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This episode covers N C U Aâs Simplification of Share Insurance Rules
The following is an audio version of that RULE.
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And now the RULE.
NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Part 745
[N C U A-2023-0082] RIN 3133-AF53
Simplification of Share Insurance Rules
AGENCY: National Credit Union Administration (N C U A).
ACTION: Final rule.
SUMMARY: The N C U A Board (Board) is amending its regulations
governing share insurance coverage.
The final rule simplifies the share insurance regulations by establishing
a âtrust accountsâ category that will provide for coverage of funds of both
revocable trusts and irrevocable trusts deposited at federally insured credit
unions (F I C Us), provides consistent share insurance treatment for all
mortgage servicing account balances held to satisfy principal and interest
obligations to a lender, and increases flexibility for the N C U A to consider
various records in determining share insurance coverage in liquidations.
The changes also increase consistency between the FDICâs federal
deposit insurance rules and the N C U Aâs share insurance rules.
DATES: This rule is effective on December 1, 2026, except for the amendments
to 12 CFR 745.2(c)(2) (instruction 5), 745.3 (instruction 7), and 745.14
(instruction 13), which are effective [INSERT DATE 30 DAYS AFTER DATE OF
PUBLICATION IN THE FEDERAL REGISTER].
FOR FURTHER INFORMATION CONTACT: Office of General Counsel: Thomas Zells and
Rachel Ackmann, Senior Staff Attorneys; or Robert Leonard, Compliance Officer
at (703) 518-6540 or by mail at National Credit Union Administration,
1775 Duke Street, Alexandria,
Virginia 22314.
Office of Credit Union Resources and Expansion (CURE): Paul Dibble,
Consumer Access Program Officer; or Rita Woods, Director of Consumer Access at
(703) 518- 1150 or by mail at National Credit Union Administration, 1775 Duke
Street, Alexandria, Virginia 22314.
I.
General Background and Legal Authority
A.
General Background
The N C U A is an independent federal agency that insures funds maintained
in accounts of members or those otherwise eligible to maintain insured
accounts (member accounts) at F I C Us, protects the members who own F
I C Us, and charters and regulates federal credit unions (F C Us).
The N C U A protects the safety and soundness of the credit union system by
identifying, monitoring, and reducing risks to the National Credit Union Share
Insurance Fund (Share Insurance Fund).
Backed by the full faith and credit of the United States, the Share
Insurance Fund provides federal share insurance to account holders
in all F C Us and the majority of state- chartered credit unions.
B.
Legal Authority
The Board has issued this final rule pursuant to its
authority under the F C U Act.
Under the Federal Credit Union Act (F C U Act), in the event of a F I C Uâs
failure the N C U A is responsible for paying share insurance to any member, or
to any person with funds lawfully held
in a member account,1 up to the standard maximum share insurance amount (SMSIA),
which is currently set at $250,000.2 The F C U Act provides that the N C U A
Board must determine the amount payable consistently with actions taken by the
FDIC under its deposit insurance rules.3 The F C U Act also grants the N C U A
express authority to issue regulations on the determination of the net amount
of share insurance paid.4 The F C U Act further provides that âin determining
the amount payable to any member, there shall be added together all accounts
in the credit union maintained by that member for that memberâs own benefit,
either in the memberâs own name or in the names of others.â5 However, the F C U Act
also specifically authorizes the Board to âdefine, with such classifications
and exceptions as it may prescribe, the extent of the share insurance coverage
provided for member accounts, including member accounts in the name of a
minor, in trust, or in joint tenancy.â6
The N C U A has implemented these requirements by issuing regulations
recognizing particular categories of accounts, such as single ownership
accounts, joint ownership accounts, revocable trust accounts, and irrevocable
trust accounts.7 If an account meets the requirements for a particular
category, the account is insured, up to the $250,000 limit, separately from
shares held by the member in a different account category at the same F I C U.
For example, provided all requirements are met, shares in the single
ownership category will be separately insured from shares in the joint
ownership category held by the same member at the same F I C U.
The N C U Aâs share insurance categories have been defined
through both statute and regulation.
Certain categories, such as the accounts held by government depositors8 and certain
1See 12 U.S.C.
1752(5).
2 12 U.S.C.
1787(k)(1)(A), (k)(6).
3 12 U.S.C.
1787(k)(1)(A).
4 12 U.S.C.
1787(k)(1)(B).
The F C U Act states that â[d]etermination of the net amount of share insurance
. . . âshall be in accordance with such regulations as the Board may prescribe.â
5 12 U.S.C.
1787(k)(1)(B).
6 12 U.S.C.
1787(k)(1)(C).
7 12 CFR part 745.
8 See 12 U.S.C.
1787(k)(2).
retirement accounts, including individual retirement accounts, have been expressly
defined by Congress.9 Other categories, such as joint accounts10 and corporate
accounts,11 have been based on statutory interpretation; these accounts have
been recognized through regulations issued in 12 CFR part 745 pursuant to
the N C U Aâs rulemaking authority.
In addition to defining the insurance categories, the share insurance
regulations in part 745 provide the criteria used to determine insurance
coverage for shares in each category.
Notably, the F C U Act also defines the term âmember account.â The N C U
A insures member accounts at all F I C Us.12 Importantly, this term is not
limited to those persons enumerated in the credit unionâs field of
membership who have become members.
It also includes as member accounts certain nonmembers, such as other
nonmember credit unions; nonmember public units and political subdivisions; and,
in the case of credit unions serving predominantly low-income members,
deposits of nonmembers generally.
In other words, the N C U A provides share insurance coverage to members
and those otherwise eligible to maintain insured accounts at F I C Us.
Finally, in addition to specific authority to draft share insurance regulations
under Â§ 1787 of the F C U Act, the N C U A also has general rulemaking authority.
Under the F C U Act, the N C U A is the chartering and supervisory authority for F
C Us and the federal supervisory authority for F I C Us.13 The F C U Act grants the N
C U A a broad mandate to issue regulations governing both F C Us and F I C Us.
Section 120 of the F C U Act is a general grant of regulatory authority, and it
authorizes the Board to prescribe rules and regulations for the administration
of the F C U Act.14 Section 207 of the F C U Act is a specific grant of
authority over share insurance coverage,
9 See 12 U.S.C.
1787(k)(3).
10 12 CFR 745.8.
11 12 CFR 745.6.
12 12 U.S.C.
1752(5).
13 12 U.S.C.
1751 et seq.
14 12 U.S.C.
1766(a).
conservatorships, and liquidations.15 Section 209 of the F C U Act is a plenary
grant of regulatory authority to the N C U A to issue rules and regulations
necessary or appropriate to carry out its role as share insurer for all F I C Us.16
Accordingly, the F C U Act grants the Board broad rulemaking authority to ensure
the credit union industry and the Share Insurance Fund remain safe and sound.
II.
Simplification of Share Insurance Trust Rules
A.
Notice of Proposed Rulemaking
At its October 19, 2023, meeting, the Board issued a proposed rule to
simplify the regulations governing share insurance coverage (proposed rule).17
The proposed rule primarily sought to simply share insurance coverage rules
and increase consistency with changes adopted by the FDIC in January 2022.
The Boardâs overall objective was to facilitate the prompt
payment of share insurance in accordance with the F C U Act.
As discussed in more detail later in this preamble, the Board is finalizing
the proposed changes to the share insurance regulations as proposed.
B.
Policy Objectives
The Board is amending its regulations governing share insurance coverage for
funds held in member accounts at F I C Us in connection with trusts.18 Like
the proposed rule, the amendments of the final rule are primarily intended to do
the following: (1) provide a rule for trust account coverage that is easier
to understand and apply; (2) provide parity with changes the FDIC adopted in
January 2022;19 and (3) facilitate the prompt payment of share insurance in
15 12 U.S.C.
1787.
16 12 U.S.C.
1789(a)(11).
17 88 FR 73249 (Oct.
25, 2023).
18 Trusts include informal revocable trusts (commonly referred to as
payable-on-death accounts, in-trust-for accounts, or Totten trusts), formal
revocable trusts, and irrevocable trusts.
19 87 FR 4455 (Jan.
28, 2022).
accordance with the F C U Act.
Accomplishing these objectives will further the N C U Aâs mission in
other respects, as discussed in greater detail later in this preamble.
Clarifying Insurance Coverage for Trust Accounts
The share insurance trust rules have evolved over time, and they can be difF
I C Ult to apply in some circumstances.
The amendments are intended to clarify the insurance rules and trust-
account limits for F I C Us, their employees, their accountholders,
and other interested parties.
The amendments reduce the number of rules governing coverage for trust accounts,
and they establish a straightforward calculation to determine coverage.
The amendments are also intended to alleviate some of the confusion that
F I C Us, their employees, and their accountholders may experience with
respect to insurance coverage and limits.
Under the regulations currently in effect (current rules), there are
distinct and separate sets of rules applicable to shares of revocable
trusts as opposed to irrevocable trusts.
Each set of rules has its own criteria for coverage and methods
by which coverage is calculated.
Despite the N C U Aâs efforts to simplify the revocable trust rules in 2008, the
consistently high volume of complex inquiries about trust accounts over
an extended period suggests continued confusion about insurance limits.20
N C U A share insurance specialists have answered over 17,000 calls with
questions since the fourth quarter of 2019.21 The N C U A estimates that over
50 percent of these inquiries, which do not include those received through email,
submitted through mycreditunion.gov, or directed to N C U A staff responsible
for credit union liquidations, pertain to share insurance coverage for trust
accounts (revocable or irrevocable).
Additionally,
20 73 FR 60616 (Oct.
14, 2008).
21 The N C U Aâs Office of Credit Union Resources and Expansion,
which fields most share insurance inquiries, only began tracking
calls received on October 31, 2019.
The high volume of trust-related inquires predates this tracking.
comments received in response to the proposal also support the
notion that there continues to be confusion regarding share insurance
coverage of trust accounts.
To better clarify insurance limits, the amendments will further simplify
insurance coverage of trust accounts (revocable and irrevocable) by harmonizing
the coverage criteria for revocable and irrevocable trust accounts and by
establishing a simplified formula for calculating coverage that would apply
to these funds deposited at F I C Us.
The final rule uses the calculation the N C U A first adopted in
2008 for revocable trust accounts with five or fewer beneficiaries.
This formula is straightforward and familiar to F I C Us and their
members.22 The amendments will also eliminate formulas in the current
rules for revocable trust accounts with more than five beneficiaries
and irrevocable trust accounts.
Parity
Adoption of the final rule will also align with changes the FDIC adopted in
January 2022, which took effect on April 1, 2024.23 As the Board stressed in the
proposed rule, as well as in the 2021 final rule addressing the share insurance
coverage of joint ownership accounts, the Board believes it is important to
maintain parity, to the extent possible, between the nationâs two federal deposit
and share insurance programs, which are backed by the full faith and credit
of the United States.24 The Board believes it is important that members
of the public who use trust accounts receive the same protection whether the
accounts are maintained at F I C Us or other federally insured institutions.
Consistency between the FDICâs federal deposit insurance rules and the N C U
Aâs share insurance rules promotes public confidence in the safety of funds at
22 In 2008, the N C U A adopted an insurance calculation for revocable trusts
that have five or fewer beneficiaries.
Under this rule, 12 CFR 745.4(a), each trust grantor is insured
up to $250,000 per beneficiary.
23 87 FR 4455 (Jan.
28, 2022).
24 86 FR 11098 (Feb.
24, 2021).
depository institutions regardless of whether the institution is an
insured bank or insured credit union.
Prompt Payment of Share Insurance
The F C U Act requires the N C U A to pay accountholders âas soon as
possibleâ after a F I C U liquidation.25 However, the insurance determination
and subsequent payment for many trust accounts can be delayed when N C U
A staff must review complex trust agreements and apply various rules for
determining share insurance coverage.
The final ruleâs amendments are intended to facilitate more timely share insurance
determinations for trust accounts by reducing the time needed to review
trust agreements and determine coverage.
These amendments should promote the N C U Aâs ability to pay insurance
proceeds to accountholders more quickly following the liquidation of a F I
C U, enabling accountholders to meet their financial needs and obligations.
Facilitating Liquidations
The final ruleâs amendments will also facilitate the
liquidation of failed F I C Us.
The N C U A is routinely required to make share insurance determinations in
connection with F I C U liquidations.
In many of these instances, however, share insurance coverage for
certain trust accounts is based upon information that is not maintained
in the F I C Uâs account records.
As a result, N C U A staff work with accountholders to obtain
trust documentation following a F I C Uâs liquidation to complete
share insurance determinations.
The difF I C Ulties associated with completing such a determination
are exacerbated by the substantial growth in the use of formal
trusts in recent decades.
These amendments could reduce the time spent reviewing such
25 12 U.S.C.
1787(d)(1).
information, thereby reducing potential delays in the completion of share
insurance determinations and payments.
C.
Background and Need for Rulemaking
1.
Evolution of Insurance Coverage of Funds Held in Trust Accounts
The N C U A first adopted regulations governing share insurance coverage in
1971.26 Over the years, share insurance coverage has evolved to reflect
both the N C U Aâs experience and changes in the credit union industry
as well as statutory amendments.27
While the regulations addressing irrevocable trusts have undergone
minimal change, the regulations addressing revocable trusts have
seen numerous changes, largely aimed at providing increased
flexibility and simplifying coverage.
Notably, in 2004 the N C U A amended the revocable trust rules, pointing to
continued confusion about the coverage for revocable trust deposits and the need for
parity with then recent FDIC amendments.28 Specifically, the N C U A eliminated
the defeating contingency provisions of the rules, with the result that coverage
would be based on the interests of qualifying beneficiaries, irrespective of
any defeating contingencies in the trust agreement.29 This more closely aligned
coverage for formal revocable trust accounts with payable-on-death accounts.
Importantly, and of relevance to this final rule, defeating contingency
provisions were not eliminated for irrevocable trusts, and these provisions
remain relevant for calculating share insurance coverage under the current
26 36 FR 2477 (Feb.
5, 1971).
