insurance rules is particularly

00:39:00.089 --> 00:39:04.769
important in the context of trusts, as
state law often provides flexibility

00:39:04.769 --> 00:39:09.719
to structure arrangements in different
ways to accomplish a given purpose.53

00:39:10.508 --> 00:39:14.028
F I C U members may have various
reasons for selecting a particular

00:39:14.028 --> 00:39:17.388
legal arrangement, but that
decision should not significantly

00:39:17.388 --> 00:39:19.138
affect share insurance coverage.

00:39:19.688 --> 00:39:23.368
Importantly, the merger of the
revocable trust and irrevocable trust

00:39:23.368 --> 00:39:27.518
categories into one category for share
insurance purposes will not affect

00:39:27.518 --> 00:39:31.748
the application or operation of state
trust law; it will only affect the

00:39:31.748 --> 00:39:35.698
determination of share insurance coverage
for these types of trust funds in

00:39:35.698 --> 00:39:38.308
the event of a F I C U’s liquidation.

00:39:38.997 --> 00:39:45.317
Accordingly, the N C U A is amending
§ 745.4 of its regulations, which

00:39:45.317 --> 00:39:49.077
currently applies only to revocable
trust accounts, to establish a

00:39:49.077 --> 00:39:53.527
new “trust accounts” category that
includes both revocable and irrevocable

00:39:53.527 --> 00:39:56.137
trust funds deposited at a F I C U.

00:39:56.607 --> 00:40:00.277
The final rule defines the funds that
will be included in this category as

00:40:00.277 --> 00:40:05.487
follows: (1) informal revocable trust
funds, such as payable- on-death accounts,

00:40:05.637 --> 00:40:09.767
in-trust-for accounts, and Totten
trust accounts; (2) formal revocable

00:40:09.767 --> 00:40:14.257
trust funds, defined to mean funds held
pursuant to a written revocable trust

00:40:14.257 --> 00:40:18.437
agreement under which funds pass to one
or more beneficiaries upon the grantor’s

00:40:18.437 --> 00:40:21.387
death; and (3) irrevocable trust funds,

00:40:22.123 --> 00:40:26.783
53 For example, the N C U A currently
aggregates funds in payable-on-death

00:40:26.823 --> 00:40:30.553
accounts and funds of written revocable
trusts for the purposes of share

00:40:30.553 --> 00:40:34.613
insurance coverage, despite their
separate and distinct legal mechanisms.

00:40:35.153 --> 00:40:39.213
Also, where the co-owners of a revocable
trust are also that trust’s sole

00:40:39.213 --> 00:40:43.673
beneficiaries, the N C U A instead
insures the trust’s funds as joint

00:40:43.673 --> 00:40:47.773
funds, reflecting the arrangement’s
substance rather than its legal form.

00:40:48.464 --> 00:40:52.204
meaning funds held pursuant to an
irrevocable trust established by

00:40:52.204 --> 00:40:54.034
written agreement or by statute.

00:40:54.800 --> 00:40:59.210
In addition, the merger of the revocable
trust and irrevocable trust categories

00:40:59.300 --> 00:41:05.300
eliminates the need for § 745.4(h)
through (i) of the current revocable trust

00:41:05.300 --> 00:41:09.690
rules, which provide that the revocable
trust rules may continue to apply to an

00:41:09.690 --> 00:41:14.040
account where a formal revocable trust
becomes irrevocable due to the death

00:41:14.040 --> 00:41:16.170
of one or more of the trust’s grantors.

00:41:16.570 --> 00:41:20.980
These provisions were intended to benefit
accountholders, who sometimes were unaware

00:41:20.980 --> 00:41:25.340
that a trust owner’s death could trigger a
significant decrease in insurance coverage

00:41:25.530 --> 00:41:27.990
as a revocable trust becomes irrevocable.

00:41:28.811 --> 00:41:34.061
However, in the N C U A’s experience, this
rule has proven complex in part because

00:41:34.061 --> 00:41:38.241
it results in some irrevocable trusts
being insured per the revocable trust

00:41:38.241 --> 00:41:42.671
rules, while other irrevocable trusts
are insured under the irrevocable trust

00:41:42.671 --> 00:41:48.481
rules.54 As a result, an accountholder
could know a trust was irrevocable but not

00:41:48.481 --> 00:41:50.781
know which share insurance rules to apply.

00:41:51.211 --> 00:41:55.301
The final rule will insure funds of
formal and informal revocable trusts

00:41:55.331 --> 00:41:59.321
and irrevocable trusts according to a
common set of rules, eliminating the

00:41:59.321 --> 00:42:04.471
need for these provisions (§ 745.4(h)
through (i)) and simplifying

00:42:04.471 --> 00:42:05.881
coverage for accountholders.

00:42:06.391 --> 00:42:09.891
Accordingly, the death of a formal
revocable trust owner will not

00:42:09.891 --> 00:42:13.211
result in a decrease in share
insurance coverage for the trust.

00:42:13.731 --> 00:42:17.881
Coverage for irrevocable and formal
revocable trusts will fall under the same

00:42:17.881 --> 00:42:21.991
category and share insurance coverage
will remain the same, even after the

00:42:21.991 --> 00:42:27.501
expiration of the six-month grace period
following the death of an account owner.55

00:42:28.302 --> 00:42:33.222
54 As noted above, if a revocable trust
becomes irrevocable due to the death of

00:42:33.222 --> 00:42:37.922
the grantor, the account continues to be
insured under the revocable trust rules.

00:42:38.502 --> 00:42:41.572
12 CFR 745.4(h).

00:42:42.255 --> 00:42:46.115
55 The death of an account owner
can affect share insurance coverage,

00:42:46.425 --> 00:42:49.985
often reducing the amount of coverage
that applies to a family’s accounts.

00:42:50.595 --> 00:42:53.775
To ensure that families dealing with
the death of a family member have

00:42:53.775 --> 00:42:58.175
adequate time to review and restructure
accounts if necessary, the N C U A

00:42:58.175 --> 00:43:03.275
insures a deceased owner’s accounts as if
he/she/they were still alive for a period

00:43:03.275 --> 00:43:06.045
of 6 months after his/her/their death.

00:43:06.695 --> 00:43:09.565
12 CFR 745.2(e).

00:43:10.280 --> 00:43:13.680
Informal revocable trust accounts
will also be insured under this

00:43:13.680 --> 00:43:17.770
same trust account category but are
unlikely to result in the creation

00:43:17.810 --> 00:43:21.440
of an irrevocable trust account
upon an owner or co-owner’s death.

00:43:22.010 --> 00:43:26.280
As is the case under the existing share
insurance regulations, when a co- owner

00:43:26.280 --> 00:43:30.380
of an informal revocable trust account
dies, share insurance coverage for

00:43:30.380 --> 00:43:34.050
the deceased owner’s interest in the
account will cease after the expiration

00:43:34.050 --> 00:43:37.870
of the six-month grace period allowed
for the death of share account owners.

00:43:38.170 --> 00:43:41.800
After the expiration of the six-month
grace period, share insurance

00:43:41.800 --> 00:43:45.300
coverage will be calculated as
if the deceased co-owner did not

00:43:45.300 --> 00:43:49.090
exist and the deceased co-owner’s
name did not remain on the account.

00:43:49.740 --> 00:43:52.870
This treatment of the account will be
based on the fact that all funds in

00:43:52.870 --> 00:43:56.860
the account will be owned by one person
(that is, the surviving co-owner).

00:43:57.633 --> 00:43:59.023
Calculation of Coverage

00:43:59.747 --> 00:44:03.627
As was proposed, the final rule
uses one streamlined calculation

00:44:03.627 --> 00:44:06.937
to determine the amount of share
insurance coverage for funds of both

00:44:06.937 --> 00:44:09.077
revocable and irrevocable trusts.

00:44:09.747 --> 00:44:13.477
This method is already used by the
N C U A to calculate coverage for

00:44:13.477 --> 00:44:18.077
revocable trusts that have five or
fewer beneficiaries, and it is an aspect

00:44:18.077 --> 00:44:22.307
of the rules that is generally well
understood by F I C Us and their members.

00:44:22.767 --> 00:44:26.257
The final rule will provide that a
grantor’s trust funds are insured

00:44:26.297 --> 00:44:30.647
in an amount up to the SMSIA
(currently $250,000) multiplied by

00:44:30.647 --> 00:44:34.577
the number of trust beneficiaries,
not to exceed five beneficiaries.

00:44:35.117 --> 00:44:39.717
The N C U A will presume that, for share
insurance purposes, the trust provides

00:44:39.717 --> 00:44:44.027
for equal treatment of beneficiaries such
that specific allocation of the funds

00:44:44.027 --> 00:44:47.867
to the respective beneficiaries will
not be relevant, consistent with the N

00:44:47.867 --> 00:44:52.507
C U A’s current treatment of revocable
trusts with five or fewer beneficiaries.

00:44:52.877 --> 00:44:56.867
This will, in effect, limit coverage
for a grantor’s trust funds at each

00:44:56.907 --> 00:45:03.387
F I C U to a total of $1,250,000;
in other words, maximum coverage

00:45:03.387 --> 00:45:08.497
will be equivalent to $250,000 per
beneficiary for up to five beneficiaries.

00:45:09.157 --> 00:45:13.657
In determining share insurance coverage,
the N C U A will continue to consider

00:45:13.687 --> 00:45:15.907
only beneficiaries who are expected to

00:45:16.665 --> 00:45:21.485
receive the funds held by the trust in
a member account at the F I C U; the N

00:45:21.485 --> 00:45:25.475
C U A will not consider beneficiaries
who are expected to receive only

00:45:25.475 --> 00:45:27.555
non-deposit assets of the trust.

00:45:28.265 --> 00:45:32.935
The N C U A is deciding to calculate
coverage in this manner, in part, based

00:45:32.935 --> 00:45:36.815
on its experience with the revocable
trust rules after the modifications to

00:45:36.815 --> 00:45:42.245
these rules in 2008.56 The N C U A has
found the share insurance calculation

00:45:42.245 --> 00:45:46.465
method for revocable trusts with five
or fewer beneficiaries has been the most

00:45:46.465 --> 00:45:51.075
straightforward and is easier for F I C
Us’ staff and the public to understand.

00:45:51.505 --> 00:45:55.225
This calculation provides for insurance
in an amount up to the total number

00:45:55.225 --> 00:45:58.955
of unique grantor-beneficiary trust
relationships (that is, the number

00:45:58.955 --> 00:46:03.185
of grantors, multiplied by the total
number of beneficiaries, multiplied

00:46:03.185 --> 00:46:08.345
by the SMSIA).57 In addition to being
simpler, this calculation has proven

00:46:08.345 --> 00:46:12.185
beneficial in liquidations, as it
leads to more prompt share insurance

00:46:12.185 --> 00:46:16.075
determinations and quicker access
to insured funds for accountholders.

00:46:16.765 --> 00:46:21.565
As discussed in section II.E., commenters
also supported using this calculation.

00:46:21.925 --> 00:46:26.245
Accordingly, the N C U A will calculate
share insurance coverage for trust

00:46:26.245 --> 00:46:30.535
accounts based on the simpler calculation
currently used for revocable trusts

00:46:30.535 --> 00:46:32.485
with five or fewer beneficiaries.

00:46:33.223 --> 00:46:36.633
The streamlined calculation that will
be used to determine coverage for

00:46:36.633 --> 00:46:40.973
revocable trust funds and irrevocable
trust funds includes a limit on the

00:46:40.973 --> 00:46:44.983
total amount of share insurance coverage
for all of an accountholder’s funds in

00:46:44.983 --> 00:46:47.733
the trust category at the same F I C U.

00:46:48.113 --> 00:46:51.743
As was proposed, the final rule will
provide coverage for trust funds

00:46:51.743 --> 00:46:57.853
at each F I C U up to a total of
$1,250,000 per grantor; in other

00:46:57.853 --> 00:47:03.103
words, each grantor’s insurance limit
will be $250,000 per beneficiary up

00:47:03.103 --> 00:47:05.183
to a maximum of five beneficiaries.

00:47:05.863 --> 00:47:09.343
The level of five beneficiaries is
an important threshold in the current

00:47:09.343 --> 00:47:13.923
revocable trust rules, as it defines
whether a grantor’s coverage is determined

00:47:13.923 --> 00:47:17.783
using the simpler calculation of the
number of beneficiaries multiplied by

00:47:17.783 --> 00:47:22.633
the SMSIA or the more complex calculation
involving the consideration of the amount

00:47:22.633 --> 00:47:24.853
of each beneficiary’s specific interest

00:47:25.687 --> 00:47:29.297
56 73 FR 60616 (Oct.

00:47:29.297 --> 00:47:30.877
14, 2008).

00:47:31.621 --> 00:47:36.681
57 For example, two co-grantors that
designate five beneficiaries are insured

00:47:36.681 --> 00:47:41.971
for up to $2,500,000 (2 x 5 x $250,000).

00:47:42.717 --> 00:47:45.507
(which applies when there are
six or more beneficiaries).

00:47:46.057 --> 00:47:49.827
The current trust rules limit coverage
by tying coverage to the specific

00:47:49.877 --> 00:47:53.787
interests of each beneficiary of
an irrevocable trust or of each

00:47:53.787 --> 00:47:57.597
beneficiary of a revocable trust
with more than five beneficiaries.

00:47:58.097 --> 00:48:04.517
The final rule’s $1,250,000 per-grantor,
per-F I C U limit is more straightforward

00:48:04.517 --> 00:48:08.417
and balances the objectives of
simplifying the trust rules, promoting

00:48:08.417 --> 00:48:12.547
timely payment of share insurance,
facilitating liquidations, ensuring

00:48:12.547 --> 00:48:17.167
consistency with the F C U Act, and
limiting risk to the Share Insurance Fund.

00:48:17.807 --> 00:48:22.547
The final rule will also provide parity
between the N C U A’s regulations and

00:48:22.547 --> 00:48:25.987
those adopted by the FDIC in early 2022.58

00:48:26.803 --> 00:48:32.663
The N C U A anticipates that limiting
coverage to $1,250,000 per grantor,

00:48:32.903 --> 00:48:36.683
per F I C U, for trust funds will
not have a substantial effect on

00:48:36.683 --> 00:48:41.213
accountholders, as most trust accounts
in past F I C U liquidations have

00:48:41.213 --> 00:48:43.223
had balances well below this level.

00:48:43.813 --> 00:48:47.623
However, because the N C U A lacks
sufficient information to project

00:48:47.623 --> 00:48:51.543
the exact effects of the new limit
on current accountholders, the agency

00:48:51.543 --> 00:48:55.163
requested in the proposed rule that
commenters provide information that

00:48:55.163 --> 00:48:56.723
might be helpful in this regard.

00:48:57.083 --> 00:49:01.603
As discussed in greater detail in section
II.E., the comments received did not

00:49:01.603 --> 00:49:05.273
indicate that the limit will have a
substantial effect on accountholders.

00:49:06.050 --> 00:49:09.580
Under the final rule, to determine
the level of insurance coverage that

00:49:09.580 --> 00:49:13.230
will apply to funds held in trust
accounts, accountholders will still

00:49:13.230 --> 00:49:17.200
need to identify the grantors and the
eligible beneficiaries of the trust.

00:49:17.770 --> 00:49:21.080
The level of coverage that applies
to trust accounts will no longer be

00:49:21.080 --> 00:49:25.290
affected by the specific allocation of
trust funds to each of the beneficiaries

00:49:25.290 --> 00:49:29.060
of the trust or by contingencies
outlined in the trust agreement.

00:49:29.390 --> 00:49:33.760
Instead, the final rule will provide that
a grantor’s trust funds are insured up to

00:49:33.760 --> 00:49:40.180
a total of $1,250,000 per grantor, or an
amount up to the SMSIA multiplied by the

00:49:40.180 --> 00:49:44.870
number of eligible beneficiaries, with a
limit of no more than five beneficiaries.

00:49:45.623 --> 00:49:49.443
58 87 FR 4455 (Jan.

00:49:49.443 --> 00:49:51.293
28, 2022).

00:49:52.042 --> 00:49:52.872
Aggregation

00:49:53.583 --> 00:49:57.763
As was proposed, the final rule also
provides for the aggregation of funds

00:49:57.763 --> 00:50:01.503
held in revocable and irrevocable
trust accounts for the purposes of

00:50:01.503 --> 00:50:03.263
applying the share insurance limit.

00:50:03.893 --> 00:50:07.993
Under the current rules, funds held in
informal revocable trust accounts and

00:50:07.993 --> 00:50:13.223
formal revocable trust accounts are
aggregated for this purpose.59 The final

00:50:13.223 --> 00:50:17.583
rule will aggregate a grantor’s informal
and formal revocable trust accounts,

00:50:17.823 --> 00:50:19.943
as well as irrevocable trust accounts.

00:50:20.373 --> 00:50:25.323
For example, all informal revocable
trusts, formal revocable trusts, and

00:50:25.323 --> 00:50:29.303
irrevocable trusts held for the same
grantor at the same F I C U will

00:50:29.303 --> 00:50:32.963
be aggregated, and the grantor’s
insurance limit will be determined

00:50:32.963 --> 00:50:36.933
by how many eligible and unique
beneficiaries are identified among all

00:50:36.933 --> 00:50:41.293
of their trust accounts.60 The share
insurance coverage provided in the

00:50:41.293 --> 00:50:45.183
“trust accounts” category will remain
separate from the coverage provided

00:50:45.183 --> 00:50:49.433
for other funds held in a different
right and capacity at the same F I C U.

00:50:50.198 --> 00:50:53.768
However, some accountholders who
currently maintain both revocable

00:50:53.768 --> 00:50:58.388
trust and irrevocable trust deposits
at the same F I C U may have funds

00:50:58.388 --> 00:51:02.278
in excess of the insurance limit when
these separate categories are combined.

00:51:02.978 --> 00:51:07.208
As noted in the proposed rule, the N
C U A lacks data on accountholders’

00:51:07.208 --> 00:51:10.748
trust arrangements that allow it to
estimate the number of accountholders

00:51:10.748 --> 00:51:12.428
who might be affected in this manner.

00:51:13.068 --> 00:51:17.148
As such, the N C U A requested that
commenters provide information that

00:51:17.148 --> 00:51:18.778
might be helpful in this regard.

00:51:19.158 --> 00:51:23.318
As discussed in greater detail in
section II.E., the comments received

00:51:23.318 --> 00:51:27.248
did not indicate that the aggregate
limit will have a substantial effect on

00:51:27.958 --> 00:51:35.488
59 See 12 CFR 745.4(a) (“All funds that an
owner holds in both living trust accounts

00:51:35.488 --> 00:51:40.648
and payable-on-death accounts, at the same
N C U A-insured credit union and naming

00:51:40.648 --> 00:51:45.148
the same beneficiaries, are aggregated
for insurance purposes and insured to

00:51:45.148 --> 00:51:46.718
the applicable coverage limits….”).

00:51:47.496 --> 00:51:52.316
60 For example, if a grantor maintained
both an informal revocable trust account

00:51:52.316 --> 00:51:56.046
with three beneficiaries and a formal
revocable trust account with three

00:51:56.046 --> 00:52:00.186
separate and unique beneficiaries, the
two accounts would be aggregated and

00:52:00.186 --> 00:52:05.346
the maximum share insurance available
would be $1.25 million (one grantor

00:52:05.346 --> 00:52:09.666
times the SMSIA times the number of
unique beneficiaries, limited to five).

00:52:10.206 --> 00:52:14.186
However, if the same three people were
the beneficiaries of both accounts, the

00:52:14.186 --> 00:52:20.046
maximum share insurance available would
be $750,000 (one grantor times the SMSIA

00:52:20.046 --> 00:52:22.216
times the three unique beneficiaries).

00:52:22.959 --> 00:52:23.839
accountholders.

00:52:24.519 --> 00:52:27.959
The agency does not believe this
change will impact a substantial

00:52:27.959 --> 00:52:31.399
number of accountholders and
is finalizing it as proposed.

00:52:32.162 --> 00:52:33.502
Eligible Beneficiaries

00:52:34.227 --> 00:52:38.187
Currently, the revocable trust rules
provide that eligible beneficiaries

00:52:38.187 --> 00:52:42.637
include natural persons, charitable
organizations, and non-profit entities

00:52:42.637 --> 00:52:48.027
recognized as such under the Internal
Revenue Code of 1986,61 while the

00:52:48.027 --> 00:52:52.047
irrevocable trust rules do not
establish criteria for beneficiaries.

