[Federal Register Volume 64, Number 62 (Thursday, April 1, 1999)]
[Rules and Regulations]
[Pages 15653-15657]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7736]


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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 330

RIN 3064-AC16


Deposit Insurance Regulations; Joint Accounts and ``Payable-on-
Death'' Accounts

AGENCY: Federal Deposit Insurance Corporation (FDIC).

ACTION: Final rule.

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SUMMARY: The FDIC is amending its regulations governing the insurance 
coverage of joint ownership accounts and revocable trust (or payable-
on-death) accounts. The amendments are almost identical to the 
amendments proposed by the FDIC in July 1998; they supplement other 
revisions that became effective in July. The purpose of the amendments 
is to increase the public's understanding of the insurance rules 
through simplification.
    The final rule makes three changes to the deposit insurance 
regulations. First, it eliminates step one of the two-step process for 
determining the insurance coverage of joint accounts. Second, it 
changes the insurance coverage of ``payable-on-death'' accounts by 
adding parents and siblings to the list of ``qualifying 
beneficiaries''. Third, it makes certain technical amendments to the 
FDIC's rules regarding the coverage of accounts held by agents or 
fiduciaries.

DATES: Effective April 1, 1999.

FOR FURTHER INFORMATION CONTACT: Christopher L. Hencke, Counsel, (202) 
898-8839, or Joseph A. DiNuzzo, Counsel, (202) 898-7349, Legal 
Division, Federal Deposit Insurance Corporation, 550 17th Street, NW, 
Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

I. Simplifying the Insurance Regulations

    Federal deposit insurance plays a critical role in assuring 
stability and public confidence in the nation's financial system. 
Deposit insurance cannot play this role, however, unless the rules 
governing the application of the $100,000 insurance limit are 
understood by depositors. Misunderstandings can lead to a loss of 
depositors' funds with a resulting loss of public confidence.
    Unfortunately, some of the FDIC's insurance rules have been widely 
misunderstood. See 63 FR 38521 (July 17, 1998). This confusion prompted 
the FDIC to initiate a simplification effort. As a result of that 
effort, the FDIC issued

[[Page 15654]]

a final rule, effective July 1, 1998, to ``clarify and simplify'' the 
FDIC's deposit insurance regulations. See 63 FR 25750 (May 11, 1998). 
The final rule made numerous technical and substantive amendments to 
the insurance regulations, including the use of plainer language and 
examples. To further simplify and clarify the deposit insurance rules, 
in July 1998, the FDIC published a proposed rule to amend the 
regulations dealing with joint accounts and ``payable-on-death'' (or 
POD) accounts. See 63 FR 38521 (July 17, 1998). The proposed rule is 
described in detail below.

II. The Proposed Rule

A. Joint Accounts

    Under the FDIC's insurance rules, qualifying joint accounts are 
insured separately from any single ownership accounts maintained by the 
co-owners at the same insured depository institution. See 12 CFR 
330.9(a). A joint account is a ``qualifying'' joint account if it 
satisfies certain requirements: (1) The co-owners must be natural 
persons; (2) each co-owner must personally sign a deposit account 
signature card; and (3) the withdrawal rights of the co-owners must be 
equal. See 12 CFR 330.9(c)(1). The requirement involving signature 
cards is inapplicable if the account at issue is a certificate of 
deposit, a deposit obligation evidenced by a negotiable instrument, or 
an account maintained for the co-owners by an agent or custodian. See 
12 CFR 330.9(c)(2).
    Assuming these requirements are satisfied, the current rules (i.e., 
the rules in effect prior to the effective date of this final rule) 
provide that the $100,000 insurance limit shall be applied in a two-
step process. First, all joint accounts owned by the same combination 
of persons at the same insured depository institution are added 
together and insured to a limit of $100,000. Second, the interests of 
each person in all joint accounts, whether owned by the same or some 
other combination of persons, are added together and insured to a limit 
of $100,000. See 12 CFR 330.9(b).
    The two-step process for insuring joint accounts has been 
misunderstood by bank employees as well as depositors. This widespread 
confusion has resulted in the loss by some depositors of significant 
sums of money. For example, at one failed depository institution, three 
individuals held three joint accounts (and no other types of accounts). 
The interest of each individual was less than $100,000. The individuals 
chose to place all of their funds in joint accounts so that each of 
them would have access to the money in the event of an emergency or 
sudden illness. When the institution failed, step one of the two-step 
process required the aggregation of the three joint accounts. The 
amount in excess of $100,000 was uninsured.
    In this example, all of the funds owned by the three joint owners 
could have been insured if the funds had been held in individual 
accounts as opposed to joint accounts. Thus, the depositors did not 
suffer a loss because they placed too much money in a single depository 
institution that failed. Rather, they suffered a loss simply because 
they misunderstood the FDIC's regulations. See also Sekula v. FDIC, 39 
F.3d 448 (3d Cir. 1994).
    In order to simplify the coverage of joint accounts, the FDIC 
proposed to eliminate the first step of the two-step process.

