[Federal Register Volume 64, Number 77 (Thursday, April 22, 1999)]
[Rules and Regulations]
[Pages 19685-19689]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-9930]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 64, No. 77 / Thursday, April 22, 1999 / Rules
and Regulations
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 745
Share Insurance and Appendix
AGENCY: National Credit Union Administration (NCUA).
ACTION: Interim final rule with request for comments.
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SUMMARY: This interim rule simplifies NCUA's share insurance
regulations on testamentary accounts, frequently referred to as
revocable trust accounts or payable on death accounts, and joint
ownership accounts. These amendments are similar to those adopted by
the Federal Deposit Insurance Corporation (FDIC) for its deposit
insurance regulations. The first amendment increases available share
insurance coverage on payable on death accounts by adding parents and
siblings to the list of relatives for whom a member may receive
separate coverage. The second amendment simplifies the method for
determining the amount of insured funds a person may have in one or
more joint accounts by eliminating the first of two steps used to make
such determinations. These amendments are adopted as an interim rule to
provide parity between NCUA and FDIC insurance regulations on commonly
held accounts, and to aid the public and prevent confusion over the
amount of federal insurance available on those accounts.
DATES: Effective April 22, 1999. Comments must be received on or before
July 15, 1999.
ADDRESSES: Comments should be directed to Becky Baker, Secretary of the
Board. Mail or hand-deliver comments to: National Credit Union
Administration, 1775 Duke Street, Alexandria, VA 22314-3428. Fax
comments to (703) 518-6319. E-mail comments to [email protected].
Please send comments by one method only.
FOR FURTHER INFORMATION CONTACT: James J. Engel, Deputy General
Counsel, at the above address, or telephone: (703) 518-6540.
SUPPLEMENTARY INFORMATION:
A. Background
In accordance with NCUA's regulatory review process, at year end
1998, NCUA staff identified part 745 as one of the regulations in need
of updating, clarification and simplification. Part 745 was included in
NCUA's Semi-Annual Agenda of Regulations that will appear in the April
1999, Unified Agenda of Federal Regulatory and Deregulatory Actions
published by the Regulatory Information Service Center, GSA. Work on
this project is to begin in late summer. However, due to recent deposit
insurance rule changes for joint accounts and revocable trust accounts
adopted by the Board of Directors of the Federal Deposit Insurance
Corporation (FDIC), the NCUA Board believes it is in the public
interest to adopt similar changes for two basic reasons. First, the
FDIC's recent action to simplify its rules and provide added protection
for bank customers warrants similar action by the NCUA Board to
maintain parity between the coverage provided by both federal programs.
Both revocable trust accounts and joint accounts are types of accounts
commonly used by members of the public for the future transfer of
ownership of family assets without loss of control during the owner's
life. Traditionally, the owners of these accounts have been afforded
the same protection through similar Congressionally created federal
insurance funds, whether the accounts are maintained in banks or credit
unions.
Second, changes are needed to reduce, and hopefully avoid,
confusion about the application of NCUA's insurance rules to these
types of accounts, and also to avoid confusion regarding any
differences between NCUA insurance on credit union accounts and FDIC
insurance on similar accounts at bank and savings associations. The
NCUA Board is aware that there is confusion, both on the part of credit
union members and credit union employees about the current rules
regarding these accounts. This confusion has been brought to the
Board's attention through appeals filed under subpart B of part 745. It
is especially apparent when family members open several different joint
accounts, or joint owners use combinations of joint accounts and
revocable trust accounts. The FDIC had noted that its previous joint
account and payable on death account rules were frequently
misunderstood by bank depositors. It also looked at surveys conducted
by public interest research groups that showed that bank employees too
shared depositors' confusion. The action taken by FDIC provides needed
clarification and simplification for customers of its insured
institutions. The same benefits are extended to credit unions and their
members by the Board's adoption of this interim rule.
In order to expedite this process, the Board has chosen to make
minimum changes to the existing language of its regulations and not a
full scale rewrite or format revision at this time. Further, the NCUA
Board has not attempted to duplicate the studies conducted by or
reviewed by the FDIC prior to its adoption of the recent final rule.