00:52:52.427 --> 00:52:56.907
As stated in the proposed rule, the N C
U A believes a single definition should

00:52:56.907 --> 00:53:01.087
be used to determine whether an entity
is an eligible beneficiary for all trust

00:53:01.087 --> 00:53:05.197
funds and proposes to use the current
revocable trust rule’s definition.

00:53:05.757 --> 00:53:08.887
The N C U A believes this
single definition will result

00:53:08.887 --> 00:53:12.687
in a change in share insurance
coverage only in very rare cases.

00:53:13.494 --> 00:53:17.314
As was proposed, the final rule will
exclude from the calculation of share

00:53:17.314 --> 00:53:20.504
insurance coverage beneficiaries
who would obtain an interest in

00:53:20.504 --> 00:53:24.204
a trust only if one or more named
beneficiaries are deceased (often

00:53:24.204 --> 00:53:26.484
referred to as contingent beneficiaries).

00:53:26.974 --> 00:53:30.954
This exclusion codifies existing
practice to include only primary,

00:53:31.084 --> 00:53:35.324
unique beneficiaries in the share
insurance calculation.62 This

00:53:35.324 --> 00:53:38.944
codification does not represent
a substantive change in coverage.

00:53:39.324 --> 00:53:43.084
Consistent with treatment under the
current trust rules, naming a chain

00:53:43.084 --> 00:53:46.854
of contingent beneficiaries that would
obtain trust interests only in the

00:53:46.854 --> 00:53:50.854
event of a beneficiary’s death will
not increase share insurance coverage.

00:53:51.651 --> 00:53:56.291
Finally, as in the proposed rule, the
final rule will codify an interpretation

00:53:56.291 --> 00:54:00.721
of the trust rules where an informal
revocable trust designates the depositor’s

00:54:00.721 --> 00:54:02.701
formal trust as its beneficiary.

00:54:03.231 --> 00:54:06.191
A formal trust generally does
not meet the definition of an

00:54:06.241 --> 00:54:08.021
eligible beneficiary for share

00:54:08.697 --> 00:54:12.627
61 12 CFR 754.4(c).

00:54:13.308 --> 00:54:18.498
62 See N C U A Your Insured Funds
at page 42 (“The beneficiaries are

00:54:18.498 --> 00:54:21.688
the people or entities entitled
to an interest in the trust.

00:54:22.228 --> 00:54:25.668
Contingent or alternative trust
beneficiaries are not considered to

00:54:25.668 --> 00:54:29.888
have an interest in the trust funds and
other assets as long as the primary or

00:54:29.888 --> 00:54:34.148
initial beneficiaries are still living,
with the exception of revocable living

00:54:34.148 --> 00:54:36.128
trusts with a life estate interest.”).

00:54:36.961 --> 00:54:41.411
insurance purposes, but the N C U A
has treated such accounts as revocable

00:54:41.411 --> 00:54:45.171
trust accounts under the trust rules,
insuring the account as if it were

00:54:45.171 --> 00:54:50.821
titled in the name of the formal trust.63
Additionally, the Board wishes to clarify

00:54:50.821 --> 00:54:55.101
that if an irrevocable trust is named
as beneficiary of an informal revocable

00:54:55.101 --> 00:54:59.641
trust account, the informal revocable
trust account will also be treated as if

00:54:59.641 --> 00:55:01.871
titled in the name of that formal trust.

00:55:02.641 --> 00:55:05.741
Retained Interests and Ineligible
Beneficiaries’ Interests

00:55:06.452 --> 00:55:10.722
The current trust rules provide that,
in some instances, funds corresponding

00:55:10.722 --> 00:55:15.422
to specific beneficiaries are aggregated
with a grantor’s single ownership deposits

00:55:15.422 --> 00:55:19.682
at the same F I C U for the purposes
of the share insurance calculation.

00:55:20.162 --> 00:55:23.792
These instances include a grantor’s
retained interest in an irrevocable

00:55:23.792 --> 00:55:28.172
trust64 and interests of beneficiaries
who do not satisfy the definition

00:55:28.172 --> 00:55:32.842
of “beneficiary.”65 This adds
complexity to the share insurance

00:55:32.842 --> 00:55:37.072
calculation, as a detailed review of
a trust agreement may be required to

00:55:37.072 --> 00:55:41.082
value such interests so they may be
aggregated with a grantor’s other funds.

00:55:41.582 --> 00:55:44.822
To implement the streamlined
calculation for funds held in trust

00:55:44.822 --> 00:55:48.472
accounts, the N C U A proposed
to eliminate these provisions.

00:55:49.022 --> 00:55:52.572
Under the proposed rule, the grantor
and other beneficiaries who do not

00:55:52.572 --> 00:55:56.902
satisfy the definition of “eligible
beneficiary” would not be included for

00:55:56.902 --> 00:56:01.922
the purposes of the share insurance
calculation.66 Importantly, this

00:56:01.922 --> 00:56:05.762
exclusion would not in any way limit
a grantor’s ability to establish

00:56:05.762 --> 00:56:07.882
such trust interests under state law.

00:56:08.272 --> 00:56:11.282
These interests simply would
not factor into the calculation

00:56:11.282 --> 00:56:12.802
of share insurance coverage.

00:56:13.342 --> 00:56:16.572
The Board has decided to adopt
these changes as proposed.

00:56:17.289 --> 00:56:23.389
63 See 74 FR 55747, 55748 (Oct.

00:56:23.389 --> 00:56:24.919
29, 2009).

00:56:25.567 --> 00:56:29.797
64 See 12 CFR 745.2(d)(4).

00:56:30.523 --> 00:56:34.463
65 12 CFR 745.4(d).

00:56:35.054 --> 00:56:39.814
66 In the unlikely event a trust does
not name any eligible beneficiaries,

00:56:40.064 --> 00:56:43.654
the N C U A would treat the funds
in the trust account as funds held

00:56:43.654 --> 00:56:45.084
in a single ownership account.

00:56:45.554 --> 00:56:49.384
Such funds would be aggregated with any
other single ownership funds that the

00:56:49.384 --> 00:56:55.384
grantor maintains at the same F I C U
and insured up to the SMSIA of $250,000.

00:56:56.134 --> 00:56:58.324
Future Trusts Named as Beneficiaries

00:56:59.054 --> 00:57:02.594
Trusts often contain provisions for
the establishment of one or more

00:57:02.594 --> 00:57:04.504
new trusts upon the grantor’s death.

00:57:05.274 --> 00:57:09.554
The proposed rule sought to clarify share
insurance coverage in these situations.

00:57:10.054 --> 00:57:13.674
Under the proposed rule, if a trust
agreement provides that trust funds

00:57:13.674 --> 00:57:17.284
will pass into one or more new trusts
upon the death of the grantor (or

00:57:17.284 --> 00:57:21.774
grantors), the future trust (or trusts)
would not be treated as beneficiaries

00:57:21.774 --> 00:57:23.594
for the purposes of the calculation.

00:57:24.114 --> 00:57:27.104
The future trust(s) instead would
be considered mechanisms for

00:57:27.104 --> 00:57:31.124
distributing trust funds, and the
natural persons or organizations that

00:57:31.124 --> 00:57:34.474
receive the trust funds through the
future trusts would be considered

00:57:34.474 --> 00:57:37.964
the beneficiaries for the purposes
of the share insurance calculation.

00:57:38.494 --> 00:57:41.594
The Board has decided to adopt
this position as proposed.

00:57:42.164 --> 00:57:46.404
This clarification is consistent with
the N C U A’s current interpretations

00:57:46.684 --> 00:57:50.454
and would not represent a substantive
change in share insurance coverage.

00:57:51.157 --> 00:57:53.797
Naming of Beneficiaries
in Share Account Records

00:57:54.483 --> 00:57:58.543
Consistent with the current revocable
trust rules and the proposed rule, the

00:57:58.543 --> 00:58:02.633
final rule will continue to require the
beneficiaries of an informal revocable

00:58:02.633 --> 00:58:08.933
trust to be expressly named in the account
records of the F I C U.67 The N C U A does

00:58:08.933 --> 00:58:13.983
not believe this requirement imposes a
burden on F I C Us, as informal revocable

00:58:13.983 --> 00:58:18.763
trusts by their nature require the F I C
U to be able to identify the individuals

00:58:18.763 --> 00:58:22.443
or entities to which funds would be
paid upon the accountholder’s death.

00:58:23.135 --> 00:58:24.315
Presumption of Ownership

00:58:25.152 --> 00:58:29.452
As in the proposed rule, the final
rule also states that, unless otherwise

00:58:29.452 --> 00:58:34.502
specified in a F I C U’s account records,
funds held in an account for a trust

00:58:34.502 --> 00:58:36.632
established by multiple grantors are

00:58:37.352 --> 00:58:41.622
67 See 12 CFR 745.4(b).

00:58:42.336 --> 00:58:44.456
presumed to be owned in equal shares.

00:58:45.156 --> 00:58:49.966
This presumption is consistent with
the current revocable trust rules.68

00:58:50.821 --> 00:58:52.601
Funds Covered Under Other Rules

00:58:53.286 --> 00:58:57.266
Under the proposed rule, certain trust
funds that are covered by other sections

00:58:57.266 --> 00:59:02.806
of the share insurance regulations would
be excluded from coverage under § 745.4.

00:59:02.806 --> 00:59:06.796
For example, employee benefit
plan accounts are insured

00:59:06.796 --> 00:59:10.316
pursuant to current § 745.9-2.

00:59:10.706 --> 00:59:14.836
In addition, if the co-owners of an
informal or formal revocable trust

00:59:14.966 --> 00:59:18.576
are the trust’s sole beneficiaries,
funds held in connection with the

00:59:18.576 --> 00:59:23.646
trust would be treated as a joint
ownership account under § 745.8.

00:59:24.136 --> 00:59:26.916
The Board has decided to
adopt this as proposed.

00:59:27.356 --> 00:59:31.666
In each of the provided cases, the N C
U A is not changing the current rule.

00:59:32.412 --> 00:59:35.522
Removal of the Appendix to Part 745

00:59:36.301 --> 00:59:39.751
As was proposed, the final rule
will remove the appendix to part

00:59:39.751 --> 00:59:44.421
745, which provides examples
of share insurance coverage.

00:59:44.901 --> 00:59:49.331
As noted in the proposed rule, the N
C U A plans to update its Your Insured

00:59:49.331 --> 00:59:55.381
Funds brochure to reflect the amendments
made to part 745.69 The Board believes

00:59:55.381 --> 01:00:00.341
the updated brochure and other updated
resources available on mycreditunion.gov

01:00:00.401 --> 01:00:04.681
will provide a more consumer friendly
and easier-to-update avenue for providing

01:00:04.681 --> 01:00:06.761
examples of share insurance coverage.

01:00:07.533 --> 01:00:13.883
The final rule also removes references to
the appendix in the heading of part 745

01:00:13.883 --> 01:00:21.733
and in § 745.0, § 745.2, and § 745.13.

01:00:22.293 --> 01:00:26.563
As such, once this portion of the final
rule has gone into effect, providing

01:00:26.563 --> 01:00:30.563
the appendix will no longer satisfy the
notification to members/shareholders

01:00:31.281 --> 01:00:35.321
68 See 12 CFR 745.4(f).

01:00:36.112 --> 01:00:47.172
69
https://mycreditunion.gov/sites/default/static-files/insured-funds-brochure.pdf.

01:00:48.009 --> 01:00:51.549
requirement in § 745.13.

01:00:52.119 --> 01:00:57.289
Instead, F I C Us will have to make
available either the rules in part 745

01:00:57.289 --> 01:01:01.869
of the N C U A’s regulations or the
updated Your Insured Funds brochure.

01:01:02.598 --> 01:01:03.788
Conforming Changes

01:01:04.479 --> 01:01:07.979
As discussed in the proposal, the
final rule’s simplification of the

01:01:07.979 --> 01:01:11.629
calculation for insurance coverage
for funds held in trust accounts

01:01:11.629 --> 01:01:17.359
permits the elimination of current
§ 745.2(d) of the regulations addressing

01:01:17.359 --> 01:01:19.149
the valuation of trust interests.

01:01:19.659 --> 01:01:23.479
As discussed further below, the
description of non-contingent interests in

01:01:23.479 --> 01:01:29.689
§ 745.2(d)(1) and (2) is no longer relevant
to trust accounts under the final rule.

01:01:30.069 --> 01:01:35.049
Additionally, § 745.2(d)(3)
regarding the deemed pro rata

01:01:35.049 --> 01:01:40.839
contribution of settlors to a trust
is replaced by new § 745.4(b)(4),

01:01:41.059 --> 01:01:42.899
which presumes equal allocation.

01:01:43.339 --> 01:01:49.679
Current § 745.2(d)(4) defining a “trust
interest” is replaced by the definition of

01:01:49.799 --> 01:01:54.449
“irrevocable trust” in new § 745.4(a)(3).

01:01:55.228 --> 01:01:59.488
Regarding non-contingent interests, as
was proposed, the final rule moves the

01:01:59.488 --> 01:02:05.008
current description of a non-contingent
interest in § 745.2(d)(1) to the

01:02:05.008 --> 01:02:07.738
definitions section of part 745.

01:02:08.328 --> 01:02:14.398
The new definition of “non-contingent
interest” in § 745.1 remains substantively

01:02:14.398 --> 01:02:19.278
the same but will now only be relevant to
evaluating participants’ non-contingent

01:02:19.278 --> 01:02:24.728
interests in shares of an employee
benefit plan under § 745.9-2(a).

01:02:25.378 --> 01:02:29.908
As was proposed, the new definition of
“non- contingent interest” adds language

01:02:29.908 --> 01:02:34.508
to include any present worth or life
expectancy tables that the IRS may adopt

01:02:34.508 --> 01:02:39.678
that are similar to those set forth
in § 20.2031-7 of the Federal Estate

01:02:39.678 --> 01:02:43.778
Tax Regulations (26 CFR 20.2031-7).

01:02:44.608 --> 01:02:49.078
This change is not substantive but is
instead intended to provide flexibility

01:02:49.148 --> 01:02:51.058
if the IRS makes any changes.

01:02:51.508 --> 01:02:55.668
As part of this change, the final rule
also makes non-substantive changes

01:02:55.668 --> 01:02:59.328
to § 745.1 to improve readability.

01:02:59.928 --> 01:03:07.628
The final rule also removes the reference
to § 745.2 in current § 745.9-2.

01:03:08.369 --> 01:03:16.169
Finally, the final rule redesignates
current § 745.9-2 as § 745.9

01:03:16.169 --> 01:03:17.779
to reflect the elimination

01:03:18.411 --> 01:03:23.681
of current § 745.9-1 governing
irrevocable trust accounts.

01:03:24.281 --> 01:03:28.411
The reference in § 745.9-2(a) to

01:03:29.089 --> 01:03:34.249
§
 
745.2 is also removed to reflect the
elimination of the description of a

01:03:34.249 --> 01:03:40.499
non-contingent interest in current
§ 745.2(d) and adoption of a definition of

01:03:40.499 --> 01:03:44.909
“non-contingent interest” in new § 745.1.

01:03:45.660 --> 01:03:46.440
Effective Date

01:03:47.173 --> 01:03:49.663
The effective date of the
trust account changes will be

01:03:49.663 --> 01:03:52.393
delayed until December 1, 2026.

01:03:53.093 --> 01:03:56.603
This delayed effective date mirrors
the timeline the FDIC used in

01:03:56.603 --> 01:03:58.543
adopting its trust account changes.

01:03:59.063 --> 01:04:03.463
It is intended to provide F I C Us,
accountholders, and the N C U A time

01:04:03.463 --> 01:04:06.913
to prepare for the changes in trust
account share insurance coverage.

01:04:07.473 --> 01:04:11.073
F I C Us will have an opportunity
to review the changes in coverage,

01:04:11.163 --> 01:04:14.623
train employees, and update
publications if necessary.

01:04:15.033 --> 01:04:18.773
Accountholders may review insurance
coverage for their funds and adjust their

01:04:18.773 --> 01:04:20.763
share account arrangements if desired.

01:04:21.363 --> 01:04:25.523
In addition, the N C U A must update
its share insurance estimator and

01:04:25.523 --> 01:04:29.663
share insurance coverage publications,
including publications that provide

01:04:29.663 --> 01:04:32.103
guidance to F I C Us and accountholders.

01:04:32.723 --> 01:04:36.583
The Board’s rationale for adopting a
delayed effective date as was suggested

01:04:36.583 --> 01:04:40.253
in the proposal and not providing
for any continued application of the

01:04:40.253 --> 01:04:44.513
current rules to existing accounts
is discussed further in section II.E.

01:04:45.234 --> 01:04:45.484
E.

01:04:45.894 --> 01:04:49.424
Examples Demonstrating Coverage
Under Current and Final Rules

01:04:50.130 --> 01:04:54.230
To assist commenters, the N C U A
is providing examples demonstrating

01:04:54.230 --> 01:04:57.650
how the final rule will apply to
determine share insurance coverage

01:04:57.650 --> 01:04:59.510
for funds held in trust accounts.

01:05:00.150 --> 01:05:04.200
These examples are not intended to
be all-inclusive; they merely address

01:05:04.200 --> 01:05:07.890
a few possible scenarios involving
funds held in trust accounts.

01:05:08.520 --> 01:05:12.450
The N C U A expects that, for most
accountholders, insurance coverage

01:05:12.450 --> 01:05:14.400
will not change under the final rule.

01:05:15.000 --> 01:05:18.820
The examples here highlight a few
instances where coverage could be reduced

01:05:18.820 --> 01:05:20.710
to ensure the public is aware of them.

01:05:21.010 --> 01:05:23.940
The examples mirror those
provided in the proposed rule.

01:05:24.658 --> 01:05:28.548
In addition, all examples involve
members or those otherwise entitled to

01:05:28.548 --> 01:05:31.028
maintain insured accounts at the F I C U.

01:05:31.538 --> 01:05:35.528
Again, share insurance coverage is
only available to F I C U members

01:05:35.748 --> 01:05:38.548
and those otherwise entitled
to maintain insured accounts.

01:05:39.118 --> 01:05:42.618
For revocable trust accounts, all
grantors must be members of the

01:05:42.618 --> 01:05:46.658
F I C U or otherwise eligible to
maintain an insured account to

01:05:46.658 --> 01:05:48.468
receive share insurance coverage.

01:05:48.808 --> 01:05:52.438
In the case of an irrevocable
trust account, all grantors or all

01:05:52.438 --> 01:05:56.558
beneficiaries must be members of
the F I C U or otherwise eligible

01:05:56.558 --> 01:06:00.028
to maintain an insured account to
receive share insurance coverage.

01:06:00.558 --> 01:06:04.398
Where a revocable trust account has become
irrevocable because of the death of a

01:06:04.398 --> 01:06:09.078
grantor, the deceased grantor’s membership
will continue to satisfy their membership

01:06:09.078 --> 01:06:13.818
requirement as long as the trust account
continues to be maintained at the F I C U.

01:06:14.573 --> 01:06:17.033
Example 1: Payable-on-Death Account

01:06:17.792 --> 01:06:21.492
Member A establishes a
payable-on-death account at a F I C U.

01:06:22.072 --> 01:06:25.322
Member A has designated three
beneficiaries for this account — B,

01:06:25.382 --> 01:06:29.802
C, and D — who will receive the funds
upon member A’s death and listed all

01:06:29.802 --> 01:06:32.292
three on a form provided to the F I C U.

01:06:32.862 --> 01:06:35.782
The only other share account that
member A maintains at the same

01:06:35.812 --> 01:06:40.002
F I C U is a share draft account
with no designated beneficiaries.

01:06:40.512 --> 01:06:43.272
What is the maximum amount of
share insurance coverage for

01:06:43.272 --> 01:06:45.482
member A’s shares at the F I C U?

01:06:46.145 --> 01:06:49.945
Under the final rule, member A’s
payable-on-death account represents an

01:06:49.945 --> 01:06:54.255
informal revocable trust and would be
insured in the trust accounts category.

01:06:54.915 --> 01:06:58.605
The maximum coverage for this account
would be equal to the SMSIA (currently

01:06:58.605 --> 01:07:03.915
$250,000) multiplied by the number of
grantors (in this case one because member

01:07:03.915 --> 01:07:07.785
A established the account) multiplied
by the number of beneficiaries, up to a

01:07:07.785 --> 01:07:12.255
maximum of five (here three, the number
of beneficiaries is less than five).

01:07:12.755 --> 01:07:15.635
Member A’s payable-on-death
account would be insured for

01:07:15.635 --> 01:07:19.615
up to ($250,000) x (1) x (3)

01:07:20.268 --> 01:07:22.108
=
$750,000.