27 See, 71 FR 56001 (Sept.
26, 2006)(implementing statutory changes in the Federal Deposit
Insurance Reform Act of 2005) and 80 FR 27109 (May 12, 2015)(implementing
statutory changes in the Credit Union Share Insurance Fund Parity Act).
28 69 FR 8798 (Feb.
26, 2004).
29 Prior to the changes adopted in 2004, if the interest of a qualifying
beneficiary in an account established under the terms of a living trust
agreement was contingent upon fulfillment of a specified condition,
referred to as a defeating contingency, separate insurance was not available
for that beneficial interest.
Instead, the beneficial interest would be added to any individual
account(s) of the grantor and insured up to the SMSIA, then $100,000.
An example of a defeating contingency is where an account owner names his
son as a beneficiary but specifies in the living trust document that his
sonâs ability to receive any share of the trust funds is dependent upon
him successfully completing college.
irrevocable trust provisions.30 At the same time, the N C U A eliminated the
requirement to name the beneficiaries of a formal revocable trust in the
F I C Uâs account records.31 The N C U A recognized a grantor may
elect to change the beneficiaries or the beneficiariesâ interests at any
time before the grantorâs death, and requiring a F I C U to maintain a current
record of this information would be impractical and unnecessarily burdensome.
More recently, the N C U Aâs experience and adoption of similar revisions by
the FDIC suggested further changes to the trust rules were necessary.
In 2008, the N C U A simplified the rules in several respects.32 First,
it eliminated the kinship requirement for revocable trust beneficiaries,
instead allowing any natural person, charitable organization, or nonprofit
to qualify for per-beneficiary coverage.
Second, a simplified calculation was established if a revocable trust named
five or fewer beneficiaries; in which case, coverage would be determined
without regard to the allocation of interests among the beneficiaries.
This simplification eliminated the need to discern and consider
beneficial interests in many cases.
A different insurance calculation applied to revocable trusts with
more than five beneficiaries.
At that time, the SMSIA was $100,000; thus, if more than five beneficiaries
were named in a revocable trust, coverage would be the greater of: (1) $500,000;
or (2) the aggregate amount of all beneficiariesâ interests in the trust(s),
limited to $100,000 per beneficiary.
When the SMSIA was increased to $250,000, a similar adjustment
was made from $100,000 to
$250,000 for the calculation of per-beneficiary coverage.
2.
Current Rules for Coverage of Funds Held in Trust Accounts
30 12 CFR 745.2(d).
31 69 FR 8798, 8799 (Feb.
26, 2004).
32 73 FR 60616 (Oct.
14, 2008).
The N C U Aâs current rules recognize two different insurance categories
for funds held in connection with trusts at F I C Us: (1) revocable
trusts and (2) irrevocable trusts.
The current rules for determining insurance coverage for shares in each
of these categories are described below.
Additionally, share insurance coverage is always limited to F I C U members
and those otherwise eligible to maintain insured accounts at the F I C U.
The N C U Aâs longstanding position has been that, for revocable trust accounts,
all grantors (sometimes described as settlors) of the trust must be members
of the F I C U or otherwise eligible to maintain an insured account.33 For
irrevocable trust accounts, the N C U A has maintained the position that
either all grantors (or settlors) or all beneficiaries of the trust must
be members of the F I C U or otherwise eligible to maintain an insured account.34
As described in greater detail in section II.E., in the 2023
proposal, the N C U A requested commentersâ feedback as to whether
these positions should be revisited.
This final rule will not alter these longstanding positions.
However, the N C U A will be continuing to evaluate commentersâ
feedback and whether further changes are possible and necessary.
Revocable Trust Accounts
The revocable trust category applies to funds for which the member has
evidenced an intention that the funds shall belong to one or more
beneficiaries upon the memberâs death.
This category includes funds held in connection with formal revocable trusts
â that is, revocable trusts established through a written trust agreement.
It also includes funds that are not subject to a formal trust agreement,
where the F I C U makes payment to the beneficiaries identified in the F I C Uâs
records upon the memberâs death, based on account titling and applicable state law.
The
33 See 12 CFR part 701, app.
A.
Art.
III, sec.
6 (âShares issued in a revocable trust â the settlor must be a member of this
credit union in his or her own right.â).
34 See 12 CFR part 701, app.
A.
Art.
III, sec.
6 (âShares issued in an irrevocable trust â either the settlor or the beneficiary
must be a member of this credit union.â).
N C U A refers to these types of accounts, including Totten trust accounts,
payable-on-death accounts, and similar accounts, as âinformal revocable trusts.â
Funds associated with formal and informal revocable trusts are aggregated for the
purposes of the share insurance rules; thus, funds that will pass from the same
grantor to beneficiaries are aggregated and insured up to the SMSIA, currently
$250,000, per beneficiary, regardless of whether the transfer would be
accomplished through a written revocable trust or an informal revocable trust.35
Under the current revocable trust rules, beneficiaries with insurable
interests are limited to natural persons, charitable organizations,
and non-profit entities recognized as such under the Internal Revenue Code
of 1986.36 If a named beneficiary does not satisfy this requirement, funds
held in trust for that beneficiary are treated as single ownership funds of
the grantor and aggregated with any other single ownership accounts the
grantor maintains at the same F I C U.37
Certain requirements also must be satisfied for an account to be insured
in the revocable trust category.
The required intention that the funds shall belong to the beneficiaries upon
the grantorâs death must either be manifested in the âtitleâ of the account
or elsewhere in the account records of the credit union (using commonly
accepted terms such as âin trust for,â âas trustee for,â âpayable-on-death to,â or
any acronym for these terms).38 For the purposes of this requirement, a F I C Uâs
electronic account records are included.
For example, a F I C Uâs electronic account records could identify the
account as a revocable trust account through coding or a similar mechanism.
In addition, the beneficiaries of informal trusts (that is, payable-on- death
accounts) must be named in the F I C Uâs account records.39 The requirement to name
beneficiaries in the F I C Uâs account records does not apply to formal revocable
trusts; the N C U A generally obtains information on beneficiaries of such
trusts from accountholders following a
35 12 CFR 745.4(a).
36 12 CFR 745.4(c).
37 12 CFR 745.4(d).
38 12 CFR 745.4(b).
39 Id.
F I C Uâs liquidation.
If a memberâs funds at a liquidated F I C U held in trust accounts exceed
the SMSIA, a hold will be placed on the portion of such funds in excess of
the SMSIA until the N C U A can fully review the memberâs trust agreement
and related documents to verify the beneficiary rules are satisfied.
Therefore, this process can result in delays to some insured
accountholdersâ insurance determinations and full insurance payments.
The calculation of share insurance coverage for revocable trust
accounts depends upon the number of unique beneficiaries named
by a member accountholder.
If five or fewer beneficiaries have been named, the member accountholder
is insured in an amount up to the total number of named beneficiaries multiplied
by the SMSIA, and the specific allocation of interests among the beneficiaries
is not considered.40 If more than five beneficiaries have been named, the
member accountholder is insured up to the greater of: (1) five times the
SMSIA; or (2) the total of the interests of each beneficiary, with each such
interest limited to the SMSIA.41 For the purposes of this calculation, a life
estate interest is valued at the SMSIA.42
Where a revocable trust account is jointly owned, the interests of each account
owner are separately insured up to the SMSIA per beneficiary.43 However, if the
co-owners are the only beneficiaries of the trust, the account is instead insured
under the N C U Aâs joint account rule.44
The current revocable trust rule also contains a provision that was intended
to reduce confusion and the potential for a decrease in share insurance coverage
in the case of the death of a grantor.
Specifically, if a revocable trust becomes irrevocable due to the death
of the grantor, the trust account may continue to be insured under the
revocable trust rules.45 Absent this
40 12 CFR 745.4(a).
41 12 CFR 745.4(e).
42 12 CFR 745.4(g).
For example, if a revocable trust provides a life estate for the member
accountholderâs spouse and remainder interests for six other beneficiaries,
the spouseâs life estate interest would be valued at the lesser of
$250,000 or the amount held in the trust for the purposes of
the share insurance calculation.
43 12 CFR 745.4(f)(1).
44 12 CFR 745.4(f)(2).
45 12 CFR 745.4(h).
provision, the irrevocable trust rules would apply following the grantorâs
death, as the revocable trust becomes irrevocable at that time, which could
result in a reduction in coverage.46
Irrevocable Trust Accounts
Accounts maintaining funds held by an irrevocable trust that has been
established either by written agreement or by statute are insured in the irrevocable
trust share insurance category.
Calculating coverage in this category requires a determination of whether
beneficiariesâ interests in the trust are contingent or non-contingent.47
Non-contingent interests are interests that may be determined without evaluation
of any contingencies, except for those covered by the present worth and life
expectancy tables and the rules for their use set forth in the Internal
Revenue Service (IRS) Federal Estate Tax Regulations.48 Funds held for
non-contingent trust interests are insured up to the SMSIA for each such
beneficiary.49 Funds held for contingent trust interests are aggregated and
insured up to the SMSIA in total.50
The irrevocable trust rules do not apply to funds held for a grantorâs
retained interest in an irrevocable trust.51 Such funds are aggregated
with the grantorâs other single ownership funds for the purposes of
applying the share insurance limit.
3.
Need for Further Rulemaking
46 The revocable trust rules tend to provide greater coverage
than the irrevocable trust rules because contingencies are not
considered for revocable trusts.
In addition, where five or fewer beneficiaries are named by a revocable
trust, specific allocations to beneficiaries also are not considered.
47 12 CFR 745.2(d) and 745.9-1.
48 12 CFR 745.2(d)(1).
For example, a life estate interest is generally non-contingent, as it may be
valued using the life expectancy tables.
However, where a trustee has discretion to divert funds from one beneficiary
to another to provide for the second beneficiaryâs medical needs, the first
beneficiaryâs interest is contingent upon the trusteeâs discretion.
49 12 CFR 745.9-1(b).
50 12 CFR 745.2(d)(2).
51 See 12 CFR 745.2(d)(4) (The term âtrust interestâ does not include any
interest retained by the settlor.).
As noted, the rules governing share insurance coverage for trust
accounts have been simplified and modified on several occasions.
However, these rules are still frequently misunderstood and can
present some implementation challenges.
The trust rules can require overly detailed, time-consuming,
and resource-intensive reviews of trust documentation to obtain
the information necessary to calculate share insurance coverage.
This information is often not found in a F I C Uâs records and must be obtained from
members after a F I C Uâs liquidation.
Revision of the share insurance coverage rules for trust accounts will reduce
the amount of information that must be provided for trust accounts, as well as
the complexity of the N C U Aâs review.
This revision should enable the N C U A to complete share insurance determinations
more rapidly if a F I C U with a large number of trust accounts is liquidated.
Delays in the payment of share insurance can be consequential for
accountholders, and the final rule will help to mitigate those delays.
Several factors contribute to the challenges of making
insurance determinations for trust accounts under the current rules.
First, there are two different sets of rules governing share insurance
coverage for trust accounts.
Understanding the coverage for a particular account requires a threshold
inquiry to determine which set of rules to apply â the revocable trust
rules or the irrevocable trust rules.
This requires review of the trust agreement to determine the type of
trust (revocable or irrevocable), and the inquiry may be complicated
by innovations in state trust law that are intended to increase the
flexibility and utility of trusts.
In some cases, this threshold inquiry is also complicated by the provision of the
revocable trust rules that allows for continued coverage under the revocable
trust rules where a trust becomes irrevocable upon the grantorâs death.
The result of an irrevocable trust deposit being insured under the revocable
trust rules has proven confusing for both accountholders and F I C Us.
Second, even after determining which set of rules applies to
a particular account, it may
be challenging to apply the current rules.
For example, the revocable trust rules include unique
titling requirements and beneficiary requirements.
These rules also provide for two separate calculations to determine
insurance coverage, depending in part upon whether there are
five or fewer trust beneficiaries or at least six beneficiaries.
In addition, for revocable trusts that provide benefits to multiple generations
of potential beneficiaries, the N C U A needs to evaluate the trust agreement
to determine whether a beneficiary is a primary beneficiary (immediately entitled
to funds when a grantor dies), contingent beneficiary, or remainder beneficiary.
Only eligible primary beneficiaries and remainder beneficiaries are
considered when calculating N C U A share insurance coverage.
The irrevocable trust rules may require detailed review of trust agreements to
determine whether beneficiariesâ interests are contingent and may also require
actuarial or present value calculations.
These types of requirements complicate the determination of insurance coverage
for trust deposits, have proven confusing for accountholders, and extend the time
needed to complete a share insurance determination and insurance payment.
Third, the complexity and variety of account holdersâ trust
arrangements adds to the difF I C Ulty of determining share insurance
coverage under the current rules.
For example, trust interests are sometimes defined through numerous
conditions and formulas, and a careful analysis of these provisions may be
necessary to calculate share insurance coverage under the current rules.
Arrangements involving multiple trusts where the same beneficiaries
are named by the same grantor(s) in different trusts add to the difF I
C Ulty of applying the trust rules.
The N C U A believes simplification of the share insurance rules presents
an opportunity to more closely align the coverage provided for
different types of trust funds.
For example, the current revocable trust rules generally provide
for a greater amount of coverage than the irrevocable trust rules.
This outcome occurs because contingent interests for irrevocable trusts
are aggregated and insured up to the SMSIA rather than up to the SMSIA
per beneficiary, while contingencies are not considered and therefore
do not limit coverage in the same manner for revocable trusts.
Finally, as previously noted, adoption of this final rule will align with
changes the FDIC adopted in January 2022, which took effect on April 1, 2024.
The Board believes it is important to maintain parity between the nationâs
two federal deposit and share insurance programs.52 It is imperative that
members of the public who use trust accounts for the transfer of ownership
of assets better understand the rules governing such accounts and receive
the same protection, whether the accounts are maintained at F I C Us or
other federally insured institutions.
D.
Final Rule
The final rule adopts the proposed changes to the trust account rules as proposed.
Specifically, the N C U A is amending the rules governing share
insurance coverage for funds held in trust accounts at F I C Us.
Generally, the amendments will do the following: (1) merge the revocable
and irrevocable trust categories into one category; (2) apply a simpler,
common calculation method to determine insurance coverage for funds held by
revocable and irrevocable trusts; and (3) eliminate certain requirements
found in the current rules for revocable and irrevocable trusts.