B. POD Accounts

    Under the current rules (i.e., the rules in effect prior to the 
effective date of this final rule), qualifying revocable trust (or POD) 
accounts are insured separately from any other types of accounts 
maintained by either the owner or the beneficiaries at the same insured 
depository institution. See 12 CFR 330.10(a).
    A POD account is a ``qualifying'' POD account if it satisfies 
certain requirements: (1) The beneficiaries must be the spouse, 
children or grandchildren of the owner; (2) the beneficiaries must be 
specifically named in the deposit account records; (3) the title of the 
account must include a term such as ``in trust for'' or ``payable-on-
death to'' (or any acronym therefor); and (4) the intention of the 
owner of the account (as evidenced by the account title or any 
accompanying revocable trust agreement) must be that the funds shall 
belong to the named beneficiaries upon the owner's death. If the 
account has been opened pursuant to a formal ``living trust'' 
agreement, the fourth requirement means that the agreement must not 
place any conditions upon the interests of the beneficiaries that might 
prevent the beneficiaries (or their estates or heirs) from receiving 
the funds following the death of the owner. Such conditions are known 
as ``defeating contingencies''.
    Assuming these requirements are satisfied, the $100,000 insurance 
limit is not applied on a ``per owner'' basis. Rather, the $100,000 
insurance limit is applied on a ``per beneficiary'' basis to all POD 
accounts owned by the same person at the same insured depository 
institution. For example, a POD account owned by one person would be 
insured up to $500,000 if the account names five qualifying 
beneficiaries.
    If one of the named beneficiaries of a POD account is not a 
qualifying beneficiary, the funds corresponding to that beneficiary are 
treated for insurance purposes as single ownership funds of the owner 
(i.e., the account holder). In other words, they are aggregated with 
any funds in any single ownership accounts of the owner and insured to 
a limit of $100,000. See 12 CFR 330.10(b).
    On a number of occasions, depositors have lost money upon the 
failure of an insured depository institution because they believed that 
POD accounts are insured on a simple ``per beneficiary'' or ``per 
family member'' basis. They did not understand the difference between 
qualifying beneficiaries and non-qualifying beneficiaries. Typically, 
in such cases, the named beneficiary has been a parent or sibling. In 
the absence of a qualifying beneficiary, the POD account has been 
aggregated with the owner's single ownership accounts.
    In response to such cases, the FDIC proposed adding siblings and 
parents to the list of qualifying beneficiaries. The purpose of this 
proposal was to protect most depositors who misunderstand the rules 
governing POD accounts without abandoning the basic concept that 
insurance for such accounts is provided up to $100,000 on a ``per 
qualifying beneficiary'' basis.