01:07:22.849 --> 01:07:26.049
The coverage for member A’s
payable-on-death account is separate

01:07:26.049 --> 01:07:29.759
from the coverage provided for member
A’s share draft account, which would

01:07:29.759 --> 01:07:33.319
be insured in the single ownership
category because she has not named

01:07:33.369 --> 01:07:35.019
any beneficiaries for that account.

01:07:35.589 --> 01:07:38.319
The single ownership share
draft account would be insured

01:07:38.319 --> 01:07:41.009
up to the SMSIA, $250,000.

01:07:41.529 --> 01:07:45.709
Member A’s total insurance coverage
for shares at the F I C U would be

01:07:45.709 --> 01:07:51.569
$750,000 + $250,000 = $1,000,000.

01:07:51.999 --> 01:07:55.399
Notably, this level of coverage
is the same as that provided by

01:07:55.399 --> 01:07:57.289
the current share insurance rules.

01:07:57.936 --> 01:08:02.666
Example 2: Formal Revocable Trust
and Informal Revocable Trust

01:08:03.373 --> 01:08:08.083
Members E and F jointly establish a
payable-on-death account at a F I C U.

01:08:08.633 --> 01:08:12.673
Members E and F have designated three
beneficiaries for this account — G,

01:08:12.783 --> 01:08:17.423
H, and I — who will receive the funds
after both members E and F are deceased.

01:08:17.903 --> 01:08:21.503
They list these beneficiaries on
a form provided to the F I C U.

01:08:22.073 --> 01:08:26.513
Members E and F also jointly establish
an account titled in the name of the “E

01:08:26.543 --> 01:08:29.413
and F Living Trust” at the same F I C U.

01:08:29.903 --> 01:08:34.453
Members E and F are the grantors of
the living trust, a formal revocable

01:08:34.453 --> 01:08:38.453
trust that includes the same
three beneficiaries, G, H, and I.

01:08:39.073 --> 01:08:42.733
The grantors, members E and F,
do not maintain any other share

01:08:42.733 --> 01:08:44.693
accounts at this same F I C U.

01:08:45.243 --> 01:08:47.883
What is the maximum amount
of share insurance coverage

01:08:47.883 --> 01:08:49.733
for members E and F’s shares?

01:08:50.385 --> 01:08:54.695
Under the final rule, members E and F’s
payable-on-death account represents an

01:08:54.695 --> 01:08:58.965
informal revocable trust and would be
insured in the trust accounts category.

01:08:59.565 --> 01:09:03.555
Members E and F’s living trust
account constitutes a formal revocable

01:09:03.555 --> 01:09:06.925
trust and would also be insured
in the trust accounts category.

01:09:07.515 --> 01:09:11.545
To the extent the funds in these accounts
would pass from the same grantor (E or

01:09:11.545 --> 01:09:16.105
F) to beneficiaries (G, H, and I), the
funds would be aggregated for the purpose

01:09:16.105 --> 01:09:17.995
of applying the share insurance limit.

01:09:18.415 --> 01:09:22.165
As under the current rules, it would
be irrelevant that the grantors’ shares

01:09:22.165 --> 01:09:25.995
are divided between the payable-on-death
account and the living trust account.

01:09:26.751 --> 01:09:31.201
The maximum coverage for members E and
F’s shares would be equal to the SMSIA

01:09:31.971 --> 01:09:36.321
($250,000) multiplied by the
number of grantors (two, because

01:09:36.321 --> 01:09:38.501
members E and F are the grantors

01:09:39.229 --> 01:09:42.299
with respect to both accounts)
multiplied by the number of unique

01:09:42.299 --> 01:09:46.139
beneficiaries, up to a maximum of
five (here three, the number of

01:09:46.139 --> 01:09:48.089
beneficiaries, is less than five).

01:09:48.679 --> 01:09:51.719
Therefore, the coverage for E
and F’s trust accounts would be

01:09:51.719 --> 01:09:57.379
($250,000) x (2) x (3) = $1,500,000.

01:09:58.039 --> 01:10:00.879
This level of coverage is the
same as that provided by the

01:10:00.879 --> 01:10:02.539
current share insurance rules.

01:10:03.301 --> 01:10:07.011
Example 3: Two-Owner Trust
and a One-Owner Trust

01:10:07.716 --> 01:10:12.536
Members J and K jointly establish a
payable-on-death account at a F I C U.

01:10:13.036 --> 01:10:17.066
Members J and K have designated three
beneficiaries for this account — L,

01:10:17.206 --> 01:10:21.346
M, and N — who will receive the funds
after both J and K are deceased.

01:10:21.766 --> 01:10:25.286
They list these beneficiaries on
a form provided to the F I C U.

01:10:25.816 --> 01:10:29.406
At the same F I C U, Member J
establishes a payable-on-death

01:10:29.446 --> 01:10:33.376
account and designates Member K
as the beneficiary upon J’s death.

01:10:33.966 --> 01:10:37.646
What is the maximum amount of
coverage for members J and K’s shares?

01:10:38.300 --> 01:10:41.140
Under the final rule, both
accounts would be insured under

01:10:41.140 --> 01:10:42.610
the trust account category.

01:10:43.230 --> 01:10:47.100
To the extent these shares would pass
from the same grantor (J or K) to

01:10:47.100 --> 01:10:51.360
beneficiaries (such as L, M, and N),
they would be aggregated for the purpose

01:10:51.360 --> 01:10:53.220
of applying the share insurance limit.

01:10:53.770 --> 01:10:58.240
For example, member K identified
three beneficiaries (L, M, and N), and

01:10:58.240 --> 01:11:05.360
therefore, member K’s insurance limit
is $750,000 (or (1) x (3) x ($250,000)).

01:11:05.820 --> 01:11:09.190
Member K would be fully insured as
long as one-half interest of the

01:11:09.250 --> 01:11:14.320
co-owned trust account was $750,000
or less, which is the same level of

01:11:14.320 --> 01:11:16.370
coverage provided under current rules.

01:11:16.970 --> 01:11:21.140
In this example, member J’s situation
differs from member K’s because J

01:11:21.140 --> 01:11:25.290
has a second trust account, but the
insurance calculation remains the same.

01:11:25.810 --> 01:11:29.980
Specifically, member J has two trust
accounts and identified four unique

01:11:29.980 --> 01:11:35.280
beneficiaries (L, M, N, and K);
therefore, member J’s insurance limit is

01:11:35.280 --> 01:11:39.400
$1,000,000 (or (1) x (4) x ($250,000)).

01:11:40.118 --> 01:11:44.178
Member J would remain fully insured
as long as J’s trust shares — equal

01:11:44.178 --> 01:11:47.958
to one-half of the co- owned trust
account plus J’s personal trust

01:11:47.958 --> 01:11:50.668
account — total no more than $1,000,000.

01:11:51.088 --> 01:11:51.438
This

01:11:52.113 --> 01:11:55.573
methodology and level of coverage
is the same as that provided by

01:11:55.573 --> 01:11:57.393
the current share insurance rules.

01:11:58.110 --> 01:12:01.460
Example 4: Revocable
and Irrevocable Trusts

01:12:02.134 --> 01:12:06.244
Member O establishes a share account
at a F I C U titled the “O Living

01:12:06.244 --> 01:12:10.714
Trust.” Member O is the grantor
of this living trust, a formal

01:12:10.714 --> 01:12:14.864
revocable trust that includes
three beneficiaries — P, Q, and R.

01:12:15.464 --> 01:12:19.804
The grantor, member O, also establishes
an irrevocable trust for the benefit

01:12:19.804 --> 01:12:21.504
of the same three beneficiaries.

01:12:22.074 --> 01:12:25.994
The trustee of the irrevocable trust
maintains a share account at the same F

01:12:26.274 --> 01:12:30.854
I C U as the living trust account, titled
in the name of the irrevocable trust.

01:12:31.374 --> 01:12:36.214
Neither member O nor the trustee maintains
other share accounts at the same F I C U.

01:12:36.734 --> 01:12:39.204
What is the insurance
coverage for these accounts?

01:12:39.775 --> 01:12:43.335
Under the final rule, the living
trust account is a formal revocable

01:12:43.335 --> 01:12:46.445
trust and would be insured in
the trust accounts category.

01:12:47.075 --> 01:12:50.825
The account containing the funds from the
irrevocable trust account would also be

01:12:50.825 --> 01:12:52.835
insured in the trust accounts category.

01:12:53.415 --> 01:12:56.985
To the extent these shares would pass
from the same grantor (member O) to

01:12:56.985 --> 01:13:01.345
beneficiaries (P, Q, or R), they would
be aggregated for the purposes of

01:13:01.345 --> 01:13:03.055
applying the share insurance limit.

01:13:03.705 --> 01:13:07.065
It would be irrelevant that the shares
are divided between the living trust

01:13:07.065 --> 01:13:09.305
account and the irrevocable trust account.

01:13:09.615 --> 01:13:14.545
The maximum coverage for these shares
would be equal to the SMSIA ($250,000)

01:13:14.545 --> 01:13:18.695
multiplied by the number of grantors
(one, because member O is the grantor

01:13:18.695 --> 01:13:22.835
with respect to both accounts) multiplied
by the number of beneficiaries, up to a

01:13:22.835 --> 01:13:27.155
maximum of five (here three, the number
of beneficiaries, is less than five).

01:13:27.865 --> 01:13:31.325
Therefore, the maximum coverage for
the shares in the trust accounts would

01:13:31.325 --> 01:13:36.995
be ($250,000) x (1) x (3) = $750,000.

01:13:37.704 --> 01:13:41.444
This example is one of the few instances
where the final rule may provide

01:13:41.444 --> 01:13:45.514
a reduced amount of coverage as a
result of the aggregation of revocable

01:13:45.514 --> 01:13:47.364
and irrevocable trust accounts,

01:13:48.015 --> 01:13:50.215
depending on the structure
of the trust agreement.

01:13:50.875 --> 01:13:53.065
Under the current rules, member O would be

01:13:53.781 --> 01:13:59.361
insured for up to $750,000 for revocable
trust shares and separately insured

01:13:59.361 --> 01:14:04.781
for up to $750,000 for irrevocable
trust shares (assuming non-contingent

01:14:04.781 --> 01:14:06.881
beneficial interests), resulting in

01:14:07.565 --> 01:14:10.575
$1,500,000 in total coverage.

01:14:11.085 --> 01:14:13.625
If that were the case, current
coverage would exceed that

01:14:13.625 --> 01:14:15.105
provided by the final rule.

01:14:15.645 --> 01:14:18.865
However, the terms of irrevocable
trusts sometimes lead to

01:14:18.865 --> 01:14:20.405
less coverage than expected.

01:14:20.965 --> 01:14:24.715
It is often the case that irrevocable
trust accounts are only insured up to

01:14:24.715 --> 01:14:29.595
$250,000 under the current rules due to
contingencies in the trust agreement,

01:14:30.045 --> 01:14:34.025
but determining this with certainty often
requires careful consideration of the

01:14:34.025 --> 01:14:36.365
trust agreement’s contingency provisions.

01:14:37.094 --> 01:14:41.284
Under the current rule, if contingencies
existed, current coverage would exceed

01:14:41.284 --> 01:14:46.134
that provided by the final rule, as member
O would be insured up to $1,000,000;

01:14:46.464 --> 01:14:52.834
$750,000 for the revocable trust and
$250,000 for the irrevocable trust.

01:14:53.554 --> 01:14:57.774
In the N C U A’s view, one of the key
benefits of the final rule versus the

01:14:57.774 --> 01:15:01.524
current rule will be greater clarity
and predictability in share insurance

01:15:01.524 --> 01:15:05.554
coverage because whether contingencies
exist will no longer be a factor

01:15:05.554 --> 01:15:07.204
that could affect share insurance.

01:15:07.854 --> 01:15:10.704
Example 5: Many Beneficiaries Named

01:15:11.388 --> 01:15:15.638
Member S establishes a share account
at a F I C U titled in the name of

01:15:15.638 --> 01:15:20.178
the “S Living Trust.” This trust
is a revocable trust naming seven

01:15:20.178 --> 01:15:23.978
beneficiaries — T, U, V, W, X, Y, and Z.

01:15:24.488 --> 01:15:29.188
The grantor, member S, does not maintain
any other shares at the same F I C U.

01:15:29.728 --> 01:15:31.348
What is the coverage for this account?

01:15:31.996 --> 01:15:36.266
Under the final rule, the living trust
is a formal revocable trust and would be

01:15:36.266 --> 01:15:38.296
insured in the trust accounts category.

01:15:38.896 --> 01:15:43.726
The maximum coverage for this account
would be equal to the SMSIA ($250,000)

01:15:43.726 --> 01:15:47.636
multiplied by the number of grantors
(one, because member S is the sole

01:15:47.636 --> 01:15:51.946
grantor) multiplied by the number of
beneficiaries, up to a maximum of five.

01:15:52.526 --> 01:15:55.356
Here the number of named
beneficiaries (seven) exceeds the

01:15:55.356 --> 01:15:59.686
maximum (five), so insurance is
calculated using the maximum (five).

01:16:00.216 --> 01:16:07.586
Coverage for the account would be
($250,000) x (1) x (5) = $1,250,000.

01:16:08.343 --> 01:16:11.793
This example is another instance
where the final rule may provide for

01:16:11.793 --> 01:16:13.503
less coverage than the current rule.

01:16:14.103 --> 01:16:17.923
Under the current rule, because more
than five beneficiaries are named, the

01:16:17.923 --> 01:16:21.593
account is insured up to the greater
of the following: (1) five times

01:16:21.593 --> 01:16:25.773
the SMSIA; or (2) the total of the
interests of each beneficiary, with

01:16:25.803 --> 01:16:27.983
each such interest limited to the SMSIA.

01:16:28.663 --> 01:16:31.843
Determining coverage requires a
review of the trust agreement to

01:16:31.843 --> 01:16:34.163
ascertain each beneficiary’s interest.

01:16:34.603 --> 01:16:38.563
Each such insurable interest is
limited to the SMSIA, and the total of

01:16:38.563 --> 01:16:43.943
all these interests is compared with
$1,250,000 (five times the SMSIA).

01:16:44.613 --> 01:16:47.793
The current rule provides coverage
in the greater of these two amounts.

01:16:48.373 --> 01:16:56.103
The result would fall into a range from
$1,250,000 to $1,750,000, depending on

01:16:56.103 --> 01:17:01.123
the precise allocation of trust interests
among the beneficiaries.70 In the N C

01:17:01.123 --> 01:17:05.423
U A’s view, one of the key benefits of
the final rule versus the current rule

01:17:05.423 --> 01:17:09.463
is greater clarity and predictability
in share insurance coverage because

01:17:09.463 --> 01:17:13.753
a single formula is used to determine
maximum coverage, and this formula

01:17:13.753 --> 01:17:17.823
will not depend upon the specific
allocation of funds among beneficiaries.

01:17:18.577 --> 01:17:18.737
F.

01:17:19.147 --> 01:17:20.417
Discussion of Comments

01:17:21.095 --> 01:17:22.405
Overview of the Comments

01:17:23.042 --> 01:17:27.432
The N C U A received 13 comments
on the proposed rule, 11 of which

01:17:27.432 --> 01:17:29.562
provided relevant substantive feedback.

01:17:30.102 --> 01:17:34.832
Comments were received from individuals,
a F I C U, state credit union leagues

01:17:34.832 --> 01:17:38.852
and national trade associations,
a law firm, and an association of

01:17:38.852 --> 01:17:40.822
state credit union supervisors.

01:17:41.402 --> 01:17:45.332
All 11 substantive comments supported
the proposed rule, with a number

01:17:45.332 --> 01:17:48.762
providing additional feedback
regarding potential revisions or

01:17:48.762 --> 01:17:50.632
other matters to contemplate further.

01:17:51.012 --> 01:17:51.232
As

01:17:52.069 --> 01:17:56.539
70 For example, if all the beneficiaries’
interests were equal, coverage would

01:17:56.539 --> 01:18:00.239
be $250,000 x (7 beneficiaries)

01:18:01.335 --> 01:18:03.835
=
$1,750,000.

01:18:04.465 --> 01:18:07.895
This amount is the maximum coverage
possible under the current rule.

01:18:08.455 --> 01:18:12.485
Conversely, if a few beneficiaries
had a large interest in the trust, the

01:18:12.485 --> 01:18:16.485
total of all beneficiaries’ interests
(limited to the SMSIA per beneficiary)

01:18:16.515 --> 01:18:21.945
could be less than $1,250,000, in which
case the current rule would provide

01:18:21.945 --> 01:18:25.555
a minimum of $1,250,000 in coverage.

01:18:25.985 --> 01:18:30.255
Depending upon the precise allocation of
interests, the amount of coverage provided

01:18:30.255 --> 01:18:32.285
would fall somewhere within this range.

01:18:32.981 --> 01:18:36.591
described below, common issues
commenters spoke to were parity with

01:18:36.681 --> 01:18:41.221
FDIC coverage, the merger of the trust
account categories, the proposed trust

01:18:41.221 --> 01:18:43.381
calculation, and membership issues.

01:18:44.095 --> 01:18:45.705
Parity with FDIC Coverage

01:18:46.370 --> 01:18:50.060
Six commenters addressed the importance
of parity with FDIC coverage.

01:18:50.620 --> 01:18:53.470
One deemed it crucial for
maintaining consistency and

01:18:53.470 --> 01:18:55.210
fairness in the financial system.

01:18:55.640 --> 01:18:59.700
Another opined that if FDIC coverage
is easier to understand or provides

01:18:59.700 --> 01:19:03.400
additional coverage, it could
result in funds being moved to banks

01:19:03.510 --> 01:19:06.840
and could introduce reputational
risk to the credit union system.

01:19:07.300 --> 01:19:11.370
A commenter noted that while parity is
not reason enough to adopt a change, they

01:19:11.370 --> 01:19:15.300
recognized its importance, particularly
because the public tends to be more

01:19:15.300 --> 01:19:17.830
familiar with the FDIC than the N C U A.

01:19:18.330 --> 01:19:22.390
As stated in both the proposed rule
and this final rule, ensuring parity

01:19:22.390 --> 01:19:26.190
between the share insurance and deposit
insurance regimes is an important

01:19:26.190 --> 01:19:30.470
basis for the N C U A making these
changes to the trust account rules.

01:19:31.215 --> 01:19:34.155
Effects of the Changes on
Understanding of the Trust Rules

01:19:34.985 --> 01:19:37.765
Commenters universally believed
the proposed amendments would

01:19:37.765 --> 01:19:41.155
make insurance coverage for trust
accounts easier to understand.

01:19:41.795 --> 01:19:45.965
One commenter said trust accounts are
already more complex than individual share

01:19:45.965 --> 01:19:49.915
accounts, and the current rules increase
the likelihood of misunderstanding

01:19:49.915 --> 01:19:53.915
coverage by adding complexity with
different rules and calculation methods

01:19:53.915 --> 01:19:57.815
due to the type of trust, number
of beneficiaries, or other factors.

01:19:58.245 --> 01:20:01.935
A national trade association said
its member F I C Us have reported the

01:20:01.935 --> 01:20:06.785
current system, with distinct rules for
revocable and irrevocable trusts, has

01:20:06.785 --> 01:20:11.215
caused significant confusion and led
to a high volume of complex inquiries.

01:20:11.755 --> 01:20:15.265
The association believed the proposal
will offer clear and straightforward

01:20:15.265 --> 01:20:19.005
guidance for F I C Us, their
employees, and their accountholders.

01:20:19.565 --> 01:20:22.675
One commenter emphasized that
making share insurance coverage

01:20:22.715 --> 01:20:26.475
easier to understand is important
because the public is generally less

01:20:27.167 --> 01:20:29.647
familiar with the N C U A than the FDIC.

01:20:30.267 --> 01:20:34.327
The commenter supported changes to
enhance visibility or, at a minimum,

01:20:34.327 --> 01:20:37.557
to make it easier for a consumer
to understand the similarities

01:20:37.557 --> 01:20:39.947
between FDIC and N C U A coverage.

01:20:40.675 --> 01:20:43.835
The Board appreciates commenters’
confirmation that the changes will

01:20:43.835 --> 01:20:47.065
make share insurance for trust
accounts easier to understand.

01:20:47.775 --> 01:20:51.505
In the proposal, the Board also stated
it believes that under the proposal

01:20:51.505 --> 01:20:55.035
accountholders generally would have
the information necessary to readily

01:20:55.035 --> 01:20:58.795
calculate share insurance coverage
for their trust accounts, better

01:20:58.795 --> 01:21:02.285
allowing them to understand insurance
coverage for their trust accounts.