Merger of Revocable and Irrevocable Trust Categories
As discussed above, the N C U A historically has insured revocable
trust funds and irrevocable trust funds held at F I C Us under two
separate insurance categories.
The N C U Aâs experience has been this bifurcation often confuses F I C Usâ
staff and their members, as it requires a threshold inquiry to determine which
set of rules to apply to a trust account.
Moreover, all trust funds deposited at a F I C U must be categorized before
the aggregation of trust funds deposited within each category can be completed.
The N C U A believes funds held in
52 12 U.S.C.
1787(k)(1)(A).
connection with revocable and irrevocable trusts are sufficiently similar,
for the purposes of share insurance coverage, to warrant the merger of
these two categories into one category.
Under the N C U Aâs current rules, share insurance coverage is provided
because the trustee maintains the funds for the benefit of the beneficiaries.
This fact is true regardless of whether the trust is revocable or irrevocable.
Merging the revocable and irrevocable trust categories will better conform
share insurance coverage to the substance â rather than the legal
form â of the trust arrangement.
This underlying principle of the share insurance rules is particularly
important in the context of trusts, as state law often provides flexibility
to structure arrangements in different ways to accomplish a given purpose.53
F I C U members may have various reasons for selecting a particular
legal arrangement, but that decision should not significantly
affect share insurance coverage.
Importantly, the merger of the revocable trust and irrevocable trust
categories into one category for share insurance purposes will not affect
the application or operation of state trust law; it will only affect the
determination of share insurance coverage for these types of trust funds in
the event of a F I C Uâs liquidation.
Accordingly, the N C U A is amending Â§ 745.4 of its regulations, which
currently applies only to revocable trust accounts, to establish a
new âtrust accountsâ category that includes both revocable and irrevocable
trust funds deposited at a F I C U.
The final rule defines the funds that will be included in this category as
follows: (1) informal revocable trust funds, such as payable- on-death accounts,
in-trust-for accounts, and Totten trust accounts; (2) formal revocable
trust funds, defined to mean funds held pursuant to a written revocable trust
agreement under which funds pass to one or more beneficiaries upon the grantorâs
death; and (3) irrevocable trust funds,
53 For example, the N C U A currently aggregates funds in payable-on-death
accounts and funds of written revocable trusts for the purposes of share
insurance coverage, despite their separate and distinct legal mechanisms.
Also, where the co-owners of a revocable trust are also that trustâs sole
beneficiaries, the N C U A instead insures the trustâs funds as joint
funds, reflecting the arrangementâs substance rather than its legal form.
meaning funds held pursuant to an irrevocable trust established by
written agreement or by statute.
In addition, the merger of the revocable trust and irrevocable trust categories
eliminates the need for Â§ 745.4(h) through (i) of the current revocable trust
rules, which provide that the revocable trust rules may continue to apply to an
account where a formal revocable trust becomes irrevocable due to the death
of one or more of the trustâs grantors.
These provisions were intended to benefit accountholders, who sometimes were unaware
that a trust ownerâs death could trigger a significant decrease in insurance coverage
as a revocable trust becomes irrevocable.
However, in the N C U Aâs experience, this rule has proven complex in part because
it results in some irrevocable trusts being insured per the revocable trust
rules, while other irrevocable trusts are insured under the irrevocable trust
rules.54 As a result, an accountholder could know a trust was irrevocable but not
know which share insurance rules to apply.
The final rule will insure funds of formal and informal revocable trusts
and irrevocable trusts according to a common set of rules, eliminating the
need for these provisions (Â§ 745.4(h) through (i)) and simplifying
coverage for accountholders.
Accordingly, the death of a formal revocable trust owner will not
result in a decrease in share insurance coverage for the trust.
Coverage for irrevocable and formal revocable trusts will fall under the same
category and share insurance coverage will remain the same, even after the
expiration of the six-month grace period following the death of an account owner.55
54 As noted above, if a revocable trust becomes irrevocable due to the death of
the grantor, the account continues to be insured under the revocable trust rules.
12 CFR 745.4(h).
55 The death of an account owner can affect share insurance coverage,
often reducing the amount of coverage that applies to a familyâs accounts.
To ensure that families dealing with the death of a family member have
adequate time to review and restructure accounts if necessary, the N C U A
insures a deceased ownerâs accounts as if he/she/they were still alive for a period
of 6 months after his/her/their death.
12 CFR 745.2(e).
Informal revocable trust accounts will also be insured under this
same trust account category but are unlikely to result in the creation
of an irrevocable trust account upon an owner or co-ownerâs death.
As is the case under the existing share insurance regulations, when a co- owner
of an informal revocable trust account dies, share insurance coverage for
the deceased ownerâs interest in the account will cease after the expiration
of the six-month grace period allowed for the death of share account owners.
After the expiration of the six-month grace period, share insurance
coverage will be calculated as if the deceased co-owner did not
exist and the deceased co-ownerâs name did not remain on the account.
This treatment of the account will be based on the fact that all funds in
the account will be owned by one person (that is, the surviving co-owner).
Calculation of Coverage
As was proposed, the final rule uses one streamlined calculation
to determine the amount of share insurance coverage for funds of both
revocable and irrevocable trusts.
This method is already used by the N C U A to calculate coverage for
revocable trusts that have five or fewer beneficiaries, and it is an aspect
of the rules that is generally well understood by F I C Us and their members.
The final rule will provide that a grantorâs trust funds are insured
in an amount up to the SMSIA (currently $250,000) multiplied by
the number of trust beneficiaries, not to exceed five beneficiaries.
The N C U A will presume that, for share insurance purposes, the trust provides
for equal treatment of beneficiaries such that specific allocation of the funds
to the respective beneficiaries will not be relevant, consistent with the N
C U Aâs current treatment of revocable trusts with five or fewer beneficiaries.
This will, in effect, limit coverage for a grantorâs trust funds at each
F I C U to a total of $1,250,000; in other words, maximum coverage
will be equivalent to $250,000 per beneficiary for up to five beneficiaries.
In determining share insurance coverage, the N C U A will continue to consider
only beneficiaries who are expected to
receive the funds held by the trust in a member account at the F I C U; the N
C U A will not consider beneficiaries who are expected to receive only
non-deposit assets of the trust.
The N C U A is deciding to calculate coverage in this manner, in part, based
on its experience with the revocable trust rules after the modifications to
these rules in 2008.56 The N C U A has found the share insurance calculation
method for revocable trusts with five or fewer beneficiaries has been the most
straightforward and is easier for F I C Usâ staff and the public to understand.
This calculation provides for insurance in an amount up to the total number
of unique grantor-beneficiary trust relationships (that is, the number
of grantors, multiplied by the total number of beneficiaries, multiplied
by the SMSIA).57 In addition to being simpler, this calculation has proven
beneficial in liquidations, as it leads to more prompt share insurance
determinations and quicker access to insured funds for accountholders.
As discussed in section II.E., commenters also supported using this calculation.
Accordingly, the N C U A will calculate share insurance coverage for trust
accounts based on the simpler calculation currently used for revocable trusts
with five or fewer beneficiaries.
The streamlined calculation that will be used to determine coverage for
revocable trust funds and irrevocable trust funds includes a limit on the
total amount of share insurance coverage for all of an accountholderâs funds in
the trust category at the same F I C U.
As was proposed, the final rule will provide coverage for trust funds
at each F I C U up to a total of $1,250,000 per grantor; in other
words, each grantorâs insurance limit will be $250,000 per beneficiary up
to a maximum of five beneficiaries.
The level of five beneficiaries is an important threshold in the current
revocable trust rules, as it defines whether a grantorâs coverage is determined
using the simpler calculation of the number of beneficiaries multiplied by
the SMSIA or the more complex calculation involving the consideration of the amount
of each beneficiaryâs specific interest
56 73 FR 60616 (Oct.
14, 2008).
57 For example, two co-grantors that designate five beneficiaries are insured
for up to $2,500,000 (2 x 5 x $250,000).
(which applies when there are six or more beneficiaries).
The current trust rules limit coverage by tying coverage to the specific
interests of each beneficiary of an irrevocable trust or of each
beneficiary of a revocable trust with more than five beneficiaries.
The final ruleâs $1,250,000 per-grantor, per-F I C U limit is more straightforward
and balances the objectives of simplifying the trust rules, promoting
timely payment of share insurance, facilitating liquidations, ensuring
consistency with the F C U Act, and limiting risk to the Share Insurance Fund.
The final rule will also provide parity between the N C U Aâs regulations and
those adopted by the FDIC in early 2022.58
The N C U A anticipates that limiting coverage to $1,250,000 per grantor,
per F I C U, for trust funds will not have a substantial effect on
accountholders, as most trust accounts in past F I C U liquidations have
had balances well below this level.
However, because the N C U A lacks sufficient information to project
the exact effects of the new limit on current accountholders, the agency
requested in the proposed rule that commenters provide information that
might be helpful in this regard.
As discussed in greater detail in section II.E., the comments received did not
indicate that the limit will have a substantial effect on accountholders.
Under the final rule, to determine the level of insurance coverage that
will apply to funds held in trust accounts, accountholders will still
need to identify the grantors and the eligible beneficiaries of the trust.
The level of coverage that applies to trust accounts will no longer be
affected by the specific allocation of trust funds to each of the beneficiaries
of the trust or by contingencies outlined in the trust agreement.
Instead, the final rule will provide that a grantorâs trust funds are insured up to
a total of $1,250,000 per grantor, or an amount up to the SMSIA multiplied by the
number of eligible beneficiaries, with a limit of no more than five beneficiaries.
58 87 FR 4455 (Jan.
28, 2022).
Aggregation
As was proposed, the final rule also provides for the aggregation of funds
held in revocable and irrevocable trust accounts for the purposes of
applying the share insurance limit.
Under the current rules, funds held in informal revocable trust accounts and
formal revocable trust accounts are aggregated for this purpose.59 The final
rule will aggregate a grantorâs informal and formal revocable trust accounts,
as well as irrevocable trust accounts.
For example, all informal revocable trusts, formal revocable trusts, and
irrevocable trusts held for the same grantor at the same F I C U will
be aggregated, and the grantorâs insurance limit will be determined
by how many eligible and unique beneficiaries are identified among all
of their trust accounts.60 The share insurance coverage provided in the
âtrust accountsâ category will remain separate from the coverage provided
for other funds held in a different right and capacity at the same F I C U.
However, some accountholders who currently maintain both revocable
trust and irrevocable trust deposits at the same F I C U may have funds
in excess of the insurance limit when these separate categories are combined.
As noted in the proposed rule, the N C U A lacks data on accountholdersâ
trust arrangements that allow it to estimate the number of accountholders
who might be affected in this manner.
As such, the N C U A requested that commenters provide information that
might be helpful in this regard.
As discussed in greater detail in section II.E., the comments received
did not indicate that the aggregate limit will have a substantial effect on
59 See 12 CFR 745.4(a) (âAll funds that an owner holds in both living trust accounts
and payable-on-death accounts, at the same N C U A-insured credit union and naming
the same beneficiaries, are aggregated for insurance purposes and insured to
the applicable coverage limitsâ¦.â).
60 For example, if a grantor maintained both an informal revocable trust account
with three beneficiaries and a formal revocable trust account with three
separate and unique beneficiaries, the two accounts would be aggregated and
the maximum share insurance available would be $1.25 million (one grantor
times the SMSIA times the number of unique beneficiaries, limited to five).
However, if the same three people were the beneficiaries of both accounts, the
maximum share insurance available would be $750,000 (one grantor times the SMSIA
times the three unique beneficiaries).
accountholders.
The agency does not believe this change will impact a substantial
number of accountholders and is finalizing it as proposed.
Eligible Beneficiaries
Currently, the revocable trust rules provide that eligible beneficiaries
include natural persons, charitable organizations, and non-profit entities
recognized as such under the Internal Revenue Code of 1986,61 while the
irrevocable trust rules do not establish criteria for beneficiaries.
As stated in the proposed rule, the N C U A believes a single definition should
be used to determine whether an entity is an eligible beneficiary for all trust
funds and proposes to use the current revocable trust ruleâs definition.
The N C U A believes this single definition will result
in a change in share insurance coverage only in very rare cases.
As was proposed, the final rule will exclude from the calculation of share
insurance coverage beneficiaries who would obtain an interest in
a trust only if one or more named beneficiaries are deceased (often
referred to as contingent beneficiaries).
This exclusion codifies existing practice to include only primary,
unique beneficiaries in the share insurance calculation.62 This
codification does not represent a substantive change in coverage.
Consistent with treatment under the current trust rules, naming a chain
of contingent beneficiaries that would obtain trust interests only in the
event of a beneficiaryâs death will not increase share insurance coverage.
Finally, as in the proposed rule, the final rule will codify an interpretation
of the trust rules where an informal revocable trust designates the depositorâs
formal trust as its beneficiary.
A formal trust generally does not meet the definition of an
eligible beneficiary for share
61 12 CFR 754.4(c).
62 See N C U A Your Insured Funds at page 42 (âThe beneficiaries are
the people or entities entitled to an interest in the trust.
Contingent or alternative trust beneficiaries are not considered to
have an interest in the trust funds and other assets as long as the primary or
initial beneficiaries are still living, with the exception of revocable living
trusts with a life estate interest.â).
insurance purposes, but the N C U A has treated such accounts as revocable
trust accounts under the trust rules, insuring the account as if it were
titled in the name of the formal trust.63 Additionally, the Board wishes to clarify
that if an irrevocable trust is named as beneficiary of an informal revocable
trust account, the informal revocable trust account will also be treated as if
titled in the name of that formal trust.
Retained Interests and Ineligible Beneficiariesâ Interests
The current trust rules provide that, in some instances, funds corresponding
to specific beneficiaries are aggregated with a grantorâs single ownership deposits
at the same F I C U for the purposes of the share insurance calculation.
These instances include a grantorâs retained interest in an irrevocable
trust64 and interests of beneficiaries who do not satisfy the definition
of âbeneficiary.â65 This adds complexity to the share insurance
calculation, as a detailed review of a trust agreement may be required to
value such interests so they may be aggregated with a grantorâs other funds.