III. The Final Rule

    The FDIC received forty-one comments on the proposed rule. The 
commenters can be divided into five categories: depository institutions 
(25); banking trade associations (9); bank holding companies (3); 
individuals (3); and other (1) (a computer software company). Of these 
comments, the vast majority supported the proposed amendments. Only two 
comments were critical of the proposed amendments.
    The typical comment on the joint account revision praised the FDIC 
for proposing to eliminate the ``most confusing and misunderstood'' 
part of the current insurance regulations. The most pervasive comment 
on the POD account revision was that the amendment to add parents and 
siblings as qualified beneficiaries has been ``long overdue''.
    Of the two critical comments, one suggested that the FDIC lacks the 
authority to eliminate step one of the two-step process for insuring 
joint accounts. In the commenter's opinion, the elimination of step one 
would violate the statutory mandate that the FDIC--in applying the 
$100,000 insurance limit--must ``aggregate the amounts of all deposits 
in the insured

[[Page 15655]]

depository institution which are maintained by a depositor in the same 
capacity and the same right for the benefit of the depositor * * *.'' 
12 U.S.C. 1821(a)(1)(C). Specifically, the commenter argued that an 
account held by a particular combination of co-owners represents a 
single ``right and capacity''. In other words, under this argument, the 
combinations of co-owners--and not the individual persons--are the 
``depositors'' of joint accounts. Therefore, such an account cannot be 
insured for more than the statutory insurance limit of $100,000 (as 
prescribed by step one).
    The argument above is consistent with the FDIC's approach toward 
insuring joint accounts prior to 1967. It is inconsistent, however, 
with the FDIC's creation in 1967 of step two of the two-step process. 
See 32 FR 10408 (July 14, 1967). Under step two, the FDIC has treated 
the individual persons as the ``depositors''. Nothing in the Federal 
Deposit Insurance Act precludes this longstanding interpretation.
    Through the elimination of step one, the regulations provide a 
simple $100,000 insurance limit for the interest of each person (a 
depositor) in all joint accounts (an ownership right and capacity). The 
FDIC believes that this result will be consistent with the statutory 
limit of $100,000 for ``the amounts of all deposits in the insured 
depository institution which are maintained by a depositor in the same 
capacity and the same right * * *.'' 12 U.S.C. 1821(a)(1)(C). Moreover, 
as recognized by the vast majority of commenters, this result will be 
much easier to understand than the two-step process. Accordingly, the 
Board has decided to adopt the proposed elimination of step one.
    As a result of this final rule, the maximum insurance coverage of a 
particular joint account (or group of joint accounts owned by the same 
combination of persons) will no longer be $100,000. In the case of a 
joint account of $200,000 owned by two persons, for example, the 
maximum coverage will increase from $100,000 to $200,000 (or $100,000 
for the interest of each owner). The maximum coverage that any one 
person can obtain for his/her interests in all qualifying joint 
accounts, however, will remain $100,000.
    The second critical comment argued that the proposed amendments 
would not accomplish the objective of simplifying the regulations. In 
the case of the elimination of step one of the two-step process for 
insuring joint accounts (discussed above), this argument is unfounded. 
As recognized by the vast majority of commenters, a one-step process is 
simpler than a two-step process. In the case of the POD account 
amendment, the argument is stronger because the amendment will not 
eliminate the concept of ``qualifying beneficiaries''. By adding 
parents and siblings to the list of ``qualifying beneficiaries'', 
however, the amendment will reduce the number of cases in which a 
depositor's confusion results in a loss of funds. In other words, the 
amendment may not eliminate confusion but will protect most depositors 
from the negative consequences of such confusion. For this reason, the 
Board has decided to adopt the proposed amendment. Unlike the proposed 
rule, the final rule defines the terms ``parents'', ``brothers'' and 
``sisters''.
    The subject of ``living trust'' accounts should be mentioned. A 
``living trust'' account is a POD account opened pursuant to a formal 
``living trust'' agreement. By expanding the list of ``qualifying 
beneficiaries'', the final rule will not remove the complicated 
methodology for determining the insurance coverage of such accounts. 
This methodology requires a determination as to whether the interest of 
each beneficiary is subject to any conditions or contingencies 
(referred to by the FDIC as defeating contingencies) that might prevent 
the beneficiary from receiving his/her share of funds following the 
death of the owner. Most ``living trust'' agreements include defeating 
contingencies. As a result, most ``living trust'' accounts are 
classified by the FDIC for insurance purposes as single ownership 
accounts. In other words, the account is aggregated with any single 
ownership accounts of the owner at the same depository institution and 
insured to a limit of only $100,000. See 12 CFR 330.10(f).