The Board recognizes that its payout experience on revocable trust and
joint accounts has not been of the magnitude of that cited by the FDIC.
B. Current Rules
Testamentary Accounts (Revocable Trust Accounts)
These are accounts that evidence an intention on the part of the
owner to pass funds on to one or more beneficiaries upon the owner's
death. They include payable-on-death accounts (POD accounts), and
tentative or ``Totten'' trust accounts. These accounts are insured
separately from other accounts of the owner if the beneficiary is a
spouse, child or grandchild. There can be more than one beneficiary,
and if each beneficiary is either the spouse, a child or grandchild,
the account will be insured up to $100,000 for each such beneficiary.
For example, if an account is held by a husband ``in trust for'' his
wife and three children, the account will be insured for $400,000. This
coverage will be separate from any insurance the husband, wife or
children may have on their own accounts. For these accounts, insurance
is provided on a per beneficiary basis for the spouse,
[[Page 19686]]
child or grandchild. If, however, a credit union member names a parent
or sibling as a beneficiary, a common practice particularly for single
individuals, then the account will be added to the individual account
of the member and insured up to $100,000. There is no per beneficiary
protection in that case even though there is a close familial
relationship.
As the FDIC noted, by adding parents and siblings to the list of
family members who qualify as beneficiaries for additional coverage,
most of the customers who misunderstand the current rules will be
protected. The Board believes that same level of protection should be
provided to credit union members and, therefore, has adopted a similar
amendment. This interim rule also clarifies that the degree of kinship
for named beneficiaries includes relationships through blood, adoption,
or by virtue of remarriage. FDIC has a similar provision.
Joint Accounts
NCUA's current regulation does not expressly refer to a two step
process in determining insurance coverage on joint accounts as did the
FDIC's rule. However, where an individual had several joint accounts,
some with different joint owners, insurance coverage was determined by
applying two subsections. First, under subsection 745.8(d), joint
accounts with the same combination of owners are aggregated and insured
up to $100,000. Even though there is more than one account, if the
owners are the same, the accounts are treated as one account. Then,
under subsection 745.8(e), a person's interest in all joint accounts
with different combinations of owners joint is aggregated and insured
up to $100,000. Thus, NCUA followed the same type of two step process
used by the FDIC
The application of this process results in certain inequities. If a
person has ownership interests in several different joint accounts,
each with a different combination of joint owners, his or her interest
in each of those accounts will be added together and insured to
$100,000. The same will be done for each of the other joint owners as
well. If instead, that person has one or more joint accounts with the
same combination of joint owners, the maximum insurance available to
all of those joint owners combined will be limited to $100,000. Thus,
in one instance, each joint owner's interest can be insured up to
$100,000, while in the other, total coverage on the account is limited
to $100,000, notwithstanding the amount of each of the joint owner's
interest.
Through this interim final rule, the Board is taking the same
approach to simplify coverage on joint accounts as did the FDIC. It
will no longer be necessary to aggregate all joint accounts owned by
the same combination of individuals. With this amendment, each person's
interest in all qualifying joint accounts will be aggregated and
insured to a maximum of $100,000. The rule also eliminates the
signature requirement for share certificates, a matter that has
presented problems in the past, and for accounts maintained by certain
fiduciaries for joint owners as long as the credit union's records
reflect that there are joint owners. FDIC has a similar provision.
C. Interim Rule--Amendments
For purposes of this interim rule, the Board has not changed the
current format used in part 745. Instead, minor modifications have been
made to keep the amendments simple while accomplishing the desired
change. It is expected that more substantial changes to part 745 will
be made when agency staff undertakes a more comprehensive review of all
of its provisions and after receiving comments as a result of this
request for comments.