To implement the streamlined calculation for funds held in trust
accounts, the N C U A proposed to eliminate these provisions.
Under the proposed rule, the grantor and other beneficiaries who do not
satisfy the definition of âeligible beneficiaryâ would not be included for
the purposes of the share insurance calculation.66 Importantly, this
exclusion would not in any way limit a grantorâs ability to establish
such trust interests under state law.
These interests simply would not factor into the calculation
of share insurance coverage.
The Board has decided to adopt these changes as proposed.
63 See 74 FR 55747, 55748 (Oct.
29, 2009).
64 See 12 CFR 745.2(d)(4).
65 12 CFR 745.4(d).
66 In the unlikely event a trust does not name any eligible beneficiaries,
the N C U A would treat the funds in the trust account as funds held
in a single ownership account.
Such funds would be aggregated with any other single ownership funds that the
grantor maintains at the same F I C U and insured up to the SMSIA of $250,000.
Future Trusts Named as Beneficiaries
Trusts often contain provisions for the establishment of one or more
new trusts upon the grantorâs death.
The proposed rule sought to clarify share insurance coverage in these situations.
Under the proposed rule, if a trust agreement provides that trust funds
will pass into one or more new trusts upon the death of the grantor (or
grantors), the future trust (or trusts) would not be treated as beneficiaries
for the purposes of the calculation.
The future trust(s) instead would be considered mechanisms for
distributing trust funds, and the natural persons or organizations that
receive the trust funds through the future trusts would be considered
the beneficiaries for the purposes of the share insurance calculation.
The Board has decided to adopt this position as proposed.
This clarification is consistent with the N C U Aâs current interpretations
and would not represent a substantive change in share insurance coverage.
Naming of Beneficiaries in Share Account Records
Consistent with the current revocable trust rules and the proposed rule, the
final rule will continue to require the beneficiaries of an informal revocable
trust to be expressly named in the account records of the F I C U.67 The N C U A does
not believe this requirement imposes a burden on F I C Us, as informal revocable
trusts by their nature require the F I C U to be able to identify the individuals
or entities to which funds would be paid upon the accountholderâs death.
Presumption of Ownership
As in the proposed rule, the final rule also states that, unless otherwise
specified in a F I C Uâs account records, funds held in an account for a trust
established by multiple grantors are
67 See 12 CFR 745.4(b).
presumed to be owned in equal shares.
This presumption is consistent with the current revocable trust rules.68
Funds Covered Under Other Rules
Under the proposed rule, certain trust funds that are covered by other sections
of the share insurance regulations would be excluded from coverage under Â§ 745.4.
For example, employee benefit plan accounts are insured
pursuant to current Â§ 745.9-2.
In addition, if the co-owners of an informal or formal revocable trust
are the trustâs sole beneficiaries, funds held in connection with the
trust would be treated as a joint ownership account under Â§ 745.8.
The Board has decided to adopt this as proposed.
In each of the provided cases, the N C U A is not changing the current rule.
Removal of the Appendix to Part 745
As was proposed, the final rule will remove the appendix to part
745, which provides examples of share insurance coverage.
As noted in the proposed rule, the N C U A plans to update its Your Insured
Funds brochure to reflect the amendments made to part 745.69 The Board believes
the updated brochure and other updated resources available on mycreditunion.gov
will provide a more consumer friendly and easier-to-update avenue for providing
examples of share insurance coverage.
The final rule also removes references to the appendix in the heading of part 745
and in Â§ 745.0, Â§ 745.2, and Â§ 745.13.
As such, once this portion of the final rule has gone into effect, providing
the appendix will no longer satisfy the notification to members/shareholders
68 See 12 CFR 745.4(f).
69 https://mycreditunion.gov/sites/default/static-files/insured-funds-brochure.pdf.
requirement in Â§ 745.13.
Instead, F I C Us will have to make available either the rules in part 745
of the N C U Aâs regulations or the updated Your Insured Funds brochure.
Conforming Changes
As discussed in the proposal, the final ruleâs simplification of the
calculation for insurance coverage for funds held in trust accounts
permits the elimination of current Â§ 745.2(d) of the regulations addressing
the valuation of trust interests.
As discussed further below, the description of non-contingent interests in
Â§ 745.2(d)(1) and (2) is no longer relevant to trust accounts under the final rule.
Additionally, Â§ 745.2(d)(3) regarding the deemed pro rata
contribution of settlors to a trust is replaced by new Â§ 745.4(b)(4),
which presumes equal allocation.
Current Â§ 745.2(d)(4) defining a âtrust interestâ is replaced by the definition of
âirrevocable trustâ in new Â§ 745.4(a)(3).
Regarding non-contingent interests, as was proposed, the final rule moves the
current description of a non-contingent interest in Â§ 745.2(d)(1) to the
definitions section of part 745.
The new definition of ânon-contingent interestâ in Â§ 745.1 remains substantively
the same but will now only be relevant to evaluating participantsâ non-contingent
interests in shares of an employee benefit plan under Â§ 745.9-2(a).
As was proposed, the new definition of ânon- contingent interestâ adds language
to include any present worth or life expectancy tables that the IRS may adopt
that are similar to those set forth in Â§ 20.2031-7 of the Federal Estate
Tax Regulations (26 CFR 20.2031-7).
This change is not substantive but is instead intended to provide flexibility
if the IRS makes any changes.
As part of this change, the final rule also makes non-substantive changes
to Â§ 745.1 to improve readability.
The final rule also removes the reference to Â§ 745.2 in current Â§ 745.9-2.
Finally, the final rule redesignates current Â§ 745.9-2 as Â§ 745.9
to reflect the elimination
of current Â§ 745.9-1 governing irrevocable trust accounts.
The reference in Â§ 745.9-2(a) to
Â§ 745.2 is also removed to reflect the elimination of the description of a
non-contingent interest in current Â§ 745.2(d) and adoption of a definition of
ânon-contingent interestâ in new Â§ 745.1.
Effective Date
The effective date of the trust account changes will be
delayed until December 1, 2026.
This delayed effective date mirrors the timeline the FDIC used in
adopting its trust account changes.
It is intended to provide F I C Us, accountholders, and the N C U A time
to prepare for the changes in trust account share insurance coverage.
F I C Us will have an opportunity to review the changes in coverage,
train employees, and update publications if necessary.
Accountholders may review insurance coverage for their funds and adjust their
share account arrangements if desired.
In addition, the N C U A must update its share insurance estimator and
share insurance coverage publications, including publications that provide
guidance to F I C Us and accountholders.
The Boardâs rationale for adopting a delayed effective date as was suggested
in the proposal and not providing for any continued application of the
current rules to existing accounts is discussed further in section II.E.
E.
Examples Demonstrating Coverage Under Current and Final Rules
To assist commenters, the N C U A is providing examples demonstrating
how the final rule will apply to determine share insurance coverage
for funds held in trust accounts.
These examples are not intended to be all-inclusive; they merely address
a few possible scenarios involving funds held in trust accounts.
The N C U A expects that, for most accountholders, insurance coverage
will not change under the final rule.
The examples here highlight a few instances where coverage could be reduced
to ensure the public is aware of them.
The examples mirror those provided in the proposed rule.
In addition, all examples involve members or those otherwise entitled to
maintain insured accounts at the F I C U.
Again, share insurance coverage is only available to F I C U members
and those otherwise entitled to maintain insured accounts.
For revocable trust accounts, all grantors must be members of the
F I C U or otherwise eligible to maintain an insured account to
receive share insurance coverage.
In the case of an irrevocable trust account, all grantors or all
beneficiaries must be members of the F I C U or otherwise eligible
to maintain an insured account to receive share insurance coverage.
Where a revocable trust account has become irrevocable because of the death of a
grantor, the deceased grantorâs membership will continue to satisfy their membership
requirement as long as the trust account continues to be maintained at the F I C U.
Example 1: Payable-on-Death Account
Member A establishes a payable-on-death account at a F I C U.
Member A has designated three beneficiaries for this account â B,
C, and D â who will receive the funds upon member Aâs death and listed all
three on a form provided to the F I C U.
The only other share account that member A maintains at the same
F I C U is a share draft account with no designated beneficiaries.
What is the maximum amount of share insurance coverage for
member Aâs shares at the F I C U?
Under the final rule, member Aâs payable-on-death account represents an
informal revocable trust and would be insured in the trust accounts category.
The maximum coverage for this account would be equal to the SMSIA (currently
$250,000) multiplied by the number of grantors (in this case one because member
A established the account) multiplied by the number of beneficiaries, up to a
maximum of five (here three, the number of beneficiaries is less than five).
Member Aâs payable-on-death account would be insured for
up to ($250,000) x (1) x (3)
= $750,000.
The coverage for member Aâs payable-on-death account is separate
from the coverage provided for member Aâs share draft account, which would
be insured in the single ownership category because she has not named
any beneficiaries for that account.
The single ownership share draft account would be insured
up to the SMSIA, $250,000.
Member Aâs total insurance coverage for shares at the F I C U would be
$750,000 + $250,000 = $1,000,000.
Notably, this level of coverage is the same as that provided by
the current share insurance rules.
Example 2: Formal Revocable Trust and Informal Revocable Trust
Members E and F jointly establish a payable-on-death account at a F I C U.
Members E and F have designated three beneficiaries for this account â G,
H, and I â who will receive the funds after both members E and F are deceased.
They list these beneficiaries on a form provided to the F I C U.
Members E and F also jointly establish an account titled in the name of the âE
and F Living Trustâ at the same F I C U.
Members E and F are the grantors of the living trust, a formal revocable
trust that includes the same three beneficiaries, G, H, and I.
The grantors, members E and F, do not maintain any other share
accounts at this same F I C U.
What is the maximum amount of share insurance coverage
for members E and Fâs shares?
Under the final rule, members E and Fâs payable-on-death account represents an
informal revocable trust and would be insured in the trust accounts category.
Members E and Fâs living trust account constitutes a formal revocable
trust and would also be insured in the trust accounts category.
To the extent the funds in these accounts would pass from the same grantor (E or
F) to beneficiaries (G, H, and I), the funds would be aggregated for the purpose
of applying the share insurance limit.
As under the current rules, it would be irrelevant that the grantorsâ shares
are divided between the payable-on-death account and the living trust account.
The maximum coverage for members E and Fâs shares would be equal to the SMSIA
($250,000) multiplied by the number of grantors (two, because
members E and F are the grantors
with respect to both accounts) multiplied by the number of unique
beneficiaries, up to a maximum of five (here three, the number of
beneficiaries, is less than five).
Therefore, the coverage for E and Fâs trust accounts would be
($250,000) x (2) x (3) = $1,500,000.
This level of coverage is the same as that provided by the
current share insurance rules.
Example 3: Two-Owner Trust and a One-Owner Trust
Members J and K jointly establish a payable-on-death account at a F I C U.
Members J and K have designated three beneficiaries for this account â L,
M, and N â who will receive the funds after both J and K are deceased.
They list these beneficiaries on a form provided to the F I C U.
At the same F I C U, Member J establishes a payable-on-death
account and designates Member K as the beneficiary upon Jâs death.
What is the maximum amount of coverage for members J and Kâs shares?
Under the final rule, both accounts would be insured under
the trust account category.
To the extent these shares would pass from the same grantor (J or K) to
beneficiaries (such as L, M, and N), they would be aggregated for the purpose
of applying the share insurance limit.
For example, member K identified three beneficiaries (L, M, and N), and
therefore, member Kâs insurance limit is $750,000 (or (1) x (3) x ($250,000)).
Member K would be fully insured as long as one-half interest of the
co-owned trust account was $750,000 or less, which is the same level of
coverage provided under current rules.
In this example, member Jâs situation differs from member Kâs because J
has a second trust account, but the insurance calculation remains the same.
Specifically, member J has two trust accounts and identified four unique
beneficiaries (L, M, N, and K); therefore, member Jâs insurance limit is
$1,000,000 (or (1) x (4) x ($250,000)).
Member J would remain fully insured as long as Jâs trust shares â equal
to one-half of the co- owned trust account plus Jâs personal trust
account â total no more than $1,000,000.
This
methodology and level of coverage is the same as that provided by
the current share insurance rules.
Example 4: Revocable and Irrevocable Trusts
Member O establishes a share account at a F I C U titled the âO Living
Trust.â Member O is the grantor of this living trust, a formal
revocable trust that includes three beneficiaries â P, Q, and R.
The grantor, member O, also establishes an irrevocable trust for the benefit
of the same three beneficiaries.
The trustee of the irrevocable trust maintains a share account at the same F
I C U as the living trust account, titled in the name of the irrevocable trust.
Neither member O nor the trustee maintains other share accounts at the same F I C U.
What is the insurance coverage for these accounts?
Under the final rule, the living trust account is a formal revocable
trust and would be insured in the trust accounts category.
The account containing the funds from the irrevocable trust account would also be
insured in the trust accounts category.
To the extent these shares would pass from the same grantor (member O) to
beneficiaries (P, Q, or R), they would be aggregated for the purposes of
applying the share insurance limit.
It would be irrelevant that the shares are divided between the living trust
account and the irrevocable trust account.
The maximum coverage for these shares would be equal to the SMSIA ($250,000)
multiplied by the number of grantors (one, because member O is the grantor
with respect to both accounts) multiplied by the number of beneficiaries, up to a
maximum of five (here three, the number of beneficiaries, is less than five).
Therefore, the maximum coverage for the shares in the trust accounts would
be ($250,000) x (1) x (3) = $750,000.
This example is one of the few instances where the final rule may provide
a reduced amount of coverage as a result of the aggregation of revocable
and irrevocable trust accounts,
depending on the structure of the trust agreement.
Under the current rules, member O would be
insured for up to $750,000 for revocable trust shares and separately insured
for up to $750,000 for irrevocable trust shares (assuming non-contingent
beneficial interests), resulting in
$1,500,000 in total coverage.
If that were the case, current coverage would exceed that
provided by the final rule.
However, the terms of irrevocable trusts sometimes lead to
less coverage than expected.