IV. Technical Amendments

    Under the FDIC's rules regarding the insurance coverage of accounts 
held by agents or fiduciaries, the funds in such accounts are insured 
to the same extent as if deposited in the names of the principals. See 
12 CFR 330.7(a). In other words, the insurance coverage ``passes 
through'' the agent or custodian to the principal or actual owner. The 
account will not be entitled to such ``pass-through'' coverage, 
however, unless the agency or fiduciary relationship is disclosed in 
the deposit account records. See 12 CFR 330.5(b).
    The necessity of disclosing fiduciary relationships in the account 
records has been referred to as a ``recordkeeping requirement'' in the 
insurance regulations. The term ``recordkeeping requirement'' may 
suggest to some depository institutions that they possess an 
affirmative duty to collect information regarding fiduciary 
relationships. In fact, no such duty exists. For this reason, the FDIC 
has decided to rephrase certain sections of the regulations.
    The final rule removes ``recordkeeping requirements'' from the 
section heading at 12 CFR 330.5 and the paragraph headings at 12 CFR 
330.5(b) and 12 CFR 330.5(b)(4). Also, the term is removed from 12 CFR 
330.14(a).
    The paragraph at 12 CFR 330.5(b)(1) provides that no claim for 
insurance coverage based on a fiduciary relationship will be recognized 
unless the fiduciary relationship is disclosed in the account records. 
The final rule revises this paragraph so as to remove any suggestion 
that depository institutions are subject to reporting requirements with 
respect to accounts held by agents or fiduciaries. Specifically, the 
final rule changes language resembling a command directed at depository 
institutions (``[t]he `deposit account records' * * * of an insured 
depository institution must expressly disclose * * * the existence of 
any fiduciary relationship'') to a statement describing the 
consequences of failing to disclose a fiduciary relationship (``[t]he 
FDIC will recognize a claim for insurance coverage based on a fiduciary 
relationship only if the relationship is expressly disclosed * * *'').
    These amendments are technical. Their sole purpose is 
clarification. For this reason, the Board finds ``good cause'' for 
adopting these amendments without the rulemaking procedures generally 
required by the Administrative Procedure Act. See 5 U.S.C. 553. 
Inasmuch as this amendment will have no effect upon the operation of 
the insurance regulations, these procedures are unnecessary.

V. Effective Date

    The Administrative Procedure Act generally requires the publication 
of a substantive rule at least thirty days before its effective date. 
One of the exceptions is for ``good cause''. 5 U.S.C. 553(d). In the 
case of this final rule, the Board finds ``good cause'' to make the 
amendments effective immediately upon publication in the Federal 
Register. ``Good cause'' exists because the amendments will not 
prejudice any depositor or depository institution. On the contrary, the 
amendments will result in increased insurance coverage for some 
depositors who may misunderstand the current rules (for

[[Page 15656]]

example, two individuals with a qualifying joint account of $200,000; 
or an individual who has named a sibling as the beneficiary of a POD 
account). By making the amendments effective immediately, the Board 
will protect depositors of any FDIC-insured institutions that may fail 
within the thirty-day period following publication.
    With certain exceptions, the Riegle Community Development and 
Regulatory Improvement Act of 1994 (Public Law 103-325) provides that 
the federal banking agencies may not impose new regulatory reporting 
requirements on insured depository institutions except on the first day 
of a calendar quarter after the date of publication. See 12 U.S.C. 
4802(b). This rule is inapplicable because the final rule imposes no 
reporting, disclosure or other new requirements on insured depository 
institutions.

VI. Paperwork Reduction Act

    The final rule will simplify the FDIC's deposit insurance 
regulations governing joint accounts and POD accounts. It will not 
involve any collections of information under the Paperwork Reduction 
Act (44 U.S.C. 3501 et seq.). Consequently, no information has been 
submitted to the Office of Management and Budget for review.