01:21:02.795 --> 01:21:05.985
However, the Board also asked
if there were instances where an

01:21:05.985 --> 01:21:09.155
accountholder would not likely
have the necessary information.

01:21:09.861 --> 01:21:13.771
Two commenters cited instances where
accountholders may lack the necessary

01:21:13.771 --> 01:21:17.431
information to calculate share
insurance coverage under the proposal.

01:21:18.001 --> 01:21:22.311
The first cited an accountholder whose
trust is not readily accessible, such as

01:21:22.311 --> 01:21:27.411
if it is old and maintained by a third
party; this commenter suggested the N C U

01:21:27.411 --> 01:21:31.861
A apprise accountholders of the rule and
remind them to find necessary documents.

01:21:32.251 --> 01:21:36.221
The second said complex trust structures
or changes in beneficiaries could

01:21:36.221 --> 01:21:40.671
cause a lack of necessary information,
particularly if the accountholder does not

01:21:40.671 --> 01:21:43.261
have immediate access to updated details.

01:21:43.691 --> 01:21:46.641
The commenter believed this could
make determining the beneficiaries

01:21:46.641 --> 01:21:50.821
challenging, particularly in trusts
involving multiple generations or

01:21:50.821 --> 01:21:52.471
those set up for estate planning.

01:21:53.215 --> 01:21:57.115
The Board agrees with commenters that
fact-specific circumstances related

01:21:57.115 --> 01:22:00.775
to individual accountholders’ trust
accounts may result in individual

01:22:00.775 --> 01:22:04.825
situations where an accountholder lacks
the necessary information to readily

01:22:04.825 --> 01:22:06.975
calculate their share insurance coverage.

01:22:07.515 --> 01:22:11.915
However, the situations described, and
others like them, relate to complexities

01:22:11.915 --> 01:22:15.665
in accountholders’ individual trust
arrangements that would be difF I C

01:22:15.665 --> 01:22:19.775
Ult or impossible to ameliorate in
regulations governing share insurance.

01:22:20.445 --> 01:22:24.815
Instead, it is up to accountholders and
those maintaining these trusts to ensure

01:22:25.538 --> 01:22:28.168
their understanding of them,
so they can apply the share

01:22:28.168 --> 01:22:30.008
insurance regulations to them in

01:22:30.746 --> 01:22:32.916
evaluating their share insurance coverage.

01:22:33.476 --> 01:22:37.256
The Board agrees with the commenter
that requested that the N C U A apprise

01:22:37.256 --> 01:22:41.786
accountholders of the rule changes and
remind them to locate necessary documents.

01:22:42.426 --> 01:22:45.856
The N C U A will be providing
publicly available resources

01:22:45.856 --> 01:22:49.226
to notify accountholders of the
rule changes and explain them.

01:22:49.846 --> 01:22:53.486
In doing so, the N C U A will
also reiterate the importance of

01:22:53.486 --> 01:22:57.756
understanding trust arrangements and
maintaining necessary trust documents.

01:22:58.453 --> 01:23:00.133
Merger of the Trust Categories

01:23:00.816 --> 01:23:04.366
Seven commenters specifically
supported merging the revocable and

01:23:04.366 --> 01:23:06.496
irrevocable trust account categories.

01:23:06.996 --> 01:23:10.226
Commenters believed this would
reduce confusion, minimize the

01:23:10.226 --> 01:23:14.316
number of questions to the N C U
A, reduce regulatory burden, and

01:23:14.316 --> 01:23:16.176
improve operational processes.

01:23:16.706 --> 01:23:20.996
One national trade association said
its member F I C Us did not anticipate

01:23:20.996 --> 01:23:24.486
the merger would result in reduced
insurance coverage in practice.

01:23:25.066 --> 01:23:28.646
However, they asked the N C U
A to track any such outcomes in

01:23:28.646 --> 01:23:32.796
liquidations and suggested revisiting
the rule if stakeholder input or

01:23:32.796 --> 01:23:34.776
liquidations show reduced coverage.

01:23:35.545 --> 01:23:39.435
The Board agrees the merger of the trust
categories should simplify insurance

01:23:39.435 --> 01:23:43.845
coverage of trust accounts, reduce
confusion, and alleviate burden on F I

01:23:43.845 --> 01:23:46.475
C Us, accountholders, and the N C U A.

01:23:46.955 --> 01:23:49.915
While the Board appreciates the
suggestion to track outcomes in

01:23:49.915 --> 01:23:53.725
liquidations where the merger of the
trust categories causes a reduction

01:23:53.725 --> 01:23:58.215
in insurance coverage, it declines to
create a formal process for doing so.

01:23:58.465 --> 01:24:02.175
Simultaneously calculating insurance
coverage under the current and new

01:24:02.175 --> 01:24:06.175
trust rules would negate many of the
efficiency and simplification benefits

01:24:06.175 --> 01:24:08.015
the changes are intended to provide.

01:24:08.585 --> 01:24:12.415
While there will not be a formal mechanism
for tracking such results, should the

01:24:12.445 --> 01:24:16.945
agency become aware of the trust account
changes creating an unanticipated level

01:24:16.945 --> 01:24:21.445
of decreased share insurance coverage,
either during evaluation of liquidations

01:24:21.445 --> 01:24:25.485
or through public input, the Board will
consider whether additional changes

01:24:25.485 --> 01:24:27.495
are needed, in consultation with the

01:24:28.276 --> 01:24:28.746
FDIC.

01:24:29.445 --> 01:24:31.965
Methodology for Calculating Trust Coverage

01:24:32.626 --> 01:24:35.906
Six commenters specifically
supported the proposed method for

01:24:35.906 --> 01:24:37.866
calculating trust account coverage.

01:24:38.476 --> 01:24:41.396
Commenters believed the more
straightforward uniform method would

01:24:41.396 --> 01:24:46.146
enhance transparency, as well as F
I C U and member understanding; make

01:24:46.146 --> 01:24:50.556
it easier to inform members of their
coverage; provide consistency with FDIC

01:24:50.556 --> 01:24:55.266
coverage; and benefit from F I C Us and
members being already familiar with it.

01:24:55.846 --> 01:24:59.816
One national trade association said
its member F I C Us did not think the

01:24:59.816 --> 01:25:05.886
$1,250,000-per-grantor cap was too
low, as the vast majority of accounts

01:25:05.886 --> 01:25:10.466
are well below that level, but did
ask the N C U A to track liquidations

01:25:10.466 --> 01:25:12.466
to ensure the cap is not too low.

01:25:13.240 --> 01:25:17.600
Additionally, one commenter suggested
clarifying in the final rule that a trust

01:25:17.600 --> 01:25:21.430
with more than one grantor — such as a
husband and wife — would have maximum

01:25:21.430 --> 01:25:25.090
coverage of $1,250,000 per grantor.

01:25:25.850 --> 01:25:29.020
The Board agrees with commenters
that the calculation method should

01:25:29.020 --> 01:25:30.630
provide the described benefits.

01:25:31.270 --> 01:25:35.980
The Board also agrees the
$1,250,000-per-grantor cap is

01:25:36.020 --> 01:25:40.880
unlikely to be too low.71 However,
as the commenter requested, the

01:25:40.920 --> 01:25:44.970
agency does plan to continue to track
uninsured amounts in liquidations,

01:25:45.050 --> 01:25:48.790
if any, and can explore further
changes should it become warranted.

01:25:49.330 --> 01:25:52.870
Finally, the Board believes the
proposed rule was clear that a single

01:25:52.870 --> 01:25:58.830
grantor is eligible for a maximum of
$1,250,000 for all their trust interests.

01:25:59.290 --> 01:26:01.720
However, it reiterates
that is the case here.

01:26:02.230 --> 01:26:06.630
In other words, where a husband and wife
maintained one account at a F I C U, a

01:26:06.660 --> 01:26:11.470
co-owned revocable trust account with five
named eligible beneficiaries, the account

01:26:11.470 --> 01:26:19.040
would be eligible for up to $1,250,000
per grantor, for a total of $2,500,000.

01:26:19.780 --> 01:26:21.730
Examples of Trust Account Coverage

01:26:22.397 --> 01:26:27.057
71 See Average Inheritance: How
Much Are Retirees Leaving to Heirs?

01:26:27.977 --> 01:26:31.707
| Boldin (stating that the median
size of a trust fund is around

01:26:31.707 --> 01:26:34.717
$285,000), citing the U.S.

01:26:34.717 --> 01:26:38.477
Federal Reserve’s Survey of
Consumer Finances (SCF),” Nov.

01:26:38.477 --> 01:26:39.687
2023.

01:26:40.409 --> 01:26:44.249
One commenter encouraged the N C U
A to maintain communications with

01:26:44.339 --> 01:26:47.839
F I C Us to ensure its examples
sufficiently cover ownership

01:26:47.839 --> 01:26:49.759
structures implemented by members.

01:26:50.299 --> 01:26:54.319
The Board agrees the N C U A should
communicate with F I C Us about this

01:26:54.319 --> 01:26:56.289
issue and the agency will do so.

01:26:57.001 --> 01:26:58.881
Effects on Call Report Filings

01:26:59.577 --> 01:27:02.747
One commenter was concerned that
reporting of insured shares on

01:27:02.747 --> 01:27:04.327
the Call Report is inaccurate.

01:27:04.917 --> 01:27:08.677
The commenter said F I C U computer
systems tend not to code trust

01:27:08.677 --> 01:27:12.127
accounts correctly for reporting
insured shares, causing them to

01:27:12.127 --> 01:27:15.987
go unreported as insured shares or
to be missing some beneficiaries.

01:27:16.577 --> 01:27:20.087
The commenter said many F I C Us do
not include beneficiaries in their

01:27:20.087 --> 01:27:24.807
computer systems and only maintain that
data in paper records, which excludes

01:27:24.807 --> 01:27:28.437
many beneficiaries that would be
included in reporting insured shares.

01:27:28.767 --> 01:27:31.787
The commenter believed it might
be more accurate to take total

01:27:31.787 --> 01:27:35.497
outstanding shares and apply a
factor to compute insured shares.

01:27:35.967 --> 01:27:38.967
While outside the scope of
this rulemaking, this concern

01:27:38.967 --> 01:27:40.517
will be evaluated by staff.

01:27:41.305 --> 01:27:43.135
Effects on Other Types of Accounts

01:27:43.789 --> 01:27:47.509
In the proposal, the N C U A asked
if there are types of trusts not

01:27:47.509 --> 01:27:51.569
described in the proposal whose funds
maintained in F I C U accounts would

01:27:51.569 --> 01:27:53.469
be affected by the proposed changes.

01:27:53.839 --> 01:27:57.839
One commenter said the proposal might
not fully address trusts like charitable

01:27:57.839 --> 01:28:02.539
remainder trusts or special needs trusts,
noting they have unique characteristics

01:28:02.539 --> 01:28:04.349
that could affect insurance coverage.

01:28:04.829 --> 01:28:08.789
The commenter also said trusts
operating under state-specific laws

01:28:08.789 --> 01:28:12.089
or provisions might have aspects
not contemplated in the rule,

01:28:12.319 --> 01:28:14.439
necessitating a broader consideration.

01:28:15.201 --> 01:28:18.021
As the commenter noted,
many trusts operate under

01:28:18.021 --> 01:28:20.371
state-specific laws, which can vary.

01:28:20.951 --> 01:28:23.901
As such, the share insurance
regulations could not fully

01:28:23.901 --> 01:28:25.881
accommodate each and every type of

01:28:26.687 --> 01:28:27.227
trust.

01:28:27.907 --> 01:28:30.947
With regard to special needs
trusts and charitable remainder

01:28:30.947 --> 01:28:32.847
trusts, coverage will depend

01:28:33.603 --> 01:28:37.523
upon the exact details of each trust
arrangement, including whether the

01:28:37.523 --> 01:28:39.703
trust names eligible beneficiaries.

01:28:40.395 --> 01:28:43.175
Comments Addressing Other
Changes to the Trust Rules

01:28:43.916 --> 01:28:47.496
Two commenters supported the proposal
to eliminate certain requirements

01:28:47.496 --> 01:28:51.276
in the current trust account rules
as a pragmatic step towards reducing

01:28:51.356 --> 01:28:55.586
unnecessary regulatory burdens,
leading to more efficient operations

01:28:55.586 --> 01:28:57.426
and improved customer experience.

01:28:57.956 --> 01:29:02.796
One commenter supported the proposed
removal of the appendix to part 745 in

01:29:02.796 --> 01:29:05.286
favor of updates to N C U A guidance.

01:29:05.836 --> 01:29:08.726
The commenter believed this would
make it easier for members to

01:29:08.756 --> 01:29:10.776
understand share insurance coverage.

01:29:11.528 --> 01:29:14.798
Continued Application of the
Current Rules to Existing Accounts

01:29:14.898 --> 01:29:16.288
or a Delayed Effective Date

01:29:17.076 --> 01:29:20.666
In the proposal, the Board noted
it prefers a delayed effective date

01:29:20.666 --> 01:29:24.136
for the trust account changes over
continuing the coverage under current

01:29:24.136 --> 01:29:28.286
rules for accounts existing at the
time the final rule goes into effect.

01:29:28.866 --> 01:29:32.436
This situation was referred to as
“grandfathering” accounts under

01:29:32.436 --> 01:29:34.106
the current rules in the proposal.

01:29:34.646 --> 01:29:38.176
It is referred to as “legacy
coverage” in this final rule.

01:29:38.446 --> 01:29:42.606
The proposal reasoned that providing both
legacy coverage for existing accounts and

01:29:42.606 --> 01:29:46.686
separate coverage under the new rules for
new accounts would result in significantly

01:29:46.686 --> 01:29:50.806
greater complexity for the period when
two sets of rules could apply to accounts

01:29:50.806 --> 01:29:52.986
— especially in conducting liquidations.

01:29:53.536 --> 01:29:56.826
The Board’s belief was and remains
that a delayed implementation

01:29:56.826 --> 01:30:00.256
date allows stakeholders to make
necessary adjustments for the new

01:30:00.256 --> 01:30:04.286
rules, without the complications
of two sets of rules coexisting.

01:30:04.766 --> 01:30:08.036
In recognition that there could be
instances that may not be easily

01:30:08.036 --> 01:30:11.906
restructured without adverse
consequences to the accountholder, such

01:30:11.906 --> 01:30:15.826
as trusts holding share certificates
or other account relationships, the

01:30:15.826 --> 01:30:19.506
proposal asked whether there are fact
patterns where legacy coverage for

01:30:19.506 --> 01:30:21.376
existing accounts may be appropriate.

01:30:21.936 --> 01:30:23.856
The proposal also asked if this

01:30:24.598 --> 01:30:27.708
approach would be appropriate with
respect to the proposed rule’s

01:30:27.708 --> 01:30:33.038
coverage limit of $1,250,000 per
F I C U for an accountholder’s

01:30:33.038 --> 01:30:34.768
funds held in trust accounts.

01:30:35.391 --> 01:30:39.591
Three commenters supported some form of
legacy coverage for existing accounts.

01:30:40.131 --> 01:30:43.971
Two urged providing legacy coverage
at current levels for existing trust

01:30:43.971 --> 01:30:48.401
accounts, such as if a member is the
grantor of both a revocable and an

01:30:48.401 --> 01:30:51.031
irrevocable trust at the same F I C U.

01:30:51.401 --> 01:30:55.001
One of these commenters argued that
consumers with open accounts expect to

01:30:55.001 --> 01:30:59.351
maintain their current coverage, providing
legacy coverage for existing accounts

01:30:59.381 --> 01:31:03.201
should not increase loss risk to the
Share Insurance Fund relative to current

01:31:03.201 --> 01:31:08.011
policy, and a reduction in coverage
represents a reputational risk to N C U A

01:31:08.011 --> 01:31:12.081
share insurance that could reduce public
confidence in the credit union system.

01:31:12.661 --> 01:31:16.091
The other said that providing legacy
coverage for existing accounts may

01:31:16.091 --> 01:31:20.491
increase complexity in liquidations but
believed it may be the best solution to

01:31:20.491 --> 01:31:22.831
avoid adverse consequences to members.

01:31:23.221 --> 01:31:26.601
A third commenter said this legacy
coverage may be appropriate in

01:31:26.601 --> 01:31:30.741
certain scenarios to protect members,
such as in trusts with long-term

01:31:30.741 --> 01:31:33.831
investments like share certificates
where restructuring could lead to

01:31:33.831 --> 01:31:38.751
financial losses, or in complex estate
planning trusts requiring significant

01:31:38.751 --> 01:31:40.741
legal and administrative changes.

01:31:41.487 --> 01:31:44.067
Four commenters supported
a delayed effective date.

01:31:44.557 --> 01:31:48.777
One said that if the N C U A avoids
providing legacy coverage for existing

01:31:48.777 --> 01:31:53.187
accounts, it should adopt an appropriately
delayed implementation that recognizes

01:31:53.187 --> 01:31:57.287
the potential hardships and allows
stakeholders to make necessary changes.

01:31:57.787 --> 01:32:01.997
Another believed that even with legacy
coverage for existing accounts, a delayed

01:32:01.997 --> 01:32:07.097
implementation date would be essential for
F I C Us to review trust relationships and

01:32:07.097 --> 01:32:09.577
notify any negatively affected members.

01:32:10.007 --> 01:32:13.407
A third opposed providing legacy
coverage for existing accounts,

01:32:13.717 --> 01:32:16.687
reasoning the intricacies
involved could present challenges.

01:32:17.237 --> 01:32:21.707
The commenter also stated, “concerns
arise regarding the potential limitations

01:32:21.707 --> 01:32:25.907
of studying credit unions, as these
may not fully capture the dynamics

01:32:25.907 --> 01:32:29.887
of larger credit unions, potentially
leading to adverse effects on

01:32:30.614 --> 01:32:33.354
the relationships between
[m]embers and credit unions.”

01:32:34.074 --> 01:32:37.154
The Board has strongly considered
the comments received and the

01:32:37.154 --> 01:32:40.324
effects the new trust account
rules will have on accountholders.

01:32:40.834 --> 01:32:44.804
The Board continues to believe providing
legacy coverage for existing accounts

01:32:44.804 --> 01:32:49.934
poses complications and burdens to F
I C Us, accountholders, and the N C U

01:32:49.934 --> 01:32:52.094
A that make such a system unworkable.

01:32:52.424 --> 01:32:55.994
The Board believes that by providing
a substantially delayed effective date

01:32:56.084 --> 01:32:59.864
that is in excess of two years, F I
C Us and their accountholders should

01:32:59.864 --> 01:33:03.254
have enough time to make any needed
changes to their accounts to ensure

01:33:03.254 --> 01:33:05.064
adequate share insurance coverage.

01:33:05.614 --> 01:33:09.184
Further, the Board remains doubtful
the changes will result in reduced

01:33:09.184 --> 01:33:13.534
coverage in most instances.72
Providing a delay in effect for the

01:33:13.534 --> 01:33:17.344
changes that matches the one the
FDIC provided to insured depository

01:33:17.344 --> 01:33:21.774
institutions and their accountholders
should provide both F I C Us and their

01:33:21.774 --> 01:33:25.674
accountholders with sufficient time
to complete any necessary adjustments.

01:33:26.327 --> 01:33:26.887
Membership

01:33:27.660 --> 01:33:30.330
Several commenters addressed
the membership requirements

01:33:30.330 --> 01:33:31.330
for trust accounts.

01:33:31.980 --> 01:33:35.960
One commenter advocated simplifying
membership requirements to establish

01:33:35.960 --> 01:33:39.400
a more straightforward approach with
the goal of redefining the criteria

01:33:39.400 --> 01:33:42.890
determining the eligibility of
individuals or entities for share

01:33:42.890 --> 01:33:46.520
insurance coverage, especially
in the context of trust accounts.

01:33:47.090 --> 01:33:50.900
One commenter said membership should
be satisfied for trust accounts if at

01:33:50.900 --> 01:33:52.560
least one member is on the account.

01:33:53.358 --> 01:33:57.718
One commenter expressed support for
the N C U A’s efforts to simplify share

01:33:57.718 --> 01:34:01.828
insurance coverage but believed that
meeting the agency’s goals of providing

01:34:01.828 --> 01:34:05.988
clarity to F I C Us and members and
of providing parity with the FDIC’s

01:34:05.988 --> 01:34:09.738
treatment of trust accounts required
clarifying membership requirements for

01:34:09.738 --> 01:34:14.228
two types of accounts: (1) revocable
trust accounts where not all settlors

01:34:14.228 --> 01:34:18.728
are members; and (2) irrevocable trust
accounts where no settlors are members.