It is often the case that irrevocable trust accounts are only insured up to
$250,000 under the current rules due to contingencies in the trust agreement,
but determining this with certainty often requires careful consideration of the
trust agreementâs contingency provisions.
Under the current rule, if contingencies existed, current coverage would exceed
that provided by the final rule, as member O would be insured up to $1,000,000;
$750,000 for the revocable trust and $250,000 for the irrevocable trust.
In the N C U Aâs view, one of the key benefits of the final rule versus the
current rule will be greater clarity and predictability in share insurance
coverage because whether contingencies exist will no longer be a factor
that could affect share insurance.
Example 5: Many Beneficiaries Named
Member S establishes a share account at a F I C U titled in the name of
the âS Living Trust.â This trust is a revocable trust naming seven
beneficiaries â T, U, V, W, X, Y, and Z.
The grantor, member S, does not maintain any other shares at the same F I C U.
What is the coverage for this account?
Under the final rule, the living trust is a formal revocable trust and would be
insured in the trust accounts category.
The maximum coverage for this account would be equal to the SMSIA ($250,000)
multiplied by the number of grantors (one, because member S is the sole
grantor) multiplied by the number of beneficiaries, up to a maximum of five.
Here the number of named beneficiaries (seven) exceeds the
maximum (five), so insurance is calculated using the maximum (five).
Coverage for the account would be ($250,000) x (1) x (5) = $1,250,000.
This example is another instance where the final rule may provide for
less coverage than the current rule.
Under the current rule, because more than five beneficiaries are named, the
account is insured up to the greater of the following: (1) five times
the SMSIA; or (2) the total of the interests of each beneficiary, with
each such interest limited to the SMSIA.
Determining coverage requires a review of the trust agreement to
ascertain each beneficiaryâs interest.
Each such insurable interest is limited to the SMSIA, and the total of
all these interests is compared with $1,250,000 (five times the SMSIA).
The current rule provides coverage in the greater of these two amounts.
The result would fall into a range from $1,250,000 to $1,750,000, depending on
the precise allocation of trust interests among the beneficiaries.70 In the N C
U Aâs view, one of the key benefits of the final rule versus the current rule
is greater clarity and predictability in share insurance coverage because
a single formula is used to determine maximum coverage, and this formula
will not depend upon the specific allocation of funds among beneficiaries.
F.
Discussion of Comments
Overview of the Comments
The N C U A received 13 comments on the proposed rule, 11 of which
provided relevant substantive feedback.
Comments were received from individuals, a F I C U, state credit union leagues
and national trade associations, a law firm, and an association of
state credit union supervisors.
All 11 substantive comments supported the proposed rule, with a number
providing additional feedback regarding potential revisions or
other matters to contemplate further.
As
70 For example, if all the beneficiariesâ interests were equal, coverage would
be $250,000 x (7 beneficiaries)
= $1,750,000.
This amount is the maximum coverage possible under the current rule.
Conversely, if a few beneficiaries had a large interest in the trust, the
total of all beneficiariesâ interests (limited to the SMSIA per beneficiary)
could be less than $1,250,000, in which case the current rule would provide
a minimum of $1,250,000 in coverage.
Depending upon the precise allocation of interests, the amount of coverage provided
would fall somewhere within this range.
described below, common issues commenters spoke to were parity with
FDIC coverage, the merger of the trust account categories, the proposed trust
calculation, and membership issues.
Parity with FDIC Coverage
Six commenters addressed the importance of parity with FDIC coverage.
One deemed it crucial for maintaining consistency and
fairness in the financial system.
Another opined that if FDIC coverage is easier to understand or provides
additional coverage, it could result in funds being moved to banks
and could introduce reputational risk to the credit union system.
A commenter noted that while parity is not reason enough to adopt a change, they
recognized its importance, particularly because the public tends to be more
familiar with the FDIC than the N C U A.
As stated in both the proposed rule and this final rule, ensuring parity
between the share insurance and deposit insurance regimes is an important
basis for the N C U A making these changes to the trust account rules.
Effects of the Changes on Understanding of the Trust Rules
Commenters universally believed the proposed amendments would
make insurance coverage for trust accounts easier to understand.
One commenter said trust accounts are already more complex than individual share
accounts, and the current rules increase the likelihood of misunderstanding
coverage by adding complexity with different rules and calculation methods
due to the type of trust, number of beneficiaries, or other factors.
A national trade association said its member F I C Us have reported the
current system, with distinct rules for revocable and irrevocable trusts, has
caused significant confusion and led to a high volume of complex inquiries.
The association believed the proposal will offer clear and straightforward
guidance for F I C Us, their employees, and their accountholders.
One commenter emphasized that making share insurance coverage
easier to understand is important because the public is generally less
familiar with the N C U A than the FDIC.
The commenter supported changes to enhance visibility or, at a minimum,
to make it easier for a consumer to understand the similarities
between FDIC and N C U A coverage.
The Board appreciates commentersâ confirmation that the changes will
make share insurance for trust accounts easier to understand.
In the proposal, the Board also stated it believes that under the proposal
accountholders generally would have the information necessary to readily
calculate share insurance coverage for their trust accounts, better
allowing them to understand insurance coverage for their trust accounts.
However, the Board also asked if there were instances where an
accountholder would not likely have the necessary information.
Two commenters cited instances where accountholders may lack the necessary
information to calculate share insurance coverage under the proposal.
The first cited an accountholder whose trust is not readily accessible, such as
if it is old and maintained by a third party; this commenter suggested the N C U
A apprise accountholders of the rule and remind them to find necessary documents.
The second said complex trust structures or changes in beneficiaries could
cause a lack of necessary information, particularly if the accountholder does not
have immediate access to updated details.
The commenter believed this could make determining the beneficiaries
challenging, particularly in trusts involving multiple generations or
those set up for estate planning.
The Board agrees with commenters that fact-specific circumstances related
to individual accountholdersâ trust accounts may result in individual
situations where an accountholder lacks the necessary information to readily
calculate their share insurance coverage.
However, the situations described, and others like them, relate to complexities
in accountholdersâ individual trust arrangements that would be difF I C
Ult or impossible to ameliorate in regulations governing share insurance.
Instead, it is up to accountholders and those maintaining these trusts to ensure
their understanding of them, so they can apply the share
insurance regulations to them in
evaluating their share insurance coverage.
The Board agrees with the commenter that requested that the N C U A apprise
accountholders of the rule changes and remind them to locate necessary documents.
The N C U A will be providing publicly available resources
to notify accountholders of the rule changes and explain them.
In doing so, the N C U A will also reiterate the importance of
understanding trust arrangements and maintaining necessary trust documents.
Merger of the Trust Categories
Seven commenters specifically supported merging the revocable and
irrevocable trust account categories.
Commenters believed this would reduce confusion, minimize the
number of questions to the N C U A, reduce regulatory burden, and
improve operational processes.
One national trade association said its member F I C Us did not anticipate
the merger would result in reduced insurance coverage in practice.
However, they asked the N C U A to track any such outcomes in
liquidations and suggested revisiting the rule if stakeholder input or
liquidations show reduced coverage.
The Board agrees the merger of the trust categories should simplify insurance
coverage of trust accounts, reduce confusion, and alleviate burden on F I
C Us, accountholders, and the N C U A.
While the Board appreciates the suggestion to track outcomes in
liquidations where the merger of the trust categories causes a reduction
in insurance coverage, it declines to create a formal process for doing so.
Simultaneously calculating insurance coverage under the current and new
trust rules would negate many of the efficiency and simplification benefits
the changes are intended to provide.
While there will not be a formal mechanism for tracking such results, should the
agency become aware of the trust account changes creating an unanticipated level
of decreased share insurance coverage, either during evaluation of liquidations
or through public input, the Board will consider whether additional changes
are needed, in consultation with the
FDIC.
Methodology for Calculating Trust Coverage
Six commenters specifically supported the proposed method for
calculating trust account coverage.
Commenters believed the more straightforward uniform method would
enhance transparency, as well as F I C U and member understanding; make
it easier to inform members of their coverage; provide consistency with FDIC
coverage; and benefit from F I C Us and members being already familiar with it.
One national trade association said its member F I C Us did not think the
$1,250,000-per-grantor cap was too low, as the vast majority of accounts
are well below that level, but did ask the N C U A to track liquidations
to ensure the cap is not too low.
Additionally, one commenter suggested clarifying in the final rule that a trust
with more than one grantor â such as a husband and wife â would have maximum
coverage of $1,250,000 per grantor.
The Board agrees with commenters that the calculation method should
provide the described benefits.
The Board also agrees the $1,250,000-per-grantor cap is
unlikely to be too low.71 However, as the commenter requested, the
agency does plan to continue to track uninsured amounts in liquidations,
if any, and can explore further changes should it become warranted.
Finally, the Board believes the proposed rule was clear that a single
grantor is eligible for a maximum of $1,250,000 for all their trust interests.
However, it reiterates that is the case here.
In other words, where a husband and wife maintained one account at a F I C U, a
co-owned revocable trust account with five named eligible beneficiaries, the account
would be eligible for up to $1,250,000 per grantor, for a total of $2,500,000.
Examples of Trust Account Coverage
71 See Average Inheritance: How Much Are Retirees Leaving to Heirs?
| Boldin (stating that the median size of a trust fund is around
$285,000), citing the U.S.
Federal Reserveâs Survey of Consumer Finances (SCF),â Nov.
2023.
One commenter encouraged the N C U A to maintain communications with
F I C Us to ensure its examples sufficiently cover ownership
structures implemented by members.
The Board agrees the N C U A should communicate with F I C Us about this
issue and the agency will do so.
Effects on Call Report Filings
One commenter was concerned that reporting of insured shares on
the Call Report is inaccurate.
The commenter said F I C U computer systems tend not to code trust
accounts correctly for reporting insured shares, causing them to
go unreported as insured shares or to be missing some beneficiaries.
The commenter said many F I C Us do not include beneficiaries in their
computer systems and only maintain that data in paper records, which excludes
many beneficiaries that would be included in reporting insured shares.
The commenter believed it might be more accurate to take total
outstanding shares and apply a factor to compute insured shares.
While outside the scope of this rulemaking, this concern
will be evaluated by staff.
Effects on Other Types of Accounts
In the proposal, the N C U A asked if there are types of trusts not
described in the proposal whose funds maintained in F I C U accounts would
be affected by the proposed changes.
One commenter said the proposal might not fully address trusts like charitable
remainder trusts or special needs trusts, noting they have unique characteristics
that could affect insurance coverage.
The commenter also said trusts operating under state-specific laws
or provisions might have aspects not contemplated in the rule,
necessitating a broader consideration.
As the commenter noted, many trusts operate under
state-specific laws, which can vary.
As such, the share insurance regulations could not fully
accommodate each and every type of
trust.
With regard to special needs trusts and charitable remainder
trusts, coverage will depend
upon the exact details of each trust arrangement, including whether the
trust names eligible beneficiaries.
Comments Addressing Other Changes to the Trust Rules
Two commenters supported the proposal to eliminate certain requirements
in the current trust account rules as a pragmatic step towards reducing
unnecessary regulatory burdens, leading to more efficient operations
and improved customer experience.
One commenter supported the proposed removal of the appendix to part 745 in
favor of updates to N C U A guidance.
The commenter believed this would make it easier for members to
understand share insurance coverage.
Continued Application of the Current Rules to Existing Accounts
or a Delayed Effective Date
In the proposal, the Board noted it prefers a delayed effective date
for the trust account changes over continuing the coverage under current
rules for accounts existing at the time the final rule goes into effect.
This situation was referred to as âgrandfatheringâ accounts under
the current rules in the proposal.
It is referred to as âlegacy coverageâ in this final rule.
The proposal reasoned that providing both legacy coverage for existing accounts and
separate coverage under the new rules for new accounts would result in significantly
greater complexity for the period when two sets of rules could apply to accounts
â especially in conducting liquidations.
The Boardâs belief was and remains that a delayed implementation
date allows stakeholders to make necessary adjustments for the new
rules, without the complications of two sets of rules coexisting.
In recognition that there could be instances that may not be easily
restructured without adverse consequences to the accountholder, such
as trusts holding share certificates or other account relationships, the
proposal asked whether there are fact patterns where legacy coverage for
existing accounts may be appropriate.
The proposal also asked if this
approach would be appropriate with respect to the proposed ruleâs
coverage limit of $1,250,000 per F I C U for an accountholderâs
funds held in trust accounts.
Three commenters supported some form of legacy coverage for existing accounts.
Two urged providing legacy coverage at current levels for existing trust
accounts, such as if a member is the grantor of both a revocable and an
irrevocable trust at the same F I C U.
One of these commenters argued that consumers with open accounts expect to
maintain their current coverage, providing legacy coverage for existing accounts
should not increase loss risk to the Share Insurance Fund relative to current
policy, and a reduction in coverage represents a reputational risk to N C U A
share insurance that could reduce public confidence in the credit union system.
The other said that providing legacy coverage for existing accounts may
increase complexity in liquidations but believed it may be the best solution to
avoid adverse consequences to members.
A third commenter said this legacy coverage may be appropriate in
certain scenarios to protect members, such as in trusts with long-term
investments like share certificates where restructuring could lead to
financial losses, or in complex estate planning trusts requiring significant
legal and administrative changes.
Four commenters supported a delayed effective date.
One said that if the N C U A avoids providing legacy coverage for existing
accounts, it should adopt an appropriately delayed implementation that recognizes
the potential hardships and allows stakeholders to make necessary changes.
Another believed that even with legacy coverage for existing accounts, a delayed
implementation date would be essential for F I C Us to review trust relationships and
notify any negatively affected members.
A third opposed providing legacy coverage for existing accounts,
reasoning the intricacies involved could present challenges.
The commenter also stated, âconcerns arise regarding the potential limitations
of studying credit unions, as these may not fully capture the dynamics
of larger credit unions, potentially leading to adverse effects on
the relationships between [m]embers and credit unions.â
The Board has strongly considered the comments received and the
effects the new trust account rules will have on accountholders.
The Board continues to believe providing legacy coverage for existing accounts
poses complications and burdens to F I C Us, accountholders, and the N C U
A that make such a system unworkable.