1. Section 745.4
The title of this section has been changed from ``Testamentary
Accounts'' to ``Revocable Trust Accounts,'' the section title the FDIC
adopted when it issued uniform rules for banks and savings associations
previously insured by the former Federal Savings and Loan Insurance
Corporation (FSLIC). See 55 FR 20111 (May 15, 1990). This nomenclature
will be more reflective of the types of accounts that members will be
using in the future and that the Board anticipates will be addressed in
subsequent action on part 745. Substantively, this interim rule extends
insurance coverage by adding parents and siblings to the list of
relatives who may be named as beneficiary on a revocable trust account
and for whom per beneficiary insurance coverage will be provided. The
rule also adds a new subsection (d) to define the degree of kinship for
named beneficiaries to include relationships through blood, adoption,
or by virtue of remarriage, such as a step-child or step-sister.
2. Section 745.8 Joint Accounts
This amendment adds language to subsection (a) to provide that a
co-owner's interest in all joint accounts will be added together and
insured up to a maximum of $100,000. It also removes subsections (d)
and (e). These changes eliminate the two step process for determining
insurance coverage on joint accounts. Language is also added to
subsection (b) to eliminate the signature requirement for share
certificates and accounts maintained for joint owners provided the
credit union records reflect the nature of the accounts.
D. Request for Comments
This interim rule only affects those provisions in part 745 and the
appendix that relate to joint accounts and revocable trust accounts. As
noted above, the Board is not amending or proposing any specific
amendments to other provisions of Part 745. Also, the Board is not
adopting in this interim rule a change similar to that adopted by the
FDIC regarding insurance coverage of accounts held by agents or
fiduciaries. However, the Board is interested in comments on part 745
in its entirety, including style and format and suggestions for
simplification or clarification. NCUA currently uses a separate
appendix to provide examples of insurance coverage, whereas FDIC
provides examples within some of the specific provisions of its rules.
Is either format preferable, or should NCUA add an additional appendix
with staff interpretations, similar to that used in part 707 for Truth
in Savings?
When reviewing part 745, the Board suggests commenters look to the
simplification of deposit insurance rules amendments adopted by the
FDIC (63 FR 25750, May 11, 1998; 64 FR 15653, April 1, 1999). Many of
those changes, with or without additional modification, may be
appropriate for Board consideration. The Board invites comments on how
to address insurance on living trusts, or the need for guidance on any
account insurance related areas they may be unique to credit unions. Of
particular importance are suggestions on ways to make the share
insurance regulations more easily understandable to members and
employees.
E. Effective Date
Under the Administrative Procedure Act, a substantive rule is to be
published 30 days before its effective date unless it meets one of that
Act's exceptions. The NCUA Board has determined that this interim rule
falls within the ``good cause'' exception of that Act, 5 U.S.C. 553(d),
and, therefore, it is made effective immediately upon publication in
the Federal Register. ``Good cause'' exists because the rule benefits
credit union members and employees by simplifying how to determine the
amount of coverage available on commonly used accounts; it increases
the amount of coverage that
[[Page 19687]]
is available for the benefit of credit union members; it does not
prejudice credit union members or credit unions; and it provides
immediate protection for members whose interests might otherwise be
jeopardized if an insured credit union were to fail within the normal
thirty day delayed effective date period.
Regulatory Procedures
Regulatory Flexibility Act
This interim final rule applies to all federally-insured credit
unions but does not impose new reporting, recordkeeping or other
compliance requirements on those institutions. Therefore, the Board has
determined and certifies that this rule will not have a significant
economic impact on a substantial number of small credit unions.
Accordingly, the NCUA Board has determined that a Regulatory
Flexibility Analysis is not required.
Paperwork Reduction Act
This interim rule does not impose any paperwork requirements and,
therefore, no information has been submitted to the Office of
Management and Budget.
Executive Order 12612
Although this interim rule applies to federally-insured state-
chartered credit unions, it has no affect on the regulation of those
credit unions.
List of Subjects in 12 CFR Part 745
Credit unions, Pension plans, Share insurance, Trustee.
By the National Credit Union Administration Board, this 15th day
of April, 1999.
Becky Baker,
Secretary, NCUA Board.