01:34:19.383 --> 01:34:21.393
72 See footnote 71.

01:34:22.149 --> 01:34:25.939
On revocable trust accounts where
not all settlors are members, the

01:34:25.939 --> 01:34:29.549
commenter believed the N C U A
should provide coverage to nonmember

01:34:29.549 --> 01:34:32.019
co-owners of a revocable trust account.

01:34:32.439 --> 01:34:36.269
The commenter correctly noted the N
C U A’s position has long been that

01:34:36.269 --> 01:34:39.609
joint accounts where there is a right
of survivorship, which do not have

01:34:39.609 --> 01:34:44.189
beneficiaries, qualify for share insurance
for interests of both depositors even

01:34:44.189 --> 01:34:47.899
where there is a nonmember co-owner;
whereas a nonmember co- owner’s

01:34:47.899 --> 01:34:51.949
interest in a revocable trust account,
such as a payable-on-death account,

01:34:52.199 --> 01:34:54.139
is not eligible for share insurance.

01:34:54.669 --> 01:34:58.379
The commenter believed the addition of
a payable-on-death beneficiary should

01:34:58.379 --> 01:35:01.959
not defeat the extension of share
insurance to a nonmember co-owner.

01:35:02.539 --> 01:35:06.189
The commenter also said this position
is not explicitly contained in the

01:35:06.189 --> 01:35:10.939
regulations and is only documented in
the N C U A’s Share Insurance Estimator

01:35:10.939 --> 01:35:13.289
FAQ, which is not legally binding.

01:35:13.609 --> 01:35:17.109
The commenter emphasized that the
FDIC clearly delineates that all

01:35:17.109 --> 01:35:20.419
payable-on-death beneficiaries
are treated the same for insurance

01:35:20.419 --> 01:35:24.799
purposes, and the commenter believed
the divergence from FDIC regulations is

01:35:24.799 --> 01:35:27.429
contrary to the N C U A’s parity goal.

01:35:27.909 --> 01:35:31.799
The commenter concluded the proposed
rule provides an opportunity to provide

01:35:31.799 --> 01:35:35.189
clear instructions for calculating
coverage for joint accounts with

01:35:35.189 --> 01:35:39.149
payable-on-death beneficiaries or
any other revocable trust account

01:35:39.149 --> 01:35:41.159
with one or more nonmember settlors.

01:35:41.877 --> 01:35:46.477
To clarify, the N C U A’s longstanding
position is that nonmembers may be

01:35:46.477 --> 01:35:49.867
joint owners of a joint account with
a right of survivorship (an account

01:35:49.867 --> 01:35:53.387
with no beneficiaries) and have
an insurable interest if one joint

01:35:53.387 --> 01:35:54.947
owner of the account is a member.

01:35:55.557 --> 01:35:59.427
This position is based on a specific
statutory provision that allows for

01:35:59.427 --> 01:36:03.067
nonmembers to be co-owners with a
member if the account is held with

01:36:03.067 --> 01:36:07.987
a right of survivorship.73 In other
words, the N C U A provides share

01:36:07.987 --> 01:36:11.837
insurance coverage to nonmember owners
of joint accounts (an account with no

01:36:11.837 --> 01:36:15.727
beneficiaries) where there is a right
of survivorship based upon a statutory

01:36:15.727 --> 01:36:17.717
exception to the normal limitation

01:36:18.405 --> 01:36:21.415
that the N C U A only
provides coverage to members.

01:36:21.975 --> 01:36:25.195
This coverage for nonmember owners
of joint accounts with a right of

01:36:25.195 --> 01:36:28.915
survivorship (an account with no
beneficiaries) is expressly provided

01:36:28.915 --> 01:36:32.155
for in the N C U A’s regulations.74

01:36:32.961 --> 01:36:37.221
Conversely, the N C U A has not
recognized a statutory exception for

01:36:37.221 --> 01:36:41.551
providing share insurance coverage to
nonmember co-owners of revocable trust

01:36:41.551 --> 01:36:45.061
accounts, which are different from
joint accounts with no beneficiaries

01:36:45.131 --> 01:36:47.101
under the share insurance regulations.

01:36:47.501 --> 01:36:51.441
Unlike the coverage for nonmember joint
account owners expressly provided for

01:36:51.441 --> 01:36:56.441
in the N C U A’s regulations, the N C
U A’s regulations do not contain any

01:36:56.441 --> 01:37:00.331
provision related to nonmember co-
owners of revocable trust accounts that

01:37:00.331 --> 01:37:04.531
negates the normal limitation that share
insurance coverage is provided to members.

01:37:05.111 --> 01:37:08.691
Instead, the agency’s longstanding
position has been that co- owned

01:37:08.691 --> 01:37:11.951
revocable trust accounts are different
from joint accounts held with a

01:37:11.951 --> 01:37:16.111
right of survivorship; and as such,
they require co-owners (settlors of

01:37:16.111 --> 01:37:19.691
the trust) to be members to receive
insurance coverage for their interests

01:37:19.691 --> 01:37:21.291
in the revocable trust account.

01:37:21.861 --> 01:37:25.411
It is also worth noting that while
parity with FDIC coverage is an

01:37:25.411 --> 01:37:30.101
important aim, the N C U A’s coverage
is generally limited to member accounts.

01:37:30.541 --> 01:37:34.731
Because the FDIC coverage is not so
limited, instances will inevitably

01:37:34.731 --> 01:37:36.831
occur where coverage is not parallel.

01:37:37.593 --> 01:37:41.543
In addressing irrevocable trust accounts
where no settlors are members, the

01:37:41.543 --> 01:37:46.563
commenter erroneously concluded the N C U
A’s position as to membership requirements

01:37:46.563 --> 01:37:50.263
for irrevocable trust accounts would
pose an issue under the proposal.

01:37:50.793 --> 01:37:54.363
The commenter correctly noted that
under the current rules, irrevocable

01:37:54.363 --> 01:37:58.243
trust accounts can be established as
long as either all settlors or all

01:37:58.243 --> 01:38:00.823
beneficiaries are members of the F I C U.

01:38:01.213 --> 01:38:04.833
The commenter concluded that because
the proposal would calculate coverage

01:38:04.833 --> 01:38:10.723
for irrevocable and revocable trusts in
aggregate to $1.25 million per grantor,

01:38:11.063 --> 01:38:15.153
the N C U A would not provide coverage
to an account where the settlors were not

01:38:15.934 --> 01:38:18.314
members, but all
beneficiaries were members.

01:38:18.904 --> 01:38:20.474
This conclusion is incorrect.

01:38:20.964 --> 01:38:25.894
While coverage would be limited to $1.25
million in aggregate for a grantor,

01:38:26.234 --> 01:38:30.184
any interest related to an irrevocable
trust where all the beneficiaries were

01:38:30.184 --> 01:38:34.054
members would still be insured based on
the beneficiaries’ membership status.

01:38:34.804 --> 01:38:38.314
The limitation would only be related
to interests for one grantor being

01:38:38.314 --> 01:38:43.774
limited to $1.25 million, irrespective
of the grantor’s lack of membership.

01:38:44.555 --> 01:38:45.395
Other Comments

01:38:46.067 --> 01:38:49.307
Two commenters agreed the changes
should help facilitate the prompt

01:38:49.307 --> 01:38:50.717
payment of share insurance.

01:38:51.407 --> 01:38:55.637
One commenter noted that, while N C U
A Board Members will often accurately

01:38:55.637 --> 01:38:59.437
say no member has ever lost one
penny of funds insured by the Share

01:38:59.437 --> 01:39:03.517
Insurance Fund, members have lost
funds they thought were insured due to

01:39:03.517 --> 01:39:05.407
misunderstanding the coverage rules.

01:39:05.897 --> 01:39:09.987
As noted, the Board’s goal with this
rulemaking is to reduce this confusion.

01:39:10.739 --> 01:39:14.649
In response to the N C U A’s request
for input regarding empirical

01:39:14.649 --> 01:39:18.439
information the agency should consider
to help it understand the effects

01:39:18.439 --> 01:39:22.349
of its proposed rule, a commenter
provided an article detailing an

01:39:22.349 --> 01:39:25.899
empirical study of the jurisdictional
competition for trust funds.

01:39:26.419 --> 01:39:30.179
Of most relevance, the article notes
the difF I C Ulty of empirically

01:39:30.179 --> 01:39:34.669
studying inter vivos (living) trusts
due to various factors, including these

01:39:34.669 --> 01:39:37.039
trusts’ private nature and complexity.

01:39:38.257 --> 01:39:38.517
III.

01:39:39.237 --> 01:39:41.587
Amendments to Mortgage
Servicing Account Rule

01:39:42.328 --> 01:39:42.618
A.

01:39:43.128 --> 01:39:44.368
Policy Objectives

01:39:44.993 --> 01:39:49.553
The N C U A’s regulations governing
share insurance coverage include specific

01:39:49.553 --> 01:39:55.153
rules on accounts maintained at F I C
Us by mortgage servicers.75 These rules

01:39:55.153 --> 01:39:58.943
are intended to be easy to understand
and apply in determining the amount of

01:39:58.943 --> 01:40:01.013
share insurance coverage for a mortgage

01:40:01.729 --> 01:40:03.289
servicer’s account (MSA).

01:40:04.009 --> 01:40:07.639
The N C U A generally strives
to maintain parity with FDIC’s

01:40:07.639 --> 01:40:09.799
regulations in furtherance of this aim.

01:40:10.442 --> 01:40:14.022
The N C U A proposed an amendment
to its rules governing insurance

01:40:14.022 --> 01:40:17.992
coverage for accounts maintained
at F I C Us by mortgage servicers

01:40:17.992 --> 01:40:21.022
that consist of mortgagors’
principal and interest payments.

01:40:21.682 --> 01:40:26.032
The proposed change would mirror a
change made by the FDIC in early 2022

01:40:26.032 --> 01:40:31.222
that became effective in April 2024, and
which was intended to address a servicing

01:40:31.222 --> 01:40:36.302
arrangement that is not addressed in
the current rules.76 Specifically, some

01:40:36.302 --> 01:40:40.432
servicing arrangements may permit or
require servicers to advance their own

01:40:40.432 --> 01:40:44.312
funds to the lenders when mortgagors
are delinquent in making principal and

01:40:44.312 --> 01:40:48.542
interest payments, and servicers might
commingle such advances in the MSA

01:40:48.542 --> 01:40:52.142
with principal and interest payments
collected directly from mortgagors.

01:40:52.843 --> 01:40:56.673
The FDIC reasoned that the factors that
motivated the FDIC to establish its

01:40:56.673 --> 01:41:01.743
current rules for MSAs, which the N C U
A also adopted and are further described

01:41:01.743 --> 01:41:06.013
below, weigh in favor of treating funds
advanced by a mortgage servicer to

01:41:06.013 --> 01:41:10.843
satisfy mortgagors’ principal and interest
obligations to the lender as if such funds

01:41:10.843 --> 01:41:12.833
were collected directly from borrowers.

01:41:13.433 --> 01:41:16.973
The FDIC also noted it seeks
to avoid uncertainty concerning

01:41:16.973 --> 01:41:20.123
the extent of deposit insurance
coverage for such accounts.

01:41:20.603 --> 01:41:24.663
The proposed rule noted the N C U A
concurs with the importance of avoiding

01:41:24.663 --> 01:41:28.503
uncertainty regarding the extent of
insurance coverage and believes that an

01:41:28.503 --> 01:41:32.943
important aspect of avoiding uncertainty
is maintaining parity between the share

01:41:32.943 --> 01:41:35.333
insurance and deposit insurance regimes.

01:41:36.094 --> 01:41:38.674
After reviewing the comments
received on this proposed

01:41:38.674 --> 01:41:42.554
change, the Board has decided to
finalize the change as proposed.

01:41:43.034 --> 01:41:46.414
As discussed further below, the
Board has also decided to make

01:41:46.414 --> 01:41:50.514
this change effective 30 days after
publication in the Federal Register.

01:41:51.303 --> 01:41:51.513
B.

01:41:52.103 --> 01:41:53.953
Background and Need for Rulemaking

01:41:54.643 --> 01:41:58.493
76 87 FR 4455 (Jan.

01:41:58.493 --> 01:42:00.383
28, 2022).

01:42:00.675 --> 01:42:07.075
The N C U A’s rules governing coverage
for MSAs were last amended in 2008, which

01:42:07.075 --> 01:42:09.875
corresponded to changes made by the FDIC.

01:42:09.875 --> 01:42:13.875
More specifically, in 2008 the FDIC
recognized securitization methods and

01:42:13.875 --> 01:42:19.075
vehicles for mortgages had become more
complex, exacerbating the difF I C Ulty

01:42:19.075 --> 01:42:23.475
of determining the ownership of deposits
consisting of principal and interest

01:42:23.475 --> 01:42:28.275
payments by mortgagors and extending
the time required to make a deposit

01:42:28.275 --> 01:42:33.475
insurance determination for deposits of
a mortgage servicer in the event of an

01:42:33.475 --> 01:42:37.475
insured depository institution’s (IDI’s)
failure.77 The FDIC expressed concern that

01:42:37.475 --> 01:42:41.875
a lengthy insurance determination could
lead to continuous withdrawal of deposits

01:42:41.875 --> 01:42:46.275
of principal and interest payments
from IDIs and unnecessarily reduce a

01:42:46.275 --> 01:42:48.275
funding source for such institutions.

01:42:48.275 --> 01:42:53.475
The FDIC therefore amended its rules
to provide coverage to lenders based on

01:42:53.475 --> 01:42:58.675
each mortgagor’s payments of principal
and interest into the MSA, up to its

01:42:58.675 --> 01:43:02.275
standard maximum deposit insurance amount
per mortgagor (currently $250,000).

01:43:02.275 --> 01:43:07.875
The FDIC did not amend the rule for
coverage of tax and insurance payments,

01:43:07.875 --> 01:43:13.075
which continued to be insured to each
mortgagor on a pass-through basis and

01:43:13.075 --> 01:43:17.475
aggregated with any other deposits
maintained by each mortgagor at the

01:43:17.475 --> 01:43:20.675
same IDI in the same right and capacity.

01:43:20.675 --> 01:43:25.875
The N C U A agreed that this
treatment of principal and interest

01:43:25.875 --> 01:43:30.275
payments provided greater and fairer
coverage for credit union members and

01:43:30.275 --> 01:43:34.675
decided to apply the same approach
in its share insurance rules.78

01:43:35.085 --> 01:43:39.545
Importantly, the 2008 amendments to the
rules for MSAs did not provide for the

01:43:39.545 --> 01:43:43.635
fact that servicers may be required to
advance their own funds to make payments

01:43:43.635 --> 01:43:47.405
of principal and interest on behalf of
delinquent borrowers to the lenders.

01:43:47.855 --> 01:43:51.655
However, in its recent rulemaking
the FDIC identified that advancing

01:43:51.655 --> 01:43:55.555
their own funds is required of
mortgage servicers in some instances.

01:43:56.366 --> 01:43:59.436
For example, the FDIC noted
that some IDIs identified

01:43:59.436 --> 01:44:01.396
challenges to implementing certain

01:44:02.023 --> 01:44:07.043
77 See 73 FR 61658, 61658-59 (Oct.

01:44:07.113 --> 01:44:10.123
17, 2008).

01:44:10.847 --> 01:44:16.427
78 73 FR 62856, 62857 (Oct.

01:44:16.427 --> 01:44:17.847
22, 2008).

01:44:18.654 --> 01:44:23.084
recordkeeping requirements with respect
to MSA deposit balances because of

01:44:23.084 --> 01:44:28.044
the way in which servicer advances
are accounted for and administered.79

01:44:28.733 --> 01:44:32.703
The N C U A’s current rules, which
mirror the FDIC’s rules that were in

01:44:32.703 --> 01:44:37.683
effect until April 1, 2024, provide
coverage for principal and interest

01:44:37.683 --> 01:44:42.453
funds only to the extent “paid into the
account by the mortgagors”; they do not

01:44:42.453 --> 01:44:46.523
provide coverage for funds paid into
the account from other sources, such

01:44:46.523 --> 01:44:51.323
as the servicer’s own operating funds,
even if those funds satisfy mortgagors’

01:44:51.323 --> 01:44:52.973
principal and interest payments.

01:44:53.693 --> 01:44:57.723
As a result, advances are not provided
the same level of coverage as other

01:44:57.723 --> 01:45:01.903
deposits in an MSA consisting of
principal and interest payments directly

01:45:01.903 --> 01:45:05.703
from the borrower, which are insured
up to the SMSIA for each borrower.

01:45:06.213 --> 01:45:09.963
Instead, the advances are aggregated
and insured to the servicer as

01:45:09.963 --> 01:45:13.263
corporate funds for a total of $250,000.

01:45:13.783 --> 01:45:19.103
In adopting changes to its rule in early
2022, the FDIC expressed concern that this

01:45:19.103 --> 01:45:23.043
inconsistent treatment of principal and
interest amounts could result in financial

01:45:23.043 --> 01:45:27.123
instability during times of stress, and
could further complicate the insurance

01:45:27.123 --> 01:45:31.773
determination process, a result that is
inconsistent with their policy objective.

01:45:32.283 --> 01:45:36.593
As noted in the proposal, the N C U A
shares these concerns and believes it

01:45:36.593 --> 01:45:40.223
is important that parity is maintained
between the insurance regimes.

01:45:40.884 --> 01:45:41.314
C.

01:45:41.744 --> 01:45:42.434
Final Rule

01:45:43.145 --> 01:45:47.085
The N C U A is finalizing the
rule as proposed with no changes.

01:45:47.625 --> 01:45:51.435
The final rule will amend the rules
governing coverage for funds in MSAs

01:45:51.435 --> 01:45:55.415
to provide parity with the FDIC’s
regulation and provide consistent share

01:45:55.415 --> 01:46:00.015
insurance treatment for all MSA balances
held to satisfy principal and interest

01:46:00.015 --> 01:46:03.875
obligations to a lender, regardless
of whether those funds are paid into

01:46:03.875 --> 01:46:07.945
the account by borrowers or paid into
the account by another party (such as

01:46:07.945 --> 01:46:10.195
the servicer) to satisfy a periodic

01:46:10.893 --> 01:46:15.183
79 The FDIC noted that, to fulfill
their contractual obligations with

01:46:15.183 --> 01:46:19.503
investors, covered IDIs maintain
mortgage principal and interest balances

01:46:19.503 --> 01:46:23.563
at a pool level and remittances,
advances, advance reimbursements,

01:46:23.843 --> 01:46:27.683
and excess funds applications that
affect pool-level balances are not

01:46:27.683 --> 01:46:29.843
allocated back to individual borrowers.

01:46:30.587 --> 01:46:33.777
obligation to remit principal
and interest due to the lender.

01:46:34.397 --> 01:46:37.857
Under the final rule, accounts
maintained by a mortgage servicer in

01:46:37.857 --> 01:46:42.437
an agency, custodial, or fiduciary
capacity, which consist of payments

01:46:42.437 --> 01:46:46.007
of principal and interest, will be
insured for the cumulative balance

01:46:46.007 --> 01:46:49.827
paid into the account to satisfy
principal and interest obligations to

01:46:49.827 --> 01:46:54.357
the lender, whether paid directly by
the borrower or by another party, up to

01:46:54.357 --> 01:46:56.387
the limit of the SMSIA per mortgagor.

01:46:56.917 --> 01:47:00.767
Mortgage servicers’ advances of
principal and interest funds on behalf

01:47:00.767 --> 01:47:05.147
of delinquent borrowers will therefore
be insured up to the SMSIA per mortgagor,

01:47:05.437 --> 01:47:08.937
consistent with the coverage rules
for payments of principal and interest

01:47:08.937 --> 01:47:10.787
collected directly from borrowers.

01:47:11.482 --> 01:47:15.452
The composition of an MSA attributable
to principal and interest payments will

01:47:15.452 --> 01:47:20.032
also include collections by a servicer,
such as foreclosure proceeds, that are

01:47:20.032 --> 01:47:24.242
used to satisfy a borrower’s principal
and interest obligation to the lender.

01:47:24.702 --> 01:47:29.002
In some cases, foreclosure proceeds may
not be paid directly by a mortgagor.

01:47:29.532 --> 01:47:33.572
The current rule does not address whether
foreclosure collections represent payments

01:47:33.572 --> 01:47:35.722
of principal and interest by a mortgagor.