The Board believes that by providing a substantially delayed effective date
that is in excess of two years, F I C Us and their accountholders should
have enough time to make any needed changes to their accounts to ensure
adequate share insurance coverage.
Further, the Board remains doubtful the changes will result in reduced
coverage in most instances.72 Providing a delay in effect for the
changes that matches the one the FDIC provided to insured depository
institutions and their accountholders should provide both F I C Us and their
accountholders with sufficient time to complete any necessary adjustments.
Membership
Several commenters addressed the membership requirements
for trust accounts.
One commenter advocated simplifying membership requirements to establish
a more straightforward approach with the goal of redefining the criteria
determining the eligibility of individuals or entities for share
insurance coverage, especially in the context of trust accounts.
One commenter said membership should be satisfied for trust accounts if at
least one member is on the account.
One commenter expressed support for the N C U Aâs efforts to simplify share
insurance coverage but believed that meeting the agencyâs goals of providing
clarity to F I C Us and members and of providing parity with the FDICâs
treatment of trust accounts required clarifying membership requirements for
two types of accounts: (1) revocable trust accounts where not all settlors
are members; and (2) irrevocable trust accounts where no settlors are members.
72 See footnote 71.
On revocable trust accounts where not all settlors are members, the
commenter believed the N C U A should provide coverage to nonmember
co-owners of a revocable trust account.
The commenter correctly noted the N C U Aâs position has long been that
joint accounts where there is a right of survivorship, which do not have
beneficiaries, qualify for share insurance for interests of both depositors even
where there is a nonmember co-owner; whereas a nonmember co- ownerâs
interest in a revocable trust account, such as a payable-on-death account,
is not eligible for share insurance.
The commenter believed the addition of a payable-on-death beneficiary should
not defeat the extension of share insurance to a nonmember co-owner.
The commenter also said this position is not explicitly contained in the
regulations and is only documented in the N C U Aâs Share Insurance Estimator
FAQ, which is not legally binding.
The commenter emphasized that the FDIC clearly delineates that all
payable-on-death beneficiaries are treated the same for insurance
purposes, and the commenter believed the divergence from FDIC regulations is
contrary to the N C U Aâs parity goal.
The commenter concluded the proposed rule provides an opportunity to provide
clear instructions for calculating coverage for joint accounts with
payable-on-death beneficiaries or any other revocable trust account
with one or more nonmember settlors.
To clarify, the N C U Aâs longstanding position is that nonmembers may be
joint owners of a joint account with a right of survivorship (an account
with no beneficiaries) and have an insurable interest if one joint
owner of the account is a member.
This position is based on a specific statutory provision that allows for
nonmembers to be co-owners with a member if the account is held with
a right of survivorship.73 In other words, the N C U A provides share
insurance coverage to nonmember owners of joint accounts (an account with no
beneficiaries) where there is a right of survivorship based upon a statutory
exception to the normal limitation
that the N C U A only provides coverage to members.
This coverage for nonmember owners of joint accounts with a right of
survivorship (an account with no beneficiaries) is expressly provided
for in the N C U Aâs regulations.74
Conversely, the N C U A has not recognized a statutory exception for
providing share insurance coverage to nonmember co-owners of revocable trust
accounts, which are different from joint accounts with no beneficiaries
under the share insurance regulations.
Unlike the coverage for nonmember joint account owners expressly provided for
in the N C U Aâs regulations, the N C U Aâs regulations do not contain any
provision related to nonmember co- owners of revocable trust accounts that
negates the normal limitation that share insurance coverage is provided to members.
Instead, the agencyâs longstanding position has been that co- owned
revocable trust accounts are different from joint accounts held with a
right of survivorship; and as such, they require co-owners (settlors of
the trust) to be members to receive insurance coverage for their interests
in the revocable trust account.
It is also worth noting that while parity with FDIC coverage is an
important aim, the N C U Aâs coverage is generally limited to member accounts.
Because the FDIC coverage is not so limited, instances will inevitably
occur where coverage is not parallel.
In addressing irrevocable trust accounts where no settlors are members, the
commenter erroneously concluded the N C U Aâs position as to membership requirements
for irrevocable trust accounts would pose an issue under the proposal.
The commenter correctly noted that under the current rules, irrevocable
trust accounts can be established as long as either all settlors or all
beneficiaries are members of the F I C U.
The commenter concluded that because the proposal would calculate coverage
for irrevocable and revocable trusts in aggregate to $1.25 million per grantor,
the N C U A would not provide coverage to an account where the settlors were not
members, but all beneficiaries were members.
This conclusion is incorrect.
While coverage would be limited to $1.25 million in aggregate for a grantor,
any interest related to an irrevocable trust where all the beneficiaries were
members would still be insured based on the beneficiariesâ membership status.
The limitation would only be related to interests for one grantor being
limited to $1.25 million, irrespective of the grantorâs lack of membership.
Other Comments
Two commenters agreed the changes should help facilitate the prompt
payment of share insurance.
One commenter noted that, while N C U A Board Members will often accurately
say no member has ever lost one penny of funds insured by the Share
Insurance Fund, members have lost funds they thought were insured due to
misunderstanding the coverage rules.
As noted, the Boardâs goal with this rulemaking is to reduce this confusion.
In response to the N C U Aâs request for input regarding empirical
information the agency should consider to help it understand the effects
of its proposed rule, a commenter provided an article detailing an
empirical study of the jurisdictional competition for trust funds.
Of most relevance, the article notes the difF I C Ulty of empirically
studying inter vivos (living) trusts due to various factors, including these
trustsâ private nature and complexity.
III.
Amendments to Mortgage Servicing Account Rule
A.
Policy Objectives
The N C U Aâs regulations governing share insurance coverage include specific
rules on accounts maintained at F I C Us by mortgage servicers.75 These rules
are intended to be easy to understand and apply in determining the amount of
share insurance coverage for a mortgage
servicerâs account (MSA).
The N C U A generally strives to maintain parity with FDICâs
regulations in furtherance of this aim.
The N C U A proposed an amendment to its rules governing insurance
coverage for accounts maintained at F I C Us by mortgage servicers
that consist of mortgagorsâ principal and interest payments.
The proposed change would mirror a change made by the FDIC in early 2022
that became effective in April 2024, and which was intended to address a servicing
arrangement that is not addressed in the current rules.76 Specifically, some
servicing arrangements may permit or require servicers to advance their own
funds to the lenders when mortgagors are delinquent in making principal and
interest payments, and servicers might commingle such advances in the MSA
with principal and interest payments collected directly from mortgagors.
The FDIC reasoned that the factors that motivated the FDIC to establish its
current rules for MSAs, which the N C U A also adopted and are further described
below, weigh in favor of treating funds advanced by a mortgage servicer to
satisfy mortgagorsâ principal and interest obligations to the lender as if such funds
were collected directly from borrowers.
The FDIC also noted it seeks to avoid uncertainty concerning
the extent of deposit insurance coverage for such accounts.
The proposed rule noted the N C U A concurs with the importance of avoiding
uncertainty regarding the extent of insurance coverage and believes that an
important aspect of avoiding uncertainty is maintaining parity between the share
insurance and deposit insurance regimes.
After reviewing the comments received on this proposed
change, the Board has decided to finalize the change as proposed.
As discussed further below, the Board has also decided to make
this change effective 30 days after publication in the Federal Register.
B.
Background and Need for Rulemaking
76 87 FR 4455 (Jan.
28, 2022).
The N C U Aâs rules governing coverage for MSAs were last amended in 2008, which
corresponded to changes made by the FDIC.
More specifically, in 2008 the FDIC recognized securitization methods and
vehicles for mortgages had become more complex, exacerbating the difF I C Ulty
of determining the ownership of deposits consisting of principal and interest
payments by mortgagors and extending the time required to make a deposit
insurance determination for deposits of a mortgage servicer in the event of an
insured depository institutionâs (IDIâs) failure.77 The FDIC expressed concern that
a lengthy insurance determination could lead to continuous withdrawal of deposits
of principal and interest payments from IDIs and unnecessarily reduce a
funding source for such institutions.
The FDIC therefore amended its rules to provide coverage to lenders based on
each mortgagorâs payments of principal and interest into the MSA, up to its
standard maximum deposit insurance amount per mortgagor (currently $250,000).
The FDIC did not amend the rule for coverage of tax and insurance payments,
which continued to be insured to each mortgagor on a pass-through basis and
aggregated with any other deposits maintained by each mortgagor at the
same IDI in the same right and capacity.
The N C U A agreed that this treatment of principal and interest
payments provided greater and fairer coverage for credit union members and
decided to apply the same approach in its share insurance rules.78
Importantly, the 2008 amendments to the rules for MSAs did not provide for the
fact that servicers may be required to advance their own funds to make payments
of principal and interest on behalf of delinquent borrowers to the lenders.
However, in its recent rulemaking the FDIC identified that advancing
their own funds is required of mortgage servicers in some instances.
For example, the FDIC noted that some IDIs identified
challenges to implementing certain
77 See 73 FR 61658, 61658-59 (Oct.
17, 2008).
78 73 FR 62856, 62857 (Oct.
22, 2008).
recordkeeping requirements with respect to MSA deposit balances because of
the way in which servicer advances are accounted for and administered.79
The N C U Aâs current rules, which mirror the FDICâs rules that were in
effect until April 1, 2024, provide coverage for principal and interest
funds only to the extent âpaid into the account by the mortgagorsâ; they do not
provide coverage for funds paid into the account from other sources, such
as the servicerâs own operating funds, even if those funds satisfy mortgagorsâ
principal and interest payments.
As a result, advances are not provided the same level of coverage as other
deposits in an MSA consisting of principal and interest payments directly
from the borrower, which are insured up to the SMSIA for each borrower.
Instead, the advances are aggregated and insured to the servicer as
corporate funds for a total of $250,000.
In adopting changes to its rule in early 2022, the FDIC expressed concern that this
inconsistent treatment of principal and interest amounts could result in financial
instability during times of stress, and could further complicate the insurance
determination process, a result that is inconsistent with their policy objective.
As noted in the proposal, the N C U A shares these concerns and believes it
is important that parity is maintained between the insurance regimes.
C.
Final Rule
The N C U A is finalizing the rule as proposed with no changes.
The final rule will amend the rules governing coverage for funds in MSAs
to provide parity with the FDICâs regulation and provide consistent share
insurance treatment for all MSA balances held to satisfy principal and interest
obligations to a lender, regardless of whether those funds are paid into
the account by borrowers or paid into the account by another party (such as
the servicer) to satisfy a periodic
79 The FDIC noted that, to fulfill their contractual obligations with
investors, covered IDIs maintain mortgage principal and interest balances
at a pool level and remittances, advances, advance reimbursements,
and excess funds applications that affect pool-level balances are not
allocated back to individual borrowers.
obligation to remit principal and interest due to the lender.
Under the final rule, accounts maintained by a mortgage servicer in
an agency, custodial, or fiduciary capacity, which consist of payments
of principal and interest, will be insured for the cumulative balance
paid into the account to satisfy principal and interest obligations to
the lender, whether paid directly by the borrower or by another party, up to
the limit of the SMSIA per mortgagor.
Mortgage servicersâ advances of principal and interest funds on behalf
of delinquent borrowers will therefore be insured up to the SMSIA per mortgagor,
consistent with the coverage rules for payments of principal and interest
collected directly from borrowers.
The composition of an MSA attributable to principal and interest payments will
also include collections by a servicer, such as foreclosure proceeds, that are
used to satisfy a borrowerâs principal and interest obligation to the lender.
In some cases, foreclosure proceeds may not be paid directly by a mortgagor.
The current rule does not address whether foreclosure collections represent payments
of principal and interest by a mortgagor.
Under the final rule, foreclosure proceeds used to satisfy a borrowerâs principal
and interest obligation will be insured up to the limit of the SMSIA per mortgagor.
The final rule does not make any changes to the share insurance
coverage provided for MSAs comprised of payments from mortgagors of
taxes and insurance premiums.
Such aggregate escrow accounts are held separately from the principal and interest
MSAs, and the funds therein are held for the mortgagors until such time as tax
and insurance payments are disbursed by the servicer on the borrowerâs behalf.
Under the final rule, such funds will continue to be insured based
on the ownership interest of each mortgagor in the account and aggregated
with other funds maintained by the mortgagor at the same F I C
U in the same capacity and right.
The Board is opting to make this change effective 30 days after publication in the
Federal Register.
Given the change provides more expansive coverage and should not impose
additional burden on F I C Us or accountholders, the Board does not
see a reason to delay its effect.
D.
Discussion of Comments
Six commenters expressly supported the proposed ruleâs
changes to insurance of MSAs.
In terms of the benefits cited, four commenters noted the importance
of parity with FDIC coverage.
Three cited the benefits of a standardized approach and fair and equitable treatment.
Five noted the greater clarity provided for F I C Us and members.
Two said the change represents improved protection of the interests of all
parties, aligns with best practices, and offers additional security.
One stressed the change simplifies the complex landscape and enables
F I C Us to manage MSAs more confidently and efficiently.
That commenter believed the change was crucial for maintaining the integrity
and reliability of the MSA system, as the change recognizes the practical
realities of servicing arrangements and the various sources of funds that may be
used to satisfy borrowersâ obligations.
The commenter thought the inclusion of foreclosure collections
particularly important, as the current rule does not address it.
Two commenters stated the change would help promote financial stability.
One said the change would reduce financial institutionsâ counterparty risk
exposure, which also reduces liquidity risk to the F I C U holding the MSAs.
Another said providing insurance for these advanced funds supports
the mortgage market and broader financial systemâs stability.
One national trade association reported its F I C U members expressed
initial concerns with increased Share Insurance Fund costs due to
larger insured balances from covering funds paid by mortgage servicers.
However, after members reviewed the potential effect in greater
detail, they concluded any such increase in cost would be nominal.
The commenter urged the N C U A to monitor this change to ensure
it does not lead to an excessive increase in Share Insurance Fund-
related liquidation costs.
The Board concurs that this change should only nominally increase any
Share-Insurance-Fund related liquidation costs.
However, the agency will continue to monitor such costs.