VII. Regulatory Flexibility Act

    The final rule will not have a significant impact on a substantial 
number of small businesses within the meaning of the Regulatory 
Flexibility Act (5 U.S.C. 601 et seq.). The amendments to the deposit 
insurance rules will apply to all FDIC-insured depository institutions 
and will impose no new reporting, recordkeeping or other compliance 
requirements upon those entities. Accordingly, the Act's requirements 
relating to an initial and final regulatory flexibility analysis are 
not applicable.

VIII. Small Business Regulatory Enforcement Fairness Act

    The Office of Management and Budget has determined that the final 
rule is not a ``major rule'' within the meaning of the relevant 
sections of the Small Business Regulatory Enforcement Fairness Act of 
1996 (SBREFA) (5 U.S.C. 801 et seq.). As required by SBREFA, the FDIC 
will file the appropriate reports with Congress and the General 
Accounting Office so that the final rule may be reviewed.

List of Subjects in 12 CFR Part 330

    Bank deposit insurance, Banks, banking, Reporting and recordkeeping 
requirements, Savings and loan associations, Trusts and trustees.

    The Board of Directors of the Federal Deposit Insurance Corporation 
hereby amends part 330 of chapter III of title 12 of the Code of 
Federal Regulations as follows:

PART 330--DEPOSIT INSURANCE COVERAGE

    1. The authority citation for part 330 continues to read as 
follows:

    Authority: 12 U.S.C. 1813(l), 1813(m), 1817(i), 1818(q), 
1819(Tenth), 1820(f), 1821(a), 1822(c).

    2. In Sec. 330.3, paragraph (h) is revised to read as follows:


Sec. 330.3  General principles.

* * * * *
    (h) Application of state or local law to deposit insurance 
determinations. In general, deposit insurance is for the benefit of the 
owner or owners of funds on deposit. However, while ownership under 
state law of deposited funds is a necessary condition for deposit 
insurance, ownership under state law is not sufficient for, or decisive 
in, determining deposit insurance coverage. Deposit insurance coverage 
is also a function of the deposit account records of the insured 
depository institution and of the provisions of this part, which, in 
the interest of uniform national rules for deposit insurance coverage, 
are controlling for purposes of determining deposit insurance coverage.
* * * * *
    3. In Sec. 330.5, the section heading and paragraphs (b)(1), (b)(4) 
heading, and (b)(4)(i) are revised to read as follows:


Sec. 330.5  Recognition of deposit ownership and fiduciary 
relationships.

* * * * *
    (b) Fiduciary relationships--(1) Recognition. The FDIC will 
recognize a claim for insurance coverage based on a fiduciary 
relationship only if the relationship is expressly disclosed, by way of 
specific references, in the ``deposit account records'' (as defined in 
Sec. 330.1(e)) of the insured depository institution. Such 
relationships include, but are not limited to, relationships involving 
a trustee, agent, nominee, guardian, executor or custodian pursuant to 
which funds are deposited. The express indication that the account is 
held in a fiduciary capacity will not be necessary, however, in 
instances where the FDIC determines, in its sole discretion, that the 
titling of the deposit account and the underlying deposit account 
records sufficiently indicate the existence of a fiduciary 
relationship. This exception may apply, for example, where the deposit 
account title or records indicate that the account is held by an escrow 
agent, title company or a company whose business is to hold deposits 
and securities for others.
* * * * *
    (4) Exceptions--(i) Deposits evidenced by negotiable instruments. 
If any deposit obligation of an insured depository institution is 
evidenced by a negotiable certificate of deposit, negotiable draft, 
negotiable cashier's or officer's check, negotiable certified check, 
negotiable traveler's check, letter of credit or other negotiable 
instrument, the FDIC will recognize the owner of such deposit 
obligation for all purposes of claim for insured deposits to the same 
extent as if his or her name and interest were disclosed on the records 
of the insured depository institution; provided, that the instrument 
was in fact negotiated to such owner prior to the date of default of 
the insured depository institution. The owner must provide affirmative 
proof of such negotiation, in a form satisfactory to the FDIC, to 
substantiate his or her claim. Receipt of a negotiable instrument 
directly from the insured depository institution in default shall, in 
no event, be considered a negotiation of said instrument for purposes 
of this provision.
* * * * *
    4. In Sec. 330.9, paragraph (b) is revised to read as follows:


Sec. 330.9  Joint ownership accounts.