01:47:36.162 --> 01:47:40.702
Under the final rule, foreclosure proceeds
used to satisfy a borrower’s principal

01:47:40.702 --> 01:47:45.092
and interest obligation will be insured up
to the limit of the SMSIA per mortgagor.

01:47:45.857 --> 01:47:49.007
The final rule does not make any
changes to the share insurance

01:47:49.007 --> 01:47:52.667
coverage provided for MSAs comprised
of payments from mortgagors of

01:47:52.667 --> 01:47:54.607
taxes and insurance premiums.

01:47:55.107 --> 01:47:59.087
Such aggregate escrow accounts are held
separately from the principal and interest

01:47:59.087 --> 01:48:03.847
MSAs, and the funds therein are held for
the mortgagors until such time as tax

01:48:03.847 --> 01:48:07.817
and insurance payments are disbursed by
the servicer on the borrower’s behalf.

01:48:08.107 --> 01:48:11.667
Under the final rule, such funds
will continue to be insured based

01:48:11.667 --> 01:48:15.507
on the ownership interest of each
mortgagor in the account and aggregated

01:48:15.507 --> 01:48:18.897
with other funds maintained by
the mortgagor at the same F I C

01:48:18.897 --> 01:48:20.717
U in the same capacity and right.

01:48:21.502 --> 01:48:26.012
The Board is opting to make this change
effective 30 days after publication in the

01:48:26.833 --> 01:48:27.843
Federal Register.

01:48:28.443 --> 01:48:32.253
Given the change provides more
expansive coverage and should not impose

01:48:32.981 --> 01:48:37.161
additional burden on F I C Us or
accountholders, the Board does not

01:48:37.161 --> 01:48:38.991
see a reason to delay its effect.

01:48:39.658 --> 01:48:39.948
D.

01:48:40.398 --> 01:48:41.648
Discussion of Comments

01:48:42.278 --> 01:48:45.318
Six commenters expressly
supported the proposed rule’s

01:48:45.318 --> 01:48:47.308
changes to insurance of MSAs.

01:48:48.006 --> 01:48:51.436
In terms of the benefits cited,
four commenters noted the importance

01:48:51.436 --> 01:48:53.206
of parity with FDIC coverage.

01:48:53.646 --> 01:48:57.996
Three cited the benefits of a standardized
approach and fair and equitable treatment.

01:48:58.536 --> 01:49:02.256
Five noted the greater clarity
provided for F I C Us and members.

01:49:02.686 --> 01:49:06.156
Two said the change represents improved
protection of the interests of all

01:49:06.156 --> 01:49:10.286
parties, aligns with best practices,
and offers additional security.

01:49:10.906 --> 01:49:14.916
One stressed the change simplifies
the complex landscape and enables

01:49:14.986 --> 01:49:18.656
F I C Us to manage MSAs more
confidently and efficiently.

01:49:19.116 --> 01:49:22.796
That commenter believed the change was
crucial for maintaining the integrity

01:49:22.796 --> 01:49:27.296
and reliability of the MSA system, as
the change recognizes the practical

01:49:27.296 --> 01:49:31.526
realities of servicing arrangements and
the various sources of funds that may be

01:49:31.526 --> 01:49:33.916
used to satisfy borrowers’ obligations.

01:49:34.436 --> 01:49:37.326
The commenter thought the inclusion
of foreclosure collections

01:49:37.326 --> 01:49:40.716
particularly important, as the
current rule does not address it.

01:49:41.396 --> 01:49:45.026
Two commenters stated the change would
help promote financial stability.

01:49:45.376 --> 01:49:49.186
One said the change would reduce
financial institutions’ counterparty risk

01:49:49.186 --> 01:49:54.536
exposure, which also reduces liquidity
risk to the F I C U holding the MSAs.

01:49:55.176 --> 01:49:58.456
Another said providing insurance
for these advanced funds supports

01:49:58.456 --> 01:50:01.596
the mortgage market and broader
financial system’s stability.

01:50:02.376 --> 01:50:06.596
One national trade association
reported its F I C U members expressed

01:50:06.596 --> 01:50:10.076
initial concerns with increased
Share Insurance Fund costs due to

01:50:10.076 --> 01:50:14.096
larger insured balances from covering
funds paid by mortgage servicers.

01:50:14.636 --> 01:50:17.766
However, after members reviewed
the potential effect in greater

01:50:17.766 --> 01:50:21.726
detail, they concluded any such
increase in cost would be nominal.

01:50:22.276 --> 01:50:25.896
The commenter urged the N C U A
to monitor this change to ensure

01:50:25.896 --> 01:50:29.426
it does not lead to an excessive
increase in Share Insurance Fund-

01:50:30.193 --> 01:50:31.843
related liquidation costs.

01:50:32.583 --> 01:50:36.263
The Board concurs that this change
should only nominally increase any

01:50:36.958 --> 01:50:39.818
Share-Insurance-Fund
related liquidation costs.

01:50:40.358 --> 01:50:43.648
However, the agency will
continue to monitor such costs.

01:50:44.356 --> 01:50:48.236
Only one commenter addressed the N
C U A’s request regarding whether a

01:50:48.236 --> 01:50:50.216
delayed effective date is necessary.

01:50:50.756 --> 01:50:54.166
The commenter believed a delayed
effective date appropriate but had

01:50:54.166 --> 01:50:55.896
no concern with an earlier date.

01:50:56.406 --> 01:51:00.606
As discussed, the Board is opting to
make this change effective 30 days after

01:51:00.606 --> 01:51:02.506
publication in the Federal Register.

01:51:03.186 --> 01:51:05.966
The comments received do not give
the Board the impression that

01:51:05.966 --> 01:51:09.646
commenters were opposed to the change
becoming effective without delay.

01:51:10.430 --> 01:51:14.220
Further, given the change only
clarifies and expands share insurance

01:51:14.220 --> 01:51:18.260
coverage, the N C U A does not
believe the change should impose any

01:51:18.260 --> 01:51:20.780
burden on F I C Us or accountholders.

01:51:21.456 --> 01:51:21.566
IV.

01:51:21.566 --> 01:51:24.376
Recordkeeping Requirements

01:51:25.085 --> 01:51:25.315
A.

01:51:25.715 --> 01:51:26.935
Policy Objectives

01:51:27.588 --> 01:51:31.638
The N C U A’s regulations governing
share insurance coverage include

01:51:31.638 --> 01:51:35.088
general principles applicable in
determining insurance of accounts.80

01:51:35.778 --> 01:51:39.288
Among these general principles are
provisions addressing recordkeeping.81

01:51:39.638 --> 01:51:43.738
The N C U A intends for these
provisions to clearly articulate

01:51:43.738 --> 01:51:47.628
the records the agency will look to
when evaluating insurance coverage.

01:51:48.108 --> 01:51:52.118
As discussed in more detail below,
over time it has become apparent that

01:51:52.118 --> 01:51:56.238
the recordkeeping provisions do not
clearly address all situations and may

01:51:56.238 --> 01:52:00.228
be especially unclear as to accounts
maintained by an agent, custodian,

01:52:00.258 --> 01:52:04.858
fiduciary, or other party on behalf of
a member or beneficial owner eligible to

01:52:04.858 --> 01:52:07.498
maintain an insured account at a F I C U.

01:52:08.048 --> 01:52:11.728
To better address these situations,
the N C U A proposed to amend

01:52:11.728 --> 01:52:13.378
the recordkeeping requirements.

01:52:14.049 --> 01:52:17.069
80 12 CFR 745.2.

01:52:17.823 --> 01:52:21.423
81 12 CFR 745.2(c).

01:52:22.160 --> 01:52:24.740
After reviewing the comments
received on this proposed

01:52:24.740 --> 01:52:28.600
change, the Board has decided to
finalize the change as proposed.

01:52:29.100 --> 01:52:32.480
As discussed further below, the
Board has also decided to make

01:52:32.480 --> 01:52:36.590
this change effective 30 days after
publication in the Federal Register.

01:52:37.359 --> 01:52:37.589
B.

01:52:37.939 --> 01:52:39.799
Background and Need for Rulemaking

01:52:40.479 --> 01:52:46.049
Section 745.2(c) of the N C U
A’s regulations addresses general

01:52:46.049 --> 01:52:47.539
recordkeeping requirements.

01:52:48.079 --> 01:52:51.229
Other recordkeeping requirements
applicable to specific account

01:52:51.229 --> 01:52:55.629
types are addressed as needed in
the relevant sections of part 745.

01:52:56.289 --> 01:53:02.079
Current § 745.2(c)(1) provides that, as
a general matter, the account records

01:53:02.079 --> 01:53:06.359
of the F I C U shall be conclusive as
to the existence of any relationship

01:53:06.359 --> 01:53:09.889
pursuant to which the funds in the
account are deposited and on which a

01:53:09.889 --> 01:53:12.069
claim for insurance coverage is founded.

01:53:12.499 --> 01:53:16.179
Examples would be trustee,
agent, custodian, or executor.

01:53:16.659 --> 01:53:20.469
No claim for insurance based on such
a relationship will be recognized

01:53:20.469 --> 01:53:22.329
in the absence of such disclosure.

01:53:23.042 --> 01:53:29.512
Section 745.2(c)(2) provides that, if
the account records of a F I C U disclose

01:53:29.512 --> 01:53:33.862
the existence of a relationship which may
provide a basis for additional insurance,

01:53:34.142 --> 01:53:39.872
as required under § 745.2(c)(1), the
details of the relationship and the

01:53:39.902 --> 01:53:43.462
interest of other parties in the account
must be ascertainable either from the

01:53:43.462 --> 01:53:47.922
records of the F I C U or the records
of the member maintained in good faith

01:53:48.172 --> 01:53:49.912
and in the regular course of business.

01:53:50.332 --> 01:53:54.042
It is this provision that has raised
questions regarding accounts maintained

01:53:54.042 --> 01:53:56.622
by an agent, fiduciary, or similar party.

01:53:56.932 --> 01:54:01.102
The N C U A has received several questions
regarding whether records maintained

01:54:01.102 --> 01:54:05.292
by an agent, fiduciary, or similar
third party on behalf of the member or

01:54:05.292 --> 01:54:09.472
beneficial owner eligible to maintain
an insured account would qualify as

01:54:09.472 --> 01:54:13.572
the “records of the member.” Due to
the frequency with which these agent or

01:54:13.572 --> 01:54:18.022
fiduciary arrangements will involve a
party other than the F I C U or member

01:54:18.022 --> 01:54:23.302
maintaining records on the F I C U’s or
member’s behalf, the N C U A proposed

01:54:23.302 --> 01:54:25.702
to add language explicitly clarifying

01:54:26.406 --> 01:54:29.946
that such records, when maintained
in good faith and in the regular

01:54:29.946 --> 01:54:31.326
course of business, can be

01:54:32.125 --> 01:54:36.035
looked to when evaluating the details of
the relationship and the interest of other

01:54:36.035 --> 01:54:38.395
parties in the account at the F I C U.

01:54:39.084 --> 01:54:39.494
C.

01:54:39.824 --> 01:54:40.604
Final Rule

01:54:41.256 --> 01:54:45.516
The N C U A is adopting the proposed
rule as proposed with no changes.

01:54:46.006 --> 01:54:51.856
Section 745.3(a)(2) of the N C U A’s
current regulations provides that

01:54:51.856 --> 01:54:56.196
when an account is held by an agent or
nominee, funds owned by a principal and

01:54:56.196 --> 01:55:00.396
deposited in one or more accounts in
the name or names of agents or nominees

01:55:00.396 --> 01:55:03.986
shall be added to any individual
account of the principal and insured

01:55:03.986 --> 01:55:05.846
up to the SMSIA in the aggregate.

01:55:06.176 --> 01:55:10.316
The N C U A will also generally look to
the principal or beneficial owner for

01:55:10.316 --> 01:55:14.136
satisfying the membership requirement
or other eligibility to maintain

01:55:14.136 --> 01:55:16.226
an insured account at the F I C U.

01:55:16.816 --> 01:55:21.356
As such, records maintained by an agent or
nominee on behalf of the member principal

01:55:21.356 --> 01:55:25.616
or beneficial owner may not clearly be
considered “records of the member” for the

01:55:25.616 --> 01:55:31.566
purpose of ascertaining their interests in
the account under current § 745.2(c)(2).

01:55:32.293 --> 01:55:36.643
The N C U A has previously issued a legal
opinion stating that where an agent or

01:55:36.643 --> 01:55:40.503
custodian “has an agreement with the
beneficial owner/member to maintain

01:55:40.503 --> 01:55:44.733
custody of the beneficial owner/member’s
records, [the] N C U A would consider

01:55:44.733 --> 01:55:50.483
those records to be ‘records of the
member’ within the meaning of 12 C.F.R.

01:55:51.323 --> 01:55:55.433
745(c)(2).”82 However, as the N C U A
acknowledged in the proposed rule, it

01:55:55.433 --> 01:55:59.313
would be beneficial for the regulation
to more clearly address this situation

01:55:59.313 --> 01:56:03.083
to allow the details of the relationship
and the interests of other parties in

01:56:03.083 --> 01:56:07.023
the account to be ascertainable either
from the account records of the F I C

01:56:07.023 --> 01:56:11.083
U or from records maintained, in good
faith and in the regular course of

01:56:11.083 --> 01:56:15.543
business, by the member or by some person
who or entity that has undertaken to

01:56:15.543 --> 01:56:17.493
maintain such records for the member.

01:56:18.239 --> 01:56:20.099
82 N C U A Legal Op.

01:56:20.689 --> 01:56:22.269
97-0909 (Feb.

01:56:22.269 --> 01:56:31.949
6, 1998), available at https://www.N C
U A.gov/regulation-supervision/legal-

01:56:31.949 --> 01:56:36.229
opinions/1997/pass-through-insurance.

01:56:36.941 --> 01:56:40.741
Accordingly, the N C U A is
adopting this change as proposed.

01:56:41.291 --> 01:56:45.741
This change will provide greater clarity,
particularly in the event of multi-tiered

01:56:45.741 --> 01:56:50.131
fiduciary relationships, and would more
closely compare to language previously

01:56:50.131 --> 01:56:55.261
adopted by the FDIC.83 Importantly,
the N C U A retains discretion to

01:56:55.261 --> 01:56:59.401
determine when records are maintained
on behalf of a member, in good faith

01:56:59.551 --> 01:57:01.221
and in the regular course of business.

01:57:01.551 --> 01:57:05.731
Ultimately, the N C U A must be able
to establish ownership interests in the

01:57:05.731 --> 01:57:09.901
account by following the chain of records
maintained by parties at each level

01:57:09.901 --> 01:57:13.721
of the relationship from the account
records maintained at the F I C U.

01:57:14.486 --> 01:57:20.536
Additionally, § 745.2(c)(3) of the current
regulations provides that the account

01:57:20.536 --> 01:57:24.926
records of a F I C U in connection with a
trust account shall disclose the name of

01:57:24.926 --> 01:57:29.296
both the settlor (grantor) and the trustee
of the trust and shall contain an account

01:57:29.296 --> 01:57:31.736
signature card executed by the trustee.

01:57:32.420 --> 01:57:35.300
This requirement goes beyond
the recordkeeping requirements

01:57:35.300 --> 01:57:40.710
of § 745.2(c)(1) through (2)
and poses an unnecessary burden

01:57:40.710 --> 01:57:42.610
on F I C Us and their members.

01:57:43.180 --> 01:57:47.650
Further, the FDIC previously
eliminated a similar requirement.84

01:57:47.650 --> 01:57:51.730
To eliminate unnecessary recordkeeping
complexity and provide parity with

01:57:51.730 --> 01:57:58.720
the FDIC, the N C U A is eliminating
current § 745.2(c)(3), as was proposed.

01:57:59.428 --> 01:58:04.468
Section 745.2(c)(4) states that
the interests of the co-owners of

01:58:04.468 --> 01:58:08.188
a joint account shall be deemed
equal, unless otherwise stated on

01:58:08.188 --> 01:58:11.908
the insured credit union’s records
in the case of a tenancy in common.

01:58:12.338 --> 01:58:16.318
As proposed, the N C U A is not
making any substantive amendments to

01:58:16.318 --> 01:58:22.218
this provision but is moving it to
§ 745.2(c)(3) given the elimination of

01:58:22.218 --> 01:58:24.148
the current requirement in that section.

01:58:24.954 --> 01:58:30.944
Finally, § 745.14(a)(2) notes that
interest on lawyers’ trust accounts

01:58:30.944 --> 01:58:34.944
(IOLTAs) and other similar escrow
accounts are subject to the recordkeeping

01:58:34.944 --> 01:58:38.724
requirements of § 745.2(c)(1) and (2).

01:58:39.384 --> 01:58:45.514
In doing so, § 745.14(a)(2) provides
an example of how the details of the

01:58:45.514 --> 01:58:49.254
relationship between the attorney or
escrow agent and their clients and

01:58:49.254 --> 01:58:51.574
principals must be ascertainable from the

01:58:52.293 --> 01:58:55.813
83 12 CFR 330.5(b)(2).

01:58:56.577 --> 01:59:01.727
84 51 FR 21137 (June 11, 1986).

01:59:02.416 --> 01:59:06.896
records of the F I C U or from records
maintained, in good faith and in

01:59:06.896 --> 01:59:10.586
the regular course of business, by
the member attorney or member escrow

01:59:10.586 --> 01:59:12.246
agent administering the account.

01:59:12.826 --> 01:59:17.106
As was proposed, the final rule amends
this description to conform to the change

01:59:17.106 --> 01:59:23.186
to § 745.2(c)(2) to explicitly state that
the records detailing the relationship

01:59:23.426 --> 01:59:27.436
and the interest of other parties in the
account must be maintained, in good faith

01:59:27.526 --> 01:59:32.326
and in the regular course of business,
by: (1) the F I C U; or (2) the member

01:59:32.326 --> 01:59:37.176
attorney or member escrow agent, or a
person or entity acting on their behalf.

01:59:37.919 --> 01:59:38.209
D.

01:59:38.479 --> 01:59:39.739
Discussion of Comments

01:59:40.415 --> 01:59:44.055
All seven commenters who addressed
the proposed recordkeeping requirement

01:59:44.055 --> 01:59:45.685
changes supported the changes.

01:59:46.245 --> 01:59:49.955
Two commenters stated requiring the
details of a relationship and the

01:59:49.985 --> 01:59:53.025
interests of other parties in an
account to be ascertainable from

01:59:53.025 --> 01:59:57.005
records maintained in good faith is
a sound practice, which should ensure

01:59:57.005 --> 01:59:58.815
transparency and accountability.

01:59:59.245 --> 02:00:03.285
One said the proposal would provide an
approach consistent with FDIC pass-through

02:00:03.285 --> 02:00:08.115
deposit insurance expectations for various
types of “other similar escrow account”

02:00:08.385 --> 02:00:10.795
that may exist, including sweep accounts.

02:00:11.492 --> 02:00:15.312
One commenter noted many F I C
U members rely on trusted third

02:00:15.312 --> 02:00:18.352
parties for recordkeeping as
part of their estate planning.

02:00:18.822 --> 02:00:23.262
The commenter also believed this change
should reduce inquiries to the N C U A.

02:00:23.996 --> 02:00:27.686
One commenter noted support for the
proposed removal of the requirement

02:00:27.686 --> 02:00:31.466
that the account records of a F I C
U in connection with a trust account

02:00:31.466 --> 02:00:34.606
shall disclose the name of both
the grantor and the trustee of the

02:00:34.606 --> 02:00:38.956
trust and shall contain an account
signature card executed by the trustee.

02:00:39.456 --> 02:00:42.536
The commenter agreed the
requirement poses an unnecessary

02:00:42.536 --> 02:00:44.796
burden on F I C Us and members.

02:00:45.589 --> 02:00:48.939
Four commenters said the change
provides F I C Us adequate

02:00:48.939 --> 02:00:50.609
clarity as to the records the

02:00:51.475 --> 02:00:55.635
N C U A will look to when evaluating
the details of account relationships

02:00:55.685 --> 02:00:56.795
and the interests of other

02:00:57.557 --> 02:01:00.107
parties in accounts
maintained at F I C Us.

02:01:00.677 --> 02:01:03.647
One urged the Board to finalize
the change as proposed.

02:01:04.117 --> 02:01:07.907
Another understood there to be only
limited confusion regarding the issue

02:01:08.197 --> 02:01:12.237
but noted support for reduced burden
and enhanced usability of the rules.