Only one commenter addressed the N C U Aâs request regarding whether a
delayed effective date is necessary.
The commenter believed a delayed effective date appropriate but had
no concern with an earlier date.
As discussed, the Board is opting to make this change effective 30 days after
publication in the Federal Register.
The comments received do not give the Board the impression that
commenters were opposed to the change becoming effective without delay.
Further, given the change only clarifies and expands share insurance
coverage, the N C U A does not believe the change should impose any
burden on F I C Us or accountholders.
IV.
Recordkeeping Requirements
A.
Policy Objectives
The N C U Aâs regulations governing share insurance coverage include
general principles applicable in determining insurance of accounts.80
Among these general principles are provisions addressing recordkeeping.81
The N C U A intends for these provisions to clearly articulate
the records the agency will look to when evaluating insurance coverage.
As discussed in more detail below, over time it has become apparent that
the recordkeeping provisions do not clearly address all situations and may
be especially unclear as to accounts maintained by an agent, custodian,
fiduciary, or other party on behalf of a member or beneficial owner eligible to
maintain an insured account at a F I C U.
To better address these situations, the N C U A proposed to amend
the recordkeeping requirements.
80 12 CFR 745.2.
81 12 CFR 745.2(c).
After reviewing the comments received on this proposed
change, the Board has decided to finalize the change as proposed.
As discussed further below, the Board has also decided to make
this change effective 30 days after publication in the Federal Register.
B.
Background and Need for Rulemaking
Section 745.2(c) of the N C U Aâs regulations addresses general
recordkeeping requirements.
Other recordkeeping requirements applicable to specific account
types are addressed as needed in the relevant sections of part 745.
Current Â§ 745.2(c)(1) provides that, as a general matter, the account records
of the F I C U shall be conclusive as to the existence of any relationship
pursuant to which the funds in the account are deposited and on which a
claim for insurance coverage is founded.
Examples would be trustee, agent, custodian, or executor.
No claim for insurance based on such a relationship will be recognized
in the absence of such disclosure.
Section 745.2(c)(2) provides that, if the account records of a F I C U disclose
the existence of a relationship which may provide a basis for additional insurance,
as required under Â§ 745.2(c)(1), the details of the relationship and the
interest of other parties in the account must be ascertainable either from the
records of the F I C U or the records of the member maintained in good faith
and in the regular course of business.
It is this provision that has raised questions regarding accounts maintained
by an agent, fiduciary, or similar party.
The N C U A has received several questions regarding whether records maintained
by an agent, fiduciary, or similar third party on behalf of the member or
beneficial owner eligible to maintain an insured account would qualify as
the ârecords of the member.â Due to the frequency with which these agent or
fiduciary arrangements will involve a party other than the F I C U or member
maintaining records on the F I C Uâs or memberâs behalf, the N C U A proposed
to add language explicitly clarifying
that such records, when maintained in good faith and in the regular
course of business, can be
looked to when evaluating the details of the relationship and the interest of other
parties in the account at the F I C U.
C.
Final Rule
The N C U A is adopting the proposed rule as proposed with no changes.
Section 745.3(a)(2) of the N C U Aâs current regulations provides that
when an account is held by an agent or nominee, funds owned by a principal and
deposited in one or more accounts in the name or names of agents or nominees
shall be added to any individual account of the principal and insured
up to the SMSIA in the aggregate.
The N C U A will also generally look to the principal or beneficial owner for
satisfying the membership requirement or other eligibility to maintain
an insured account at the F I C U.
As such, records maintained by an agent or nominee on behalf of the member principal
or beneficial owner may not clearly be considered ârecords of the memberâ for the
purpose of ascertaining their interests in the account under current Â§ 745.2(c)(2).
The N C U A has previously issued a legal opinion stating that where an agent or
custodian âhas an agreement with the beneficial owner/member to maintain
custody of the beneficial owner/memberâs records, [the] N C U A would consider
those records to be ârecords of the memberâ within the meaning of 12 C.F.R.
745(c)(2).â82 However, as the N C U A acknowledged in the proposed rule, it
would be beneficial for the regulation to more clearly address this situation
to allow the details of the relationship and the interests of other parties in
the account to be ascertainable either from the account records of the F I C
U or from records maintained, in good faith and in the regular course of
business, by the member or by some person who or entity that has undertaken to
maintain such records for the member.
82 N C U A Legal Op.
97-0909 (Feb.
6, 1998), available at https://www.N C U A.gov/regulation-supervision/legal-
opinions/1997/pass-through-insurance.
Accordingly, the N C U A is adopting this change as proposed.
This change will provide greater clarity, particularly in the event of multi-tiered
fiduciary relationships, and would more closely compare to language previously
adopted by the FDIC.83 Importantly, the N C U A retains discretion to
determine when records are maintained on behalf of a member, in good faith
and in the regular course of business.
Ultimately, the N C U A must be able to establish ownership interests in the
account by following the chain of records maintained by parties at each level
of the relationship from the account records maintained at the F I C U.
Additionally, Â§ 745.2(c)(3) of the current regulations provides that the account
records of a F I C U in connection with a trust account shall disclose the name of
both the settlor (grantor) and the trustee of the trust and shall contain an account
signature card executed by the trustee.
This requirement goes beyond the recordkeeping requirements
of Â§ 745.2(c)(1) through (2) and poses an unnecessary burden
on F I C Us and their members.
Further, the FDIC previously eliminated a similar requirement.84
To eliminate unnecessary recordkeeping complexity and provide parity with
the FDIC, the N C U A is eliminating current Â§ 745.2(c)(3), as was proposed.
Section 745.2(c)(4) states that the interests of the co-owners of
a joint account shall be deemed equal, unless otherwise stated on
the insured credit unionâs records in the case of a tenancy in common.
As proposed, the N C U A is not making any substantive amendments to
this provision but is moving it to Â§ 745.2(c)(3) given the elimination of
the current requirement in that section.
Finally, Â§ 745.14(a)(2) notes that interest on lawyersâ trust accounts
(IOLTAs) and other similar escrow accounts are subject to the recordkeeping
requirements of Â§ 745.2(c)(1) and (2).
In doing so, Â§ 745.14(a)(2) provides an example of how the details of the
relationship between the attorney or escrow agent and their clients and
principals must be ascertainable from the
83 12 CFR 330.5(b)(2).
84 51 FR 21137 (June 11, 1986).
records of the F I C U or from records maintained, in good faith and in
the regular course of business, by the member attorney or member escrow
agent administering the account.
As was proposed, the final rule amends this description to conform to the change
to Â§ 745.2(c)(2) to explicitly state that the records detailing the relationship
and the interest of other parties in the account must be maintained, in good faith
and in the regular course of business, by: (1) the F I C U; or (2) the member
attorney or member escrow agent, or a person or entity acting on their behalf.
D.
Discussion of Comments
All seven commenters who addressed the proposed recordkeeping requirement
changes supported the changes.
Two commenters stated requiring the details of a relationship and the
interests of other parties in an account to be ascertainable from
records maintained in good faith is a sound practice, which should ensure
transparency and accountability.
One said the proposal would provide an approach consistent with FDIC pass-through
deposit insurance expectations for various types of âother similar escrow accountâ
that may exist, including sweep accounts.
One commenter noted many F I C U members rely on trusted third
parties for recordkeeping as part of their estate planning.
The commenter also believed this change should reduce inquiries to the N C U A.
One commenter noted support for the proposed removal of the requirement
that the account records of a F I C U in connection with a trust account
shall disclose the name of both the grantor and the trustee of the
trust and shall contain an account signature card executed by the trustee.
The commenter agreed the requirement poses an unnecessary
burden on F I C Us and members.
Four commenters said the change provides F I C Us adequate
clarity as to the records the
N C U A will look to when evaluating the details of account relationships
and the interests of other
parties in accounts maintained at F I C Us.
One urged the Board to finalize the change as proposed.
Another understood there to be only limited confusion regarding the issue
but noted support for reduced burden and enhanced usability of the rules.
In response to the proposalâs questions on the subject, one commenter said
that, while the proposed change is a significant step towards clarity and
provides essential guidance in complex account management scenarios, there
may be alternative or additional steps that could further align with the N C
U Aâs policy objectives, including the following: (1) adopting a definition of
âaccount recordsâ similar to the FDICâs definition of âdeposit account recordsâ to
standardize the documentation framework, ensure uniformity, and reduce ambiguity
in what constitutes necessary records; (2) adopting specific detailed provisions
for multi-tiered fiduciary relationships akin to those adopted by the FDIC, which
would help clarify the responsibilities and recordkeeping obligations in complex
arrangements involving multiple parties; and (3) adopting broader definitions and
illustrative examples for various account relationships, such as joint accounts
or trusts with multiple beneficiaries.
The commenter said it is imperative to ensure the recordkeeping regulations
remain relevant and effective as technology advances and banking
evolves into a more digital domain.
The commenter suggested adding a periodic review and update clause
for the recordkeeping requirements to ensure regulations stay current
with the evolving banking practices.
The commenter believed this would be especially pertinent for handling
international accounts or accounts involved in complex transactions.
The Board will take these additional recommendations into consideration as it
continues to evaluate ways to improve the N C U Aâs share insurance regulations.
The Board notes that N C U A staff routinely review rules for effectiveness,
including through its annual review of one- third of its regulations and
the Economic Growth and Regulatory Paperwork Reduction Act (also known
as EGRPRA) process that the N C U A voluntarily undertakes every ten years.
The proposal also requested comment on whether the N C U A should consider
adoption of heighted recordkeeping requirements, akin to those the FDIC
adopted in part 370 of its regulations, to facilitate prompt payment of
insurance when large institutions fail.
Six commenters addressed the possibility.
None of the commenters supported adoption of such requirements, but some
did provide recommendations if the N C U A were to adopt a similar regime.
The Board will take this feedback into consideration as it further
studies the possibility of proposing similar requirements.
The proposed rule asked about whether there was any reason
to delay the effective date of the recordkeeping change.
This question intended to elicit comments on whether a delayed effective
date for the proposed recordkeeping requirements changes would allow more
flexibility when evaluating share insurance coverage by clarifying that the
N C U A can look to records maintained by a third party on a memberâs behalf
if they are maintained in good faith and in the regular course of business.
One commenter believed a delayed effective date for those changes appropriate but
had no concern with an earlier date.
Another commenter seemingly interpreted this question as asking about a delayed
effective date for potential N C U A adoption of a regime similar to the
FDICâs, as was asked about in the previous question in the proposal,
rather than about a delayed effective date for the proposed changes to
the recordkeeping requirements.
This commenter believed timing pivotal and suggested the N C U A grant F I C Us
an extended period to comply because of the intricacies of compliance, especially
in terms of recordkeeping, and need to effectively adapt F I C U processes
and systems without experiencing undue burden.85 Given the proposed changes
would not increase burden on F I C Us or members, but instead clarify
that the N C U A will look to more
85 This commenter specifically responded to this question.
However, it seems likely the commenter interpreted the question as asking
whether a delayed effective date would be appropriate for adopting a
part 370 type regime, which was asked about in the preceding question.
expansive records to evaluate partiesâ interest in insured accounts, the
concerns the commenter raised do not seem applicable to the changes proposed.
As discussed, the Board is opting to make this change effective 30 days after
publication in the Federal Register.
The comments received do not give the Board the impression that
commenters were opposed to the change becoming effective without delay.
Further, given the change only clarifies that the N C U A has additional
flexibility to look to additional records to determine partiesâ interests
in an account, the Board does not believe that it will impose any
burden on F I C Us or their members.
The Board believes that clarifying that the N C U A has this greater
discretion to look to additional records will only provide benefit.
V.
Regulatory Procedures
A.
Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires that, in connection
with a final rulemaking, an agency prepare and make available for public
comment a final regulatory flexibility analysis that describes the effect
of the final rule on small entities.
A regulatory flexibility analysis is not required, however, if the agency certifies
that the rule will not have a significant economic effect on a substantial number of
small entities (defined for the purposes of the RFA to include credit unions
with assets less than $100 million)86 and publishes its certification and
a short, explanatory statement in the Federal Register together with the rule.
The Board fully considered the potential economic effect of the changes made by
this final rule during its development.
As noted in the preamble, the final rule simplifies the N C U Aâs
current share insurance regulations covering types of trust accounts.
It also provides more flexibility on the coverage of MSAs.
Finally, it explicitly provides for additional flexibility in
86 See 80 FR 57512 (Sept.
24, 2015).
what records the N C U A can look to when determining the details of
account relationships and various partiesâ interests in the accounts.
In short, the Board believes the principal consequence of the final rule
will be to streamline its administrative procedures for insurance payouts on
trust accounts when F I C Us fail.
Though the final rule will require F I C Us and their members to be familiar
with the new trust rules and the coverage limits imposed on trust accounts, the
N C U A believes this will not impose any new significant burden on F I C Us,
may ease some existing requirements, and should reduce the complexity of
questions F I C Us receive from their members on share insurance coverage.
Additionally, F I C Us and their members are familiar with the new formula as it
is already applied to revocable trust accounts with five or fewer beneficiaries.
The formula is also simpler to understand and implement than the
previous rules governing revocable trust accounts with six or more
beneficiaries and irrevocable trusts.
Ultimately, the changes to the rule governing coverage of MSAs and
the changes to the recordkeeping requirements should only provide greater
flexibility for coverage of these accounts and should not cause any new
burden on F I C Us or their members.
Accordingly, the N C U A certifies that this final rule will not have
a significant economic effect on a substantial number of small F I C Us.
B.
Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in which an
agency by rule creates a new paperwork burden on regulated entities or modifies
an existing burden.87 For the purposes of the PRA, a paperwork burden may take
the form of a reporting, disclosure,
87 44 U.S.C.
3507(d).
or recordkeeping requirement, each referred to as an information collection.
The N C U A may not conduct or sponsor, and the respondent is not
required to respond to, an information collection unless it displays a
currently valid Office of Management and Budget (OMB) control number.
The final rule does not contain information collection requirements that
require approval by OMB under the PRA.
The final rule will not create new or modify any existing paperwork burdens.