For the reasons stated in the preamble, NCUA amends 12 CFR chapter
VII as follows:
PART 745--SHARE INSURANCE AND APPENDIX
1. The authority citation for part 745 is revised to read as
follows:
Authority: 12 U.S.C. 1752(5), 1757, 1765, 1766, 1781, 1782,
1787, 1789.
2. Section 745.4 is revised to read as follows:
Sec. 745.4 Revocable trust accounts.
(a) For purposes of this part, the term ``revocable trust account''
includes a testamentary account, tentative or ``Totten'' trust account,
``payable-on-death'' account, or any similar account which evidences an
intention that the funds shall pass on the death of the owner of the
funds to a named beneficiary.
(b) If the named beneficiary of a revocable trust account is a
spouse, child, grandchild, parent, brother or sister of the account
owner, the account shall be insured up to $100,000 in the aggregate as
to each such beneficiary, separately from any other accounts of the
owner or beneficiary, regardless of the membership status of the
beneficiary.
(c) If the named beneficiary of a revocable trust account is other
than the spouse, child, grandchild, parent, brother or sister of the
account owner, the funds in such account shall be added to any
individual accounts of the owner and insured up to $100,000 in the
aggregate.
(d) For purposes of this section, the term ``child'' includes the
biological, adopted or step-child of the owner; the term ``grandchild''
includes the biological, adopted or step-child of any of the owner's
children; the term ``parent'' includes the biological, adoptive or
step-parent of the owner; the term ``brother'' includes a full brother,
half brother, brother through adoption or step-brother; and the term
``sister'' includes a full sister, half sister, sister through adoption
or step-sister.
3. Section 745.8 is revised to read as follows:
Sec. 745.8 Joint ownership accounts.
(a) Separate insurance coverage. Qualifying joint accounts, whether
owned as joint tenants with right of survivorship, as tenants by the
entireties, as tenants in common, or by husband and wife as community
property, shall be insured separately from accounts individually owned
by any of the co-owners. The interest of a co-owner in all qualifying
joint accounts shall be added together and the total for that co-owner
shall be insured up to $100,000.
(b) Qualifying joint accounts. A joint account is a qualifying
joint account if each of the co-owners has personally signed a
membership or account signature card and has a right of withdrawal on
the same basis as the other co-owners. The signature requirement does
not apply to share certificates, or to any accounts maintained by an
agent, nominee, guardian, custodian or conservator on behalf of two or
more persons if the records of the credit union properly reflect that
the account is so maintained.
(c) Failure to qualify. A joint account that does not meet the
requirements for a qualifying joint account shall be treated as owned
by the named persons as individuals and the actual ownership interest
of each such person in such account shall be added to any other
accounts individually owned by such person and insured up to $100,000
in the aggregate. An account will not fail to qualify as a joint
account if a joint owner is a minor and applicable state law limits or
restricts a minor's withdrawal rights.
(d) Nonmember joint owners. A nonmember may become a joint owner
with a member on a joint account with right of survivorship. The
nonmember's interest in such accounts will be insured in the same
manner as the member joint-owner's interest.
4. Part B of the Appendix to Part 745 is amended by revising the
heading of Part B and first three sentences of the introductory
paragraph to read as follows:
Appendix to Part 745--Examples of Insurance Coverage Afforded
Accounts in Credit Unions Insured by the National Credit Union
Share Insurance Fund
* * * * *
B. Revocable Trust Accounts
The term ``revocable trust account'' includes a testamentary
account, tentative or ``Totten'' trust account, ``payable-on-death''
account, or any similar account which evidences an intention that
the funds shall pass on the death of the owner of the funds to a
named beneficiary. If the named beneficiary is a spouse, child,
grandchild, parent, brother or sister (as defined in subsection
745.4(d)) of the owner, the funds in all such accounts are insured
for the owner up to $100,000 in the aggregate as to each such
beneficiary. If the beneficiary of such an account is other than the
spouse, child, grandchild, parent, brother or sister of the owner,
the funds in the account are, for insurance purposes, added to any
other individual (single ownership) accounts of the owner and
insured up to $100,000 in the aggregate. * * *
5. Part B of the Appendix to Part 745 is amended by revising
Example 2 to read as follows:
* * * * *
B. Revocable Trust Accounts
* * * * *
Example 2
Question: Member H invests $100,000 in each of four ``payable-
on-death'' accounts. Under the terms of each account contract, H has
the right to withdraw any or all of the funds in the account at any
time. Any funds remaining in the account at the time of H's death
are to be paid to a named beneficiary. The respective beneficiaries
of the four accounts are H's wife, his mother, his brother, and his
nephew. H also holds an individual account containing $100,000. What
is the insurance coverage?