02:01:12.960 --> 02:01:16.730
In response to the proposal’s questions
on the subject, one commenter said

02:01:16.730 --> 02:01:20.610
that, while the proposed change is a
significant step towards clarity and

02:01:20.610 --> 02:01:24.630
provides essential guidance in complex
account management scenarios, there

02:01:24.630 --> 02:01:28.390
may be alternative or additional steps
that could further align with the N C

02:01:28.390 --> 02:01:33.240
U A’s policy objectives, including the
following: (1) adopting a definition of

02:01:33.280 --> 02:01:37.540
“account records” similar to the FDIC’s
definition of “deposit account records” to

02:01:37.540 --> 02:01:42.540
standardize the documentation framework,
ensure uniformity, and reduce ambiguity

02:01:42.540 --> 02:01:47.510
in what constitutes necessary records;
(2) adopting specific detailed provisions

02:01:47.510 --> 02:01:52.360
for multi-tiered fiduciary relationships
akin to those adopted by the FDIC, which

02:01:52.360 --> 02:01:56.730
would help clarify the responsibilities
and recordkeeping obligations in complex

02:01:56.730 --> 02:02:01.560
arrangements involving multiple parties;
and (3) adopting broader definitions and

02:02:01.590 --> 02:02:06.080
illustrative examples for various account
relationships, such as joint accounts

02:02:06.080 --> 02:02:08.270
or trusts with multiple beneficiaries.

02:02:08.730 --> 02:02:12.510
The commenter said it is imperative to
ensure the recordkeeping regulations

02:02:12.510 --> 02:02:16.250
remain relevant and effective as
technology advances and banking

02:02:16.250 --> 02:02:18.200
evolves into a more digital domain.

02:02:18.750 --> 02:02:22.540
The commenter suggested adding a
periodic review and update clause

02:02:22.540 --> 02:02:26.040
for the recordkeeping requirements
to ensure regulations stay current

02:02:26.040 --> 02:02:27.990
with the evolving banking practices.

02:02:28.460 --> 02:02:31.620
The commenter believed this would
be especially pertinent for handling

02:02:31.620 --> 02:02:35.470
international accounts or accounts
involved in complex transactions.

02:02:36.157 --> 02:02:39.937
The Board will take these additional
recommendations into consideration as it

02:02:39.937 --> 02:02:44.917
continues to evaluate ways to improve the
N C U A’s share insurance regulations.

02:02:45.457 --> 02:02:49.687
The Board notes that N C U A staff
routinely review rules for effectiveness,

02:02:49.947 --> 02:02:53.697
including through its annual review
of one- third of its regulations and

02:02:53.697 --> 02:02:57.827
the Economic Growth and Regulatory
Paperwork Reduction Act (also known

02:02:57.827 --> 02:03:02.467
as EGRPRA) process that the N C U A
voluntarily undertakes every ten years.

02:03:03.183 --> 02:03:07.243
The proposal also requested comment
on whether the N C U A should consider

02:03:07.243 --> 02:03:11.323
adoption of heighted recordkeeping
requirements, akin to those the FDIC

02:03:11.323 --> 02:03:15.853
adopted in part 370 of its regulations,
to facilitate prompt payment of

02:03:15.853 --> 02:03:18.273
insurance when large institutions fail.

02:03:18.743 --> 02:03:20.943
Six commenters addressed the possibility.

02:03:21.333 --> 02:03:25.033
None of the commenters supported
adoption of such requirements, but some

02:03:25.033 --> 02:03:29.513
did provide recommendations if the N
C U A were to adopt a similar regime.

02:03:29.803 --> 02:03:33.173
The Board will take this feedback
into consideration as it further

02:03:33.173 --> 02:03:36.563
studies the possibility of
proposing similar requirements.

02:03:37.262 --> 02:03:39.922
The proposed rule asked about
whether there was any reason

02:03:39.922 --> 02:03:42.852
to delay the effective date
of the recordkeeping change.

02:03:43.412 --> 02:03:46.922
This question intended to elicit
comments on whether a delayed effective

02:03:46.922 --> 02:03:50.672
date for the proposed recordkeeping
requirements changes would allow more

02:03:50.672 --> 02:03:54.752
flexibility when evaluating share
insurance coverage by clarifying that the

02:03:54.822 --> 02:03:59.122
N C U A can look to records maintained
by a third party on a member’s behalf

02:03:59.472 --> 02:04:03.172
if they are maintained in good faith
and in the regular course of business.

02:04:03.712 --> 02:04:08.132
One commenter believed a delayed effective
date for those changes appropriate but

02:04:08.132 --> 02:04:10.102
had no concern with an earlier date.

02:04:10.856 --> 02:04:14.926
Another commenter seemingly interpreted
this question as asking about a delayed

02:04:14.926 --> 02:04:19.166
effective date for potential N C U A
adoption of a regime similar to the

02:04:19.166 --> 02:04:22.956
FDIC’s, as was asked about in the
previous question in the proposal,

02:04:23.276 --> 02:04:26.706
rather than about a delayed effective
date for the proposed changes to

02:04:26.706 --> 02:04:28.346
the recordkeeping requirements.

02:04:28.806 --> 02:04:33.636
This commenter believed timing pivotal
and suggested the N C U A grant F I C Us

02:04:33.636 --> 02:04:38.076
an extended period to comply because of
the intricacies of compliance, especially

02:04:38.076 --> 02:04:42.806
in terms of recordkeeping, and need
to effectively adapt F I C U processes

02:04:42.806 --> 02:04:47.796
and systems without experiencing undue
burden.85 Given the proposed changes

02:04:47.796 --> 02:04:52.316
would not increase burden on F I C
Us or members, but instead clarify

02:04:52.316 --> 02:04:54.306
that the N C U A will look to more

02:04:55.035 --> 02:04:58.355
85 This commenter specifically
responded to this question.

02:04:58.865 --> 02:05:02.725
However, it seems likely the commenter
interpreted the question as asking

02:05:02.725 --> 02:05:05.905
whether a delayed effective date
would be appropriate for adopting a

02:05:05.905 --> 02:05:10.485
part 370 type regime, which was asked
about in the preceding question.

02:05:11.208 --> 02:05:15.438
expansive records to evaluate parties’
interest in insured accounts, the

02:05:15.438 --> 02:05:19.488
concerns the commenter raised do not
seem applicable to the changes proposed.

02:05:20.259 --> 02:05:24.539
As discussed, the Board is opting to
make this change effective 30 days after

02:05:24.539 --> 02:05:26.489
publication in the Federal Register.

02:05:27.049 --> 02:05:29.809
The comments received do not give
the Board the impression that

02:05:29.809 --> 02:05:33.359
commenters were opposed to the change
becoming effective without delay.

02:05:33.779 --> 02:05:37.889
Further, given the change only clarifies
that the N C U A has additional

02:05:37.889 --> 02:05:41.709
flexibility to look to additional
records to determine parties’ interests

02:05:41.709 --> 02:05:45.119
in an account, the Board does not
believe that it will impose any

02:05:45.119 --> 02:05:47.539
burden on F I C Us or their members.

02:05:48.019 --> 02:05:51.749
The Board believes that clarifying
that the N C U A has this greater

02:05:51.749 --> 02:05:55.299
discretion to look to additional
records will only provide benefit.

02:05:56.124 --> 02:05:56.464
V.

02:05:56.954 --> 02:05:58.404
Regulatory Procedures

02:05:59.054 --> 02:05:59.344
A.

02:05:59.754 --> 02:06:01.594
Regulatory Flexibility Act

02:06:02.290 --> 02:06:06.780
The Regulatory Flexibility Act (RFA)
generally requires that, in connection

02:06:06.780 --> 02:06:10.880
with a final rulemaking, an agency
prepare and make available for public

02:06:10.880 --> 02:06:15.300
comment a final regulatory flexibility
analysis that describes the effect

02:06:15.300 --> 02:06:17.410
of the final rule on small entities.

02:06:17.820 --> 02:06:23.090
A regulatory flexibility analysis is not
required, however, if the agency certifies

02:06:23.090 --> 02:06:27.190
that the rule will not have a significant
economic effect on a substantial number of

02:06:27.190 --> 02:06:31.470
small entities (defined for the purposes
of the RFA to include credit unions

02:06:31.470 --> 02:06:36.920
with assets less than $100 million)86
and publishes its certification and

02:06:36.920 --> 02:06:41.000
a short, explanatory statement in the
Federal Register together with the rule.

02:06:41.719 --> 02:06:45.709
The Board fully considered the potential
economic effect of the changes made by

02:06:45.709 --> 02:06:47.689
this final rule during its development.

02:06:48.239 --> 02:06:52.229
As noted in the preamble, the
final rule simplifies the N C U A’s

02:06:52.229 --> 02:06:55.869
current share insurance regulations
covering types of trust accounts.

02:06:56.359 --> 02:06:59.589
It also provides more flexibility
on the coverage of MSAs.

02:07:00.159 --> 02:07:03.979
Finally, it explicitly provides
for additional flexibility in

02:07:04.580 --> 02:07:08.000
86 See 80 FR 57512 (Sept.

02:07:08.000 --> 02:07:09.730
24, 2015).

02:07:10.483 --> 02:07:14.163
what records the N C U A can look
to when determining the details of

02:07:14.163 --> 02:07:17.673
account relationships and various
parties’ interests in the accounts.

02:07:18.303 --> 02:07:21.933
In short, the Board believes the
principal consequence of the final rule

02:07:22.153 --> 02:07:26.173
will be to streamline its administrative
procedures for insurance payouts on

02:07:26.173 --> 02:07:28.363
trust accounts when F I C Us fail.

02:07:28.783 --> 02:07:32.873
Though the final rule will require F I
C Us and their members to be familiar

02:07:32.873 --> 02:07:37.153
with the new trust rules and the coverage
limits imposed on trust accounts, the

02:07:37.153 --> 02:07:42.003
N C U A believes this will not impose
any new significant burden on F I C Us,

02:07:42.163 --> 02:07:46.043
may ease some existing requirements,
and should reduce the complexity of

02:07:46.043 --> 02:07:50.383
questions F I C Us receive from their
members on share insurance coverage.

02:07:51.189 --> 02:07:55.399
Additionally, F I C Us and their members
are familiar with the new formula as it

02:07:55.399 --> 02:07:59.739
is already applied to revocable trust
accounts with five or fewer beneficiaries.

02:08:00.289 --> 02:08:03.479
The formula is also simpler to
understand and implement than the

02:08:03.479 --> 02:08:07.169
previous rules governing revocable
trust accounts with six or more

02:08:07.169 --> 02:08:09.399
beneficiaries and irrevocable trusts.

02:08:10.136 --> 02:08:13.946
Ultimately, the changes to the
rule governing coverage of MSAs and

02:08:13.946 --> 02:08:17.446
the changes to the recordkeeping
requirements should only provide greater

02:08:17.446 --> 02:08:21.146
flexibility for coverage of these
accounts and should not cause any new

02:08:21.146 --> 02:08:23.466
burden on F I C Us or their members.

02:08:23.976 --> 02:08:27.756
Accordingly, the N C U A certifies
that this final rule will not have

02:08:27.756 --> 02:08:32.236
a significant economic effect on a
substantial number of small F I C Us.

02:08:32.965 --> 02:08:33.295
B.

02:08:33.665 --> 02:08:35.125
Paperwork Reduction Act

02:08:35.812 --> 02:08:40.352
The Paperwork Reduction Act of 1995
(PRA) applies to rulemakings in which an

02:08:40.392 --> 02:08:45.432
agency by rule creates a new paperwork
burden on regulated entities or modifies

02:08:45.432 --> 02:08:50.922
an existing burden.87 For the purposes
of the PRA, a paperwork burden may take

02:08:50.922 --> 02:08:52.922
the form of a reporting, disclosure,

02:08:53.703 --> 02:08:56.183
87 44 U.S.C.

02:08:56.183 --> 02:08:57.113
3507(d).

02:08:57.863 --> 02:09:02.003
or recordkeeping requirement, each
referred to as an information collection.

02:09:02.663 --> 02:09:06.563
The N C U A may not conduct or
sponsor, and the respondent is not

02:09:06.563 --> 02:09:10.593
required to respond to, an information
collection unless it displays a

02:09:10.593 --> 02:09:14.393
currently valid Office of Management
and Budget (OMB) control number.

02:09:15.135 --> 02:09:18.665
The final rule does not contain
information collection requirements that

02:09:18.665 --> 02:09:20.985
require approval by OMB under the PRA.

02:09:21.585 --> 02:09:26.085
The final rule will not create new or
modify any existing paperwork burdens.

02:09:26.585 --> 02:09:30.355
Rather, the final rule will simplify
the share insurance regulations by

02:09:30.355 --> 02:09:34.675
merging the revocable and irrevocable
trust account categories into one trust

02:09:34.675 --> 02:09:39.225
account category and applying a simpler,
common calculation method to determine

02:09:39.225 --> 02:09:43.735
insurance coverage for funds held in
revocable and irrevocable trust accounts.

02:09:44.235 --> 02:09:47.765
The final rule will also provide
consistent share insurance treatment

02:09:47.765 --> 02:09:52.405
for all MSA balances held to satisfy
principal and interest obligations to

02:09:52.405 --> 02:09:56.015
a lender, regardless of whether those
funds are paid into the account by

02:09:56.015 --> 02:10:00.235
borrowers or paid into the account by
another party (such as the servicer) to

02:10:00.235 --> 02:10:04.915
satisfy a periodic obligation to remit
principal and interest due to the lender.

02:10:05.485 --> 02:10:10.155
Finally, the final rule will explicitly
allow the N C U A, when undertaking

02:10:10.155 --> 02:10:13.715
share insurance determinations, to
look to records held in the normal

02:10:13.715 --> 02:10:17.505
course of business that are maintained
by parties other than a F I C U

02:10:17.615 --> 02:10:19.075
and its members on their behalf.

02:10:19.625 --> 02:10:23.975
As such, no PRA submissions to OMB will
be made with respect to this final rule.

02:10:24.732 --> 02:10:25.002
a.

02:10:25.512 --> 02:10:27.882
Executive Order 13132

02:10:28.568 --> 02:10:33.398
Executive Order 13132 encourages
independent regulatory agencies

02:10:33.398 --> 02:10:36.858
to consider the effect of their
actions on state and local interests.

02:10:37.398 --> 02:10:42.978
The N C U A, an independent regulatory
agency as defined in 44 U.S.C.

02:10:42.978 --> 02:10:46.248
3502(5), voluntarily complies
with the principles of the

02:10:46.248 --> 02:10:49.778
Executive Order to adhere to
fundamental federalism principles.

02:10:50.108 --> 02:10:54.678
This final rule will only impact the
N C U A’s regulations related to share

02:10:54.678 --> 02:10:58.968
insurance coverage; it will not affect
state law related to trust accounts.

02:10:59.468 --> 02:11:03.368
The final rule will also not alter
the N C U A’s relationship or

02:11:03.368 --> 02:11:07.508
division of responsibilities with
state regulatory agencies or bodies

02:11:07.688 --> 02:11:09.648
because the final rule will affect the

02:11:10.431 --> 02:11:14.231
N C U A’s federal share insurance
determinations exclusively.

02:11:14.841 --> 02:11:18.531
This final rule will not have a
substantial direct effect on the states,

02:11:18.661 --> 02:11:22.221
on the connection between the national
government and the states, or on the

02:11:22.221 --> 02:11:26.451
distribution of power and responsibilities
among the various levels of government.

02:11:27.051 --> 02:11:31.551
The N C U A has determined that this
final rule does not constitute a policy

02:11:31.551 --> 02:11:35.401
that has federalism implications for
the purposes of the Executive Order.

02:11:36.147 --> 02:11:36.447
b.

02:11:36.897 --> 02:11:40.207
Assessment of Federal Regulations
and Policies on Families

02:11:40.923 --> 02:11:45.263
The N C U A has determined that this rule
will not affect family well-being within

02:11:45.263 --> 02:11:50.173
the meaning of section 654 of the Treasury
and General Government Appropriations

02:11:50.173 --> 02:11:55.653
Act, 1999, Public Law 105-277, 112 Stat.

02:11:56.153 --> 02:11:58.083
2681 (1998).

02:11:58.703 --> 02:12:02.533
Under this statute, if the agency
determines the final regulation may

02:12:02.533 --> 02:12:07.133
negatively affect family well-being,
then the agency must provide an adequate

02:12:07.133 --> 02:12:09.033
rationale for its implementation.

02:12:09.705 --> 02:12:13.485
The N C U A has determined that the
implementation of this rule will not

02:12:13.485 --> 02:12:15.575
negatively affect family well-being.

02:12:16.055 --> 02:12:19.865
The N C U A believes that any negative
effect will be limited because the

02:12:19.865 --> 02:12:23.465
trust changes may not affect many
accounts, and members or others

02:12:23.465 --> 02:12:27.205
maintaining those accounts will have
time and notice to modify the accounts

02:12:27.235 --> 02:12:29.385
before the final rule goes into effect.

02:12:29.915 --> 02:12:34.345
Further, the MSA and recordkeeping changes
offset negative effects because they

02:12:34.345 --> 02:12:38.605
will instead provide the N C U A more
flexibility to provide share insurance

02:12:38.605 --> 02:12:42.785
coverage with respect to funds dedicated
to pay loans and other obligations

02:12:42.785 --> 02:12:44.895
related to family homes and businesses.

02:12:45.485 --> 02:12:49.725
If the N C U A ultimately finds that
the rule does have a negative effect as

02:12:49.725 --> 02:12:53.645
the statute describes, it believes the
benefits that the preamble describes

02:12:53.645 --> 02:12:58.895
in simplifying coverage and potentially
reducing costs for the N C U A and for F I

02:12:58.895 --> 02:13:01.085
C Us would support implementing the rule.

02:13:01.800 --> 02:13:02.280
c.

02:13:02.920 --> 02:13:07.360
Small Business Regulatory Enforcement
Fairness Act (Congressional Review Act)

02:13:08.033 --> 02:13:12.403
The Small Business Regulatory
Enforcement Fairness Act of 1996 (Pub.

02:13:13.163 --> 02:13:13.363
L.

02:13:13.733 --> 02:13:19.113
104–121) (SBREFA) generally provides
for congressional review of new agency

02:13:19.113 --> 02:13:23.193
rules that qualify as “major” under
criteria specified in the Act.88

02:13:23.943 --> 02:13:28.693
The N C U A’s analysis indicates
the rule falls short of qualifying

02:13:28.693 --> 02:13:31.253
as “major” under SBREFA’s criteria.

02:13:31.683 --> 02:13:35.643
As required by SBREFA, the N
C U A is submitting this final

02:13:35.643 --> 02:13:39.583
rule and its economic impact
analysis to OMB for concurrence

02:13:39.583 --> 02:13:41.453
on the “not major” determination.

02:13:42.133 --> 02:13:46.363
The N C U A also will file all other
appropriate congressional reports.

02:13:47.043 --> 02:13:50.673
List of Subjects in 12 CFR Part 745

02:13:51.529 --> 02:13:53.939
Credit, Credit Unions, Share Insurance.

02:13:54.594 --> 02:13:57.244
By the National Credit
Union Administration Board

02:13:57.244 --> 02:13:59.354
on September 19, 2024.

02:14:00.139 --> 02:14:02.919
Melane Conyers-Ausbrooks,
Secretary of the Board.

02:14:03.730 --> 02:14:07.080
For the reasons discussed in the
preamble, the Board is amending

02:14:07.150 --> 02:14:10.500
12 CFR part 745 as follows:

02:14:11.237 --> 02:14:14.247
PART 745—SHARE INSURANCE COVERAGE

02:14:14.963 --> 02:14:15.413
1.

02:14:16.183 --> 02:14:20.943
The authority citation for part
745 continues to read as follows:

02:14:21.649 --> 02:14:24.079
88 5 U.S.C.

02:14:24.079 --> 02:14:24.889
801–804.

02:14:25.616 --> 02:14:28.126
Authority: 12 U.S.C.

02:14:28.126 --> 02:14:39.836
1752(5), 1757, 1765, 1766, 1781,
1782, 1787, 1789; title V, Pub.

02:14:40.376 --> 02:14:40.586
L.

02:14:41.026 --> 02:14:42.066
109-

02:14:42.837 --> 02:14:45.827
351;120 Stat.

02:14:46.367 --> 02:14:47.757
1966.

02:14:48.430 --> 02:14:48.770
2.

02:14:49.520 --> 02:14:54.100
The heading for part 745 is
revised to read as set forth above.

02:14:54.803 --> 02:14:57.823
§ 745.0 [Amended]

02:14:58.605 --> 02:14:59.015
3.

02:14:59.735 --> 02:15:04.855
Amend § 745.0 by removing
the words “and appendix”.