Rather, the final rule will simplify the share insurance regulations by
merging the revocable and irrevocable trust account categories into one trust
account category and applying a simpler, common calculation method to determine
insurance coverage for funds held in revocable and irrevocable trust accounts.
The final rule will also provide consistent share insurance treatment
for all MSA balances held to satisfy principal and interest obligations to
a lender, regardless of whether those funds are paid into the account by
borrowers or paid into the account by another party (such as the servicer) to
satisfy a periodic obligation to remit principal and interest due to the lender.
Finally, the final rule will explicitly allow the N C U A, when undertaking
share insurance determinations, to look to records held in the normal
course of business that are maintained by parties other than a F I C U
and its members on their behalf.
As such, no PRA submissions to OMB will be made with respect to this final rule.
a.
Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies
to consider the effect of their actions on state and local interests.
The N C U A, an independent regulatory agency as defined in 44 U.S.C.
3502(5), voluntarily complies with the principles of the
Executive Order to adhere to fundamental federalism principles.
This final rule will only impact the N C U Aâs regulations related to share
insurance coverage; it will not affect state law related to trust accounts.
The final rule will also not alter the N C U Aâs relationship or
division of responsibilities with state regulatory agencies or bodies
because the final rule will affect the
N C U Aâs federal share insurance determinations exclusively.
This final rule will not have a substantial direct effect on the states,
on the connection between the national government and the states, or on the
distribution of power and responsibilities among the various levels of government.
The N C U A has determined that this final rule does not constitute a policy
that has federalism implications for the purposes of the Executive Order.
b.
Assessment of Federal Regulations and Policies on Families
The N C U A has determined that this rule will not affect family well-being within
the meaning of section 654 of the Treasury and General Government Appropriations
Act, 1999, Public Law 105-277, 112 Stat.
2681 (1998).
Under this statute, if the agency determines the final regulation may
negatively affect family well-being, then the agency must provide an adequate
rationale for its implementation.
The N C U A has determined that the implementation of this rule will not
negatively affect family well-being.
The N C U A believes that any negative effect will be limited because the
trust changes may not affect many accounts, and members or others
maintaining those accounts will have time and notice to modify the accounts
before the final rule goes into effect.
Further, the MSA and recordkeeping changes offset negative effects because they
will instead provide the N C U A more flexibility to provide share insurance
coverage with respect to funds dedicated to pay loans and other obligations
related to family homes and businesses.
If the N C U A ultimately finds that the rule does have a negative effect as
the statute describes, it believes the benefits that the preamble describes
in simplifying coverage and potentially reducing costs for the N C U A and for F I
C Us would support implementing the rule.
c.
Small Business Regulatory Enforcement Fairness Act (Congressional Review Act)
The Small Business Regulatory Enforcement Fairness Act of 1996 (Pub.
L.
104â121) (SBREFA) generally provides for congressional review of new agency
rules that qualify as âmajorâ under criteria specified in the Act.88
The N C U Aâs analysis indicates the rule falls short of qualifying
as âmajorâ under SBREFAâs criteria.
As required by SBREFA, the N C U A is submitting this final
rule and its economic impact analysis to OMB for concurrence
on the ânot majorâ determination.
The N C U A also will file all other appropriate congressional reports.
List of Subjects in 12 CFR Part 745
Credit, Credit Unions, Share Insurance.
By the National Credit Union Administration Board
on September 19, 2024.
Melane Conyers-Ausbrooks, Secretary of the Board.
For the reasons discussed in the preamble, the Board is amending
12 CFR part 745 as follows:
PART 745âSHARE INSURANCE COVERAGE
1.
The authority citation for part 745 continues to read as follows:
88 5 U.S.C.
801â804.
Authority: 12 U.S.C.
1752(5), 1757, 1765, 1766, 1781, 1782, 1787, 1789; title V, Pub.
L.
109-
351;120 Stat.
1966.
2.
The heading for part 745 is revised to read as set forth above.
Â§ 745.0 [Amended]
3.
Amend Â§ 745.0 by removing the words âand appendixâ.
4.
Revise Â§ 745.1 to read as follows:
Â§ 745.1 Definitions.
For the purposes of this part:
Account or accounts mean share, share certificate, or share draft accounts
(or their equivalent under state law, as determined by the Board in the case of
insured state-chartered credit unions) of a member (which includes other credit
unions, public units, and nonmembers where permitted under the Act) in a credit
union of a type approved by the Board which evidences money or its equivalent
received or held by a credit union in the usual course of business and for
which it has given or is obligated to give credit to the account of the member.
Member or members mean those persons enumerated in the credit unionâs
field of membership who have been elected to membership in accordance
with the Act or state law in the case of state-chartered credit unions.
It also includes those nonmembers permitted under the Act to
maintain accounts in an insured credit union, including nonmember
credit unions and nonmember public units and political subdivisions.
Non-contingent interest means an interest capable of determination without
evaluation of contingencies except for those covered by the present worth
tables and rules of calculation for their use set forth in Â§ 20.2031-7 of the
Federal Estate Tax Regulations (26 CFR 20.2031-7) or any similar present worth
or life expectancy tables which may be adopted by the Internal Revenue Service.
Political subdivision includes any subdivision of a public unit, as defined
in paragraph (c) of this section, or any principal department of such public unit,
(1) The creation of which subdivision or department has been expressly
authorized by state statute;
(2) To which some functions of government have been delegated by state statute; and
(3) To which funds have been allocated by statute or ordinance
for its exclusive use and control.
It also includes drainage, irrigation, navigation improvement, levee, sanitary,
school or power districts and bridge or port authorities, and other special
districts created by state statute or compacts between the states.
Excluded from the term are subordinate or nonautonomous divisions, agencies,
or boards within principal departments.
Public unit means the United States, any state of the United States, the
District of Columbia, the Commonwealth of Puerto Rico, the Panama Canal Zone,
any territory or possession of the United States, any county, municipality, or
political subdivision thereof, or any Indian tribe as defined in section 3(c)
of the Indian Financing Act of 1974.
Standard maximum share insurance amount referred to as the
âSMSIAâ hereafter, means
$250,000 adjusted pursuant to subparagraph (F) of section
11(a)(1) of the Federal Deposit
Insurance Act (12 U.S.C.
1821(a)(1)(F)).
5.
Effective [INSERT DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL
REGISTER], amend Â§ 745.2 by revising paragraph (c)(2) to read as follows:
Â§ 745.2 General principles applicable in determining insurance of accounts.
* * * * * (c)
* * * (2) If the account records of an insured credit union disclose the existence
of a relationship which may provide a basis for additional insurance, the
details of the relationship and the interest of other parties in the account
must be ascertainable either from the records of the credit union or the
records of the member, maintained in good faith and in the regular course of
business by the member or by some person who or entity that has undertaken to
maintain such records for the member.
* * * * * 6.
Amend Â§ 745.2 by:
a.
Revising paragraph (a);
b.
Removing paragraph (c)(3);
c.
Redesignating paragraph (c)(4) as paragraph (c)(3);
d.
Removing paragraph (d); and
e.
Redesignating paragraphs (e) and (f) as paragraphs (d) and (e).
The revision reads as follows:
Â§ 745.2 General principles applicable in determining insurance of accounts.
(a) General.
This part provides for determination by the Board of the amount
of membersâ insured accounts.
The rules for determining the insurance coverage of accounts maintained by
members in the same or different rights and capacities in the same insured
credit union are set forth in the following provisions of this part.
While the provisions of this part govern in
determining share insurance coverage, to the extent local law enters into a share
insurance determination, the local law of the jurisdiction in which the insured
credit unionâs principal office is located will control over the local law of other
jurisdictions where the insured credit union has offices or service facilities.
* * * * * 7.
Effective [INSERT DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL
REGISTER], amend Â§ 745.3 by revising paragraph (a)(3) to read as follows:
Â§ 745.3 Single ownership accounts.
(a)
* * * (3) Mortgage servicing accounts.
Accounts maintained by a mortgage servicer, in a custodial or other
fiduciary capacity, which are comprised of payments of principal and interest, shall
be insured for the cumulative balance paid into the account by mortgagors, or
in order to satisfy mortgagorsâ principal or interest obligations to the lender, up
to the limit of the SMSIA per mortgagor.
Accounts maintained by a mortgage servicer, in a custodial or other
fiduciary capacity, which are comprised of payments by mortgagors of taxes
and insurance premiums shall be added together and insured in accordance
with paragraph (a)(2) of this section for the ownership interest
of each mortgagor in such accounts.
* * * * * 8.
Revise Â§ 745.4 to read as follows:
Â§ 745.4 Trust accounts.
(a) Scope and definitions.
This section governs coverage for funds held in connection with informal
revocable trusts, formal revocable trusts, and irrevocable trusts.
For the purposes of this section:
(1) Informal revocable trust means a trust under which deposited funds pass
directly to one or more beneficiaries upon the ownerâs death without a written
trust agreement, commonly referred to as a payable-on-death account, in-trust-for
account, or Totten trust account.
(2) Formal revocable trust means a revocable trust established by a
written trust agreement under which deposited funds pass to one or more
beneficiaries upon the grantorâs death.
(3) Irrevocable trust means an irrevocable trust established by statute or a written
trust agreement, except as described in paragraph (e) of this section.
(b) Calculation of coverage â (1) General calculation.
Deposited trust funds are insured in an amount up to the SMSIA multiplied
by the total number of beneficiaries identified by each grantor, up to
a maximum of five beneficiaries.
(2) Aggregation for purposes of insurance limit.
Deposited trust funds that pass from the same grantor to beneficiaries are
aggregated for the purposes of determining coverage under this section, regardless of
whether those funds are held in connection with an informal revocable trust, formal
revocable trust, or irrevocable trust.
(3) Separate insurance coverage.
The share insurance coverage provided under this section is separate from
coverage provided for other funds at the same federally insured credit union.
(4) Equal allocation presumed.
Unless otherwise specified in the account records of the federally insured credit
union, deposited funds held in connection with a trust established by multiple
grantors are presumed to have been owned or funded by the grantors in equal shares.
(c) Number of beneficiaries.
The total number of beneficiaries for trust funds deposited under
paragraph (b) of this section will be determined as follows:
(1) Eligible beneficiaries.
Subject to paragraph (c)(2) of this section, beneficiaries include
natural persons, as well as charitable organizations and other non-profit
entities recognized as such under the Internal Revenue Code of 1986, as amended.
(2) Ineligible beneficiaries.
Beneficiaries do not include:
(i) The grantor of a trust; or
(ii) A person or entity that would only obtain an interest in the
deposited funds if one or more named beneficiaries are deceased.
(3) Future trust(s) named as beneficiaries.
If a trust agreement provides that trust funds will pass into one or
more new trusts upon the death of the grantor(s) (âfuture trustsâ), the
future trust(s) are not treated as beneficiaries of the trust; rather, the
future trust(s) are viewed as mechanisms for distributing trust funds, and the
beneficiaries are the natural persons or organizations that shall receive the
trust funds through the future trusts.
(4) Informal trust account payable to memberâs formal trust.
If an informal revocable trust designates the account ownerâs formal trust as
its beneficiary, the informal revocable trust account will be treated as if
titled in the name of the formal trust.
(d) Account records â (1) Informal revocable trusts.
The beneficiaries of an informal revocable trust must be specifically
named in the account records of the federally insured credit union.
(2) Formal revocable trusts.
The title of a formal trust account must include terminology sufficient to
identify the account as a trust account, such as âfamily trustâ or âliving trust,â
or must otherwise be identified as a testamentary trust in the account records
of the federally insured credit union.
If eligible beneficiaries of such formal revocable trust are specifically
named in the account records of the federally insured credit union,
the N C U A shall presume the continued validity of the named
beneficiariesâ interest in the trust.
(e) Deposited funds excluded from coverage under this section â (1)
Revocable trust co-owners
that are sole beneficiaries of a trust.
If the co-owners of an informal or formal revocable trust
are the trustâs sole beneficiaries, deposited funds held in connection
with the trust are treated as joint ownership funds under Â§ 745.8.
(2) Employee benefit plan deposits.
Deposited funds of employee benefit plans, even if held in connection
with a trust, are treated as employee benefit plan funds under Â§ 745.9.
Â§ 745.9-1 [Removed]
9.
Remove Â§ 745.9-1.
Â§ 745.9-2 [Redesignated as Â§ 745.9]
10.
Redesignate Â§ 745.9-2 as Â§ 745.9.
Â§ 745.9 [Amended]
11.
Amend newly designated Â§ 745.9 in paragraph (a) by removing the phrase â, in
accordance with Â§ 745.2 of this partâ.
Â§ 745.13 [Amended]
12.
Amend Â§ 745.13 by removing the words âthe appendixâ.
13.
Effective [INSERT DATE 30 DAYS AFTER DATE OF PUBLICATION IN THE
FEDERAL REGISTER], amend Â§ 745.14 by revising paragraph
(a)(2) to read as follows:
Â§ 745.14 Interest on lawyers trust accounts and other similar escrow accounts.
(a)
* * * (2) Pass-through coverage will only be available if the recordkeeping
requirements of Â§ 745.2(c)(1) of this part and the relationship disclosure
requirements of Â§ 745.2(c)(2) of this part are satisfied.
In the event those requirements are satisfied, funds
attributable to each client and
principal will be insured on a pass-through basis in whatever
right and capacity the client or principal owns the funds.
For example, an IOLTA or other similar escrow account must be titled as such,
and the underlying account records of the insured credit union must sufficiently
indicate the existence of the relationship on which a claim for insurance is founded.
The details of the relationship between the attorney or escrow agent
and their clients and principals must be ascertainable from the records
of the insured credit union or from records maintained, in good faith and
in the regular course of business, by the attorney or the escrow agent
administering the account, or by some person who or entity that has
undertaken to maintain such records for the attorney or escrow agent.
The N C U A will determine, in its sole discretion, the sufficiency
of these records for an IOLTA or other similar escrow account.
This concludes the N C U A Letter to credit unions on Simplification
of Share Insurance Rules
If your Credit union could use assistance with your exam, reach out to Mark Treichel
on LinkedIn, or at mark Treichel dot com.
This is Samantha Shares and we Thank you for listening.