* * * * *
    (b) Determination of insurance coverage. The interests of each co-
owner in all qualifying joint accounts shall be added together and the 
total shall be insured up to $100,000. (Example: ``A&B'' have a 
qualifying joint account with a balance of $60,000; ``A&C'' have a 
qualifying joint account with a balance of $80,000; and ``A&B&C'' have 
a qualifying joint account with a balance of $150,000. A's combined 
ownership interest in all qualifying joint accounts would be $120,000 
($30,000 plus $40,000 plus $50,000); therefore, A's interest would be 
insured in the amount of $100,000 and uninsured in the amount of 
$20,000. B's combined ownership interest in all qualifying joint 
accounts would be $80,000 ($30,000 plus $50,000); therefore, B's 
interest would be fully insured. C's combined ownership interest in all 
qualifying joint accounts would be $90,000 ($40,000 plus $50,000); 
therefore, C's interest would be fully insured.)
* * * * *
    5. In Sec. 330.10, paragraphs (a) and (e) are revised to read as 
follows:

[[Page 15657]]

Sec. 330.10  Revocable trust accounts.

    (a) General rule. Funds owned by an individual and deposited into 
an account with respect to which the owner evidences an intention that 
upon his or her death the funds shall belong to one or more qualifying 
beneficiaries shall be insured in the amount of up to $100,000 in the 
aggregate as to each such named qualifying beneficiary, separately from 
any other accounts of the owner or the beneficiaries. For purposes of 
this provision, the term ``qualifying beneficiaries'' means the owner's 
spouse, child/children, grandchild/grandchildren, parent/parents, 
brother/brothers or sister/sisters. (Example: If A establishes a 
qualifying account payable upon death to his spouse, sibling and two 
children, assuming compliance with the rules of this provision, the 
account would be insured up to $400,000 separately from any other 
different types of accounts either A or the beneficiaries may have with 
the same depository institution.) Accounts covered by this provision 
are commonly referred to as tentative or ``Totten trust'' accounts, 
``payable-on-death'' accounts, or revocable trust accounts.
* * * * *
    (e) Definition of ``children'', ``grandchildren'', ``parents'', 
``brothers'' and ``sisters''. For the purpose of establishing the 
qualifying degree of kinship identified in paragraph (a) of this 
section, the term ``children'' includes biological, adopted and step-
children of the owner. The term ``grandchildren'' includes biological, 
adopted and step-children of any of the owner's children. The term 
``parents'' includes biological, adoptive and step-parents of the 
owner. The term ``brothers'' includes full brothers, half brothers, 
brothers through adoption and step-brothers. The term ``sisters'' 
includes full sisters, half sisters, sisters through adoption and step-
sisters.
* * * * *
    6. In Sec. 330.14, paragraph (a) is revised to read as follows:


Sec. 330.14  Retirement and other employee benefit plan accounts.

    (a) ``Pass-through'' insurance. Except as provided in paragraph (b) 
of this section, any deposits of an employee benefit plan or of any 
eligible deferred compensation plan described in section 457 of the 
Internal Revenue Code of 1986 (26 U.S.C. 457) in an insured depository 
institution shall be insured on a ``pass-through'' basis, in the amount 
of up to $100,000 for the non-contingent interest of each plan 
participant, provided that the rules prescribed in Sec. 330.5 are 
satisfied.
* * * * *
    By order of the Board of Directors.

    Dated at Washington, D.C., this 23rd day of March, 1999.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 99-7736 Filed 3-31-99; 8:45 am]
BILLING CODE 6714-01-P