02:15:05.684 --> 02:15:06.044
4.

02:15:06.714 --> 02:15:10.624
Revise § 745.1 to read as follows:

02:15:11.321 --> 02:15:14.531
§ 745.1  Definitions.

02:15:15.204 --> 02:15:16.624
For the purposes of this part:

02:15:17.456 --> 02:15:21.706
Account or accounts mean share, share
certificate, or share draft accounts

02:15:21.706 --> 02:15:25.766
(or their equivalent under state law, as
determined by the Board in the case of

02:15:25.766 --> 02:15:29.606
insured state-chartered credit unions)
of a member (which includes other credit

02:15:29.606 --> 02:15:33.966
unions, public units, and nonmembers
where permitted under the Act) in a credit

02:15:33.966 --> 02:15:38.266
union of a type approved by the Board
which evidences money or its equivalent

02:15:38.266 --> 02:15:42.466
received or held by a credit union in
the usual course of business and for

02:15:42.466 --> 02:15:46.286
which it has given or is obligated to
give credit to the account of the member.

02:15:46.999 --> 02:15:50.629
Member or members mean those persons
enumerated in the credit union’s

02:15:50.629 --> 02:15:53.869
field of membership who have been
elected to membership in accordance

02:15:53.869 --> 02:15:57.619
with the Act or state law in the case
of state-chartered credit unions.

02:15:58.109 --> 02:16:01.129
It also includes those nonmembers
permitted under the Act to

02:16:01.129 --> 02:16:05.019
maintain accounts in an insured
credit union, including nonmember

02:16:05.019 --> 02:16:08.999
credit unions and nonmember public
units and political subdivisions.

02:16:09.650 --> 02:16:13.540
Non-contingent interest means an
interest capable of determination without

02:16:13.540 --> 02:16:17.610
evaluation of contingencies except
for those covered by the present worth

02:16:17.610 --> 02:16:23.340
tables and rules of calculation for
their use set forth in § 20.2031-7 of the

02:16:23.340 --> 02:16:29.920
Federal Estate Tax Regulations (26 CFR
20.2031-7) or any similar present worth

02:16:29.920 --> 02:16:34.600
or life expectancy tables which may be
adopted by the Internal Revenue Service.

02:16:35.300 --> 02:16:39.790
Political subdivision includes any
subdivision of a public unit, as defined

02:16:39.790 --> 02:16:44.370
in paragraph (c) of this section, or any
principal department of such public unit,

02:16:45.130 --> 02:16:48.800
(1)	The creation of which subdivision
or department has been expressly

02:16:48.800 --> 02:16:50.530
authorized by state statute;

02:16:51.335 --> 02:16:55.565
(2)	To which some functions of government
have been delegated by state statute; and

02:16:56.330 --> 02:16:59.580
(3)	To which funds have been
allocated by statute or ordinance

02:16:59.580 --> 02:17:01.560
for its exclusive use and control.

02:17:02.230 --> 02:17:07.110
It also includes drainage, irrigation,
navigation improvement, levee, sanitary,

02:17:07.160 --> 02:17:11.370
school or power districts and bridge
or port authorities, and other special

02:17:11.370 --> 02:17:15.070
districts created by state statute
or compacts between the states.

02:17:15.670 --> 02:17:20.120
Excluded from the term are subordinate
or nonautonomous divisions, agencies,

02:17:20.220 --> 02:17:22.300
or boards within principal departments.

02:17:23.015 --> 02:17:26.975
Public unit means the United States,
any state of the United States, the

02:17:26.975 --> 02:17:31.705
District of Columbia, the Commonwealth
of Puerto Rico, the Panama Canal Zone,

02:17:31.835 --> 02:17:36.545
any territory or possession of the United
States, any county, municipality, or

02:17:36.545 --> 02:17:41.345
political subdivision thereof, or any
Indian tribe as defined in section 3(c)

02:17:41.345 --> 02:17:44.085
of the Indian Financing Act of 1974.

02:17:44.828 --> 02:17:48.118
Standard maximum share insurance
amount referred to as the

02:17:48.118 --> 02:17:49.838
“SMSIA” hereafter, means

02:17:50.628 --> 02:17:55.018
$250,000 adjusted pursuant to
subparagraph (F) of section

02:17:55.018 --> 02:17:57.038
11(a)(1) of the Federal Deposit

02:17:57.838 --> 02:17:59.758
Insurance Act (12 U.S.C.

02:17:59.758 --> 02:18:00.788
1821(a)(1)(F)).

02:18:01.683 --> 02:18:02.193
5.

02:18:02.923 --> 02:18:06.953
Effective [INSERT DATE 30 DAYS AFTER
DATE OF PUBLICATION IN THE FEDERAL

02:18:07.673 --> 02:18:14.373
REGISTER], amend § 745.2 by revising
paragraph (c)(2) to read as follows:

02:18:15.042 --> 02:18:21.142
§ 745.2  General principles applicable
in determining insurance of accounts.

02:18:24.781 --> 02:18:25.131
*	*	*	*	*

(c)

02:18:27.742 --> 02:18:31.722
*	*	*

(2) If the account records of an insured
credit union disclose the existence

02:18:31.722 --> 02:18:35.832
of a relationship which may provide
a basis for additional insurance, the

02:18:35.832 --> 02:18:39.422
details of the relationship and the
interest of other parties in the account

02:18:39.422 --> 02:18:42.972
must be ascertainable either from the
records of the credit union or the

02:18:42.972 --> 02:18:47.022
records of the member, maintained in
good faith and in the regular course of

02:18:47.022 --> 02:18:51.522
business by the member or by some person
who or entity that has undertaken to

02:18:51.522 --> 02:18:53.532
maintain such records for the member.

02:18:54.296 --> 02:18:57.746
*	*	*	*	*



6.

02:18:58.456 --> 02:19:01.446
Amend § 745.2 by:

02:19:02.249 --> 02:19:02.559
a.

02:19:03.129 --> 02:19:04.559
Revising paragraph (a);

02:19:05.277 --> 02:19:05.607
b.

02:19:06.107 --> 02:19:07.757
Removing paragraph (c)(3);

02:19:08.456 --> 02:19:08.916
c.

02:19:09.426 --> 02:19:12.436
Redesignating paragraph
(c)(4) as paragraph (c)(3);

02:19:13.210 --> 02:19:13.540
d.

02:19:13.950 --> 02:19:15.800
Removing paragraph (d); and

02:19:16.462 --> 02:19:16.642
e.

02:19:17.202 --> 02:19:20.902
Redesignating paragraphs (e) and
(f) as paragraphs (d) and (e).

02:19:21.582 --> 02:19:23.272
The revision reads as follows:

02:19:23.921 --> 02:19:29.981
§ 745.2  General principles applicable
in determining insurance of accounts.

02:19:30.690 --> 02:19:31.310
(a) General.

02:19:31.980 --> 02:19:34.880
This part provides for determination
by the Board of the amount

02:19:34.880 --> 02:19:36.340
of members’ insured accounts.

02:19:37.130 --> 02:19:40.600
The rules for determining the insurance
coverage of accounts maintained by

02:19:40.600 --> 02:19:44.300
members in the same or different rights
and capacities in the same insured

02:19:44.300 --> 02:19:48.010
credit union are set forth in the
following provisions of this part.

02:19:48.680 --> 02:19:50.790
While the provisions
of this part govern in

02:19:51.422 --> 02:19:55.882
determining share insurance coverage, to
the extent local law enters into a share

02:19:55.882 --> 02:20:00.222
insurance determination, the local law
of the jurisdiction in which the insured

02:20:00.222 --> 02:20:04.822
credit union’s principal office is located
will control over the local law of other

02:20:04.822 --> 02:20:09.422
jurisdictions where the insured credit
union has offices or service facilities.

02:20:10.199 --> 02:20:13.619
*	*	*	*	*





7.

02:20:14.209 --> 02:20:18.219
Effective [INSERT DATE 30 DAYS AFTER
DATE OF PUBLICATION IN THE FEDERAL

02:20:18.926 --> 02:20:25.746
REGISTER], amend § 745.3 by revising
paragraph (a)(3) to read as follows:

02:20:26.409 --> 02:20:30.409
§ 745.3  Single ownership accounts.

02:20:32.725 --> 02:20:32.875
(a)

02:20:33.847 --> 02:20:35.597
*	*	*

(3) Mortgage servicing accounts.

02:20:36.157 --> 02:20:39.957
Accounts maintained by a mortgage
servicer, in a custodial or other

02:20:39.957 --> 02:20:44.647
fiduciary capacity, which are comprised of
payments of principal and interest, shall

02:20:44.647 --> 02:20:48.947
be insured for the cumulative balance
paid into the account by mortgagors, or

02:20:48.947 --> 02:20:53.827
in order to satisfy mortgagors’ principal
or interest obligations to the lender, up

02:20:53.827 --> 02:20:55.967
to the limit of the SMSIA per mortgagor.

02:20:56.507 --> 02:21:00.347
Accounts maintained by a mortgage
servicer, in a custodial or other

02:21:00.347 --> 02:21:04.727
fiduciary capacity, which are comprised
of payments by mortgagors of taxes

02:21:04.727 --> 02:21:08.457
and insurance premiums shall be added
together and insured in accordance

02:21:08.457 --> 02:21:11.767
with paragraph (a)(2) of this
section for the ownership interest

02:21:11.767 --> 02:21:13.567
of each mortgagor in such accounts.

02:21:14.276 --> 02:21:17.626
*	*	*	*	*


8.

02:21:18.226 --> 02:21:22.166
Revise § 745.4 to read as follows:

02:21:22.852 --> 02:21:26.202
§ 745.4  Trust accounts.

02:21:26.883 --> 02:21:28.323
(a)	Scope and definitions.

02:21:29.053 --> 02:21:32.853
This section governs coverage for
funds held in connection with informal

02:21:32.853 --> 02:21:37.493
revocable trusts, formal revocable
trusts, and irrevocable trusts.

02:21:38.283 --> 02:21:39.903
For the purposes of this section:

02:21:40.735 --> 02:21:45.155
(1)	Informal revocable trust means a
trust under which deposited funds pass

02:21:45.155 --> 02:21:49.085
directly to one or more beneficiaries
upon the owner’s death without a written

02:21:49.085 --> 02:21:53.675
trust agreement, commonly referred to as
a payable-on-death account, in-trust-for

02:21:53.675 --> 02:21:55.475
account, or Totten trust account.

02:21:56.237 --> 02:22:00.307
(2)	Formal revocable trust means
a revocable trust established by a

02:22:00.307 --> 02:22:04.237
written trust agreement under which
deposited funds pass to one or more

02:22:04.237 --> 02:22:06.477
beneficiaries upon the grantor’s death.

02:22:07.151 --> 02:22:12.031
(3)	Irrevocable trust means an irrevocable
trust established by statute or a written

02:22:12.031 --> 02:22:16.151
trust agreement, except as described
in paragraph (e) of this section.

02:22:16.855 --> 02:22:19.875
(b)	Calculation of coverage
— (1) General calculation.

02:22:20.365 --> 02:22:24.505
Deposited trust funds are insured in
an amount up to the SMSIA multiplied

02:22:24.505 --> 02:22:28.715
by the total number of beneficiaries
identified by each grantor, up to

02:22:28.715 --> 02:22:30.755
a maximum of five beneficiaries.

02:22:31.400 --> 02:22:34.150
(2)	Aggregation for
purposes of insurance limit.

02:22:34.850 --> 02:22:38.860
Deposited trust funds that pass from
the same grantor to beneficiaries are

02:22:38.860 --> 02:22:43.560
aggregated for the purposes of determining
coverage under this section, regardless of

02:22:43.560 --> 02:22:48.360
whether those funds are held in connection
with an informal revocable trust, formal

02:22:48.360 --> 02:22:51.060
revocable trust, or irrevocable trust.

02:22:51.841 --> 02:22:53.631
(3)	Separate insurance coverage.

02:22:54.191 --> 02:22:57.801
The share insurance coverage provided
under this section is separate from

02:22:57.801 --> 02:23:01.991
coverage provided for other funds at
the same federally insured credit union.

02:23:02.758 --> 02:23:04.668
(4)	Equal allocation presumed.

02:23:05.298 --> 02:23:09.208
Unless otherwise specified in the account
records of the federally insured credit

02:23:09.208 --> 02:23:13.878
union, deposited funds held in connection
with a trust established by multiple

02:23:13.908 --> 02:23:18.438
grantors are presumed to have been owned
or funded by the grantors in equal shares.

02:23:19.151 --> 02:23:20.721
(c)	Number of beneficiaries.

02:23:21.371 --> 02:23:24.781
The total number of beneficiaries
for trust funds deposited under

02:23:24.781 --> 02:23:28.111
paragraph (b) of this section
will be determined as follows:

02:23:28.825 --> 02:23:30.525
(1)	Eligible beneficiaries.

02:23:30.975 --> 02:23:34.705
Subject to paragraph (c)(2) of
this section, beneficiaries include

02:23:34.705 --> 02:23:39.065
natural persons, as well as charitable
organizations and other non-profit

02:23:39.065 --> 02:23:44.385
entities recognized as such under the
Internal Revenue Code of 1986, as amended.

02:23:45.159 --> 02:23:46.809
(2)	Ineligible beneficiaries.

02:23:47.399 --> 02:23:49.019
Beneficiaries do not include:

02:23:49.813 --> 02:23:51.593
(i)	The grantor of a trust; or

02:23:52.785 --> 02:23:55.995
(ii)	A person or entity that would
only obtain an interest in the

02:23:55.995 --> 02:23:59.975
deposited funds if one or more
named beneficiaries are deceased.

02:24:00.778 --> 02:24:03.198
(3)	Future trust(s)
named as beneficiaries.

02:24:03.848 --> 02:24:07.318
If a trust agreement provides that
trust funds will pass into one or

02:24:07.318 --> 02:24:11.058
more new trusts upon the death of
the grantor(s) (“future trusts”), the

02:24:11.058 --> 02:24:15.358
future trust(s) are not treated as
beneficiaries of the trust; rather, the

02:24:15.358 --> 02:24:19.628
future trust(s) are viewed as mechanisms
for distributing trust funds, and the

02:24:19.628 --> 02:24:23.538
beneficiaries are the natural persons
or organizations that shall receive the

02:24:23.538 --> 02:24:25.598
trust funds through the future trusts.

02:24:26.336 --> 02:24:29.756
(4)	Informal trust account
payable to member’s formal trust.

02:24:30.266 --> 02:24:34.636
If an informal revocable trust designates
the account owner’s formal trust as

02:24:34.636 --> 02:24:39.006
its beneficiary, the informal revocable
trust account will be treated as if

02:24:39.006 --> 02:24:41.096
titled in the name of the formal trust.

02:24:41.844 --> 02:24:44.744
(d)	Account records — (1)
Informal revocable trusts.

02:24:45.404 --> 02:24:49.274
The beneficiaries of an informal
revocable trust must be specifically

02:24:49.274 --> 02:24:52.664
named in the account records of
the federally insured credit union.

02:24:53.406 --> 02:24:55.186
(2) Formal revocable trusts.

02:24:55.826 --> 02:24:59.626
The title of a formal trust account
must include terminology sufficient to

02:24:59.626 --> 02:25:04.576
identify the account as a trust account,
such as “family trust” or “living trust,”

02:25:04.816 --> 02:25:08.836
or must otherwise be identified as a
testamentary trust in the account records

02:25:08.836 --> 02:25:10.846
of the federally insured credit union.

02:25:11.596 --> 02:25:15.626
If eligible beneficiaries of such
formal revocable trust are specifically

02:25:15.626 --> 02:25:19.036
named in the account records of
the federally insured credit union,

02:25:19.346 --> 02:25:22.656
the N C U A shall presume the
continued validity of the named

02:25:22.656 --> 02:25:24.576
beneficiaries’ interest in the trust.

02:25:25.301 --> 02:25:28.961
(e)	Deposited funds excluded from
coverage under this section — (1)

02:25:28.961 --> 02:25:30.721
Revocable trust co-owners

02:25:31.452 --> 02:25:33.572
that are sole beneficiaries of a trust.

02:25:34.202 --> 02:25:37.762
If the co-owners of an informal
or formal revocable trust

02:25:38.510 --> 02:25:42.310
are the trust’s sole beneficiaries,
deposited funds held in connection

02:25:42.310 --> 02:25:47.610
with the trust are treated as joint
ownership funds under § 745.8.

02:25:48.422 --> 02:25:50.522
(2) Employee benefit plan deposits.

02:25:51.182 --> 02:25:55.272
Deposited funds of employee benefit
plans, even if held in connection

02:25:55.272 --> 02:26:01.342
with a trust, are treated as employee
benefit plan funds under § 745.9.

02:26:02.029 --> 02:26:05.279
§ 745.9-1 [Removed]

02:26:05.974 --> 02:26:06.424
9.

02:26:07.204 --> 02:26:10.254
Remove § 745.9-1.

02:26:10.968 --> 02:26:17.548
§ 745.9-2 [Redesignated as § 745.9]

02:26:18.261 --> 02:26:18.661
10.

02:26:19.281 --> 02:26:25.321
Redesignate § 745.9-2 as § 745.9.

02:26:26.053 --> 02:26:28.903
§ 745.9 [Amended]

02:26:29.664 --> 02:26:30.204
11.

02:26:30.904 --> 02:26:37.454
Amend newly designated § 745.9 in
paragraph (a) by removing the phrase “, in

02:26:37.454 --> 02:26:41.124
accordance with § 745.2 of this part”.

02:26:41.929 --> 02:26:45.129
§ 745.13 [Amended]

02:26:45.890 --> 02:26:46.310
12.

02:26:47.190 --> 02:26:52.490
Amend § 745.13 by removing
the words “the appendix”.

02:26:53.191 --> 02:26:53.721
13.

02:26:54.421 --> 02:26:58.071
Effective [INSERT DATE 30 DAYS
AFTER DATE OF PUBLICATION IN THE

02:26:58.851 --> 02:27:04.531
FEDERAL REGISTER], amend
§ 745.14 by revising paragraph

02:27:04.531 --> 02:27:06.121
(a)(2) to read as follows:

02:27:06.743 --> 02:27:13.403
§ 745.14  Interest on lawyers trust accounts
and other similar escrow accounts.

02:27:14.069 --> 02:27:14.219
(a)

02:27:16.790 --> 02:27:20.370
*	*	*
(2) Pass-through coverage will only
be available if the recordkeeping

02:27:20.370 --> 02:27:26.100
requirements of § 745.2(c)(1) of this
part and the relationship disclosure

02:27:26.100 --> 02:27:31.130
requirements of § 745.2(c)(2)
of this part are satisfied.

02:27:31.790 --> 02:27:34.550
In the event those requirements
are satisfied, funds

02:27:34.550 --> 02:27:36.420
attributable to each client and

02:27:37.239 --> 02:27:40.329
principal will be insured on a
pass-through basis in whatever

02:27:40.329 --> 02:27:43.649
right and capacity the client
or principal owns the funds.

02:27:44.029 --> 02:27:48.569
For example, an IOLTA or other similar
escrow account must be titled as such,

02:27:48.879 --> 02:27:52.859
and the underlying account records of the
insured credit union must sufficiently

02:27:52.859 --> 02:27:57.219
indicate the existence of the relationship
on which a claim for insurance is founded.

02:27:57.689 --> 02:28:01.209
The details of the relationship
between the attorney or escrow agent

02:28:01.269 --> 02:28:04.589
and their clients and principals must
be ascertainable from the records

02:28:04.589 --> 02:28:08.799
of the insured credit union or from
records maintained, in good faith and

02:28:08.799 --> 02:28:12.379
in the regular course of business,
by the attorney or the escrow agent

02:28:12.379 --> 02:28:16.159
administering the account, or by
some person who or entity that has

02:28:16.159 --> 02:28:20.019
undertaken to maintain such records
for the attorney or escrow agent.

02:28:20.639 --> 02:28:24.709
The N C U A will determine, in its
sole discretion, the sufficiency

02:28:24.709 --> 02:28:28.139
of these records for an IOLTA
or other similar escrow account.

02:28:28.857 --> 02:28:32.827
This concludes the N C U A Letter
to credit unions on Simplification

02:28:32.827 --> 02:28:34.277
of Share Insurance Rules

02:28:34.940 --> 02:28:39.220
If your Credit union could use assistance
with your exam, reach out to Mark Treichel

02:28:39.220 --> 02:28:41.880
on LinkedIn, or at mark Treichel dot com.

02:28:42.410 --> 02:28:45.060
This is Samantha Shares and
we Thank you for listening.