Answer: The accounts payable on death to H's wife, mother and
brother are each
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separately insured to the $100,000 maximum (Sec. 745.4(b)). The
account payable to H's nephew is added to H's individual account and
insured to $100,000 in the aggregate, leaving $100,000 uninsured
(Sec. 745.4(c)).
* * * * *
6. Part F of the Appendix to Part 745 is amended by removing the
five introductory paragraphs and adding four introductory paragraphs in
their place to read as follows:
* * * * *
F. Joint Accounts
The interest of a co-owner in all accounts held under any form
of joint ownership valid under state law (whether as joint tenants
with right of survivorship, tenants by the entireties, tenants in
common, or by husband and wife as community property) is insured up
to $100,000. This insurance is separate from that afforded
individual accounts held by any of the co-owners.
An account is insured as a joint account only if each of the co-
owners has personally signed a membership card or an account
signature card and possesses the same withdrawal rights as the other
co-owners. (The signature requirement does not apply to share
certificates, or to any accounts maintained by an agent, nominee,
guardian, custodian or conservator on behalf of two or more persons.
However, the records of the credit union must show that the account
is being maintained for joint owners. There is also another
exception in the case of a minor discussed below.) An account owned
jointly which does not qualify as a joint account for insurance
purposes is insured as if owned by the named persons as individuals.
In that case, the actual ownership interest in the account of each
person is added to any other accounts individually owned by such
person and insured up to $100,000 in the aggregate.
Any individual, including a minor, may be a co-owner of a joint
account. Although, generally, each co-owner must have signed an
account signature card and must have the same rights of withdrawal
as other co-owners in order for the account to qualify for separate
joint account insurance, there is an exception for minors. If state
law limits or restricts a minor's withdrawal rights--for example, a
minimum age requirement to make a withdrawal--the account will still
be insured as a joint account.
The interests of a co-owner in all joint accounts that qualify
for separate insurance coverage are insured up to the $100,000
maximum. For insurance purposes, the co-owners of any joint account
are deemed to have equal interests in the account, except in the
case of a tenancy in common. With a tenancy in common, equal
interests are presumed unless otherwise stated on the records of the
credit union.
7. Part F of the Appendix to Part 745 is amended by removing
Example 6 and by revising Examples 1 through 5(b) to read as follows:
* * * * *
F. Joint Accounts
* * * * *
Example 1
Question: Members A and B maintain an account as joint tenants
with right of survivorship and, in addition, each holds an
individual account. Is each account separately insured?
Answer: If both A and B have signed the membership or signature
card and possess equal withdrawal rights with respect to the joint
funds, their interests in the joint account are separately insured
from their interests in the individual accounts. (Sec. 745.8 (a) and
(b).) If the joint account is represented by a share certificate,
their individual signatures are not required for that account.
Example 2
Question: Members H and W, husband and wife, reside in a
community property state. Each holds an individual account and, in
addition, they hold a qualifying joint account. The funds in all
three accounts consist of community property. Is each account
separately insured?
Answer: Yes. An account in the individual name of a spouse will
be insured up to $100,000 whether the funds consist of community
property or separate property of the spouse. A joint account
containing community property is separately insured. Thus, community
property can be used for individual accounts in the name of each
spouse and for a joint account in the name of both spouses. In this
example, each individual account is insured up to $100,000
(Sec. 745.3(a)(1)), and the interests of both the husband and wife
in the joint account are each insured up to $100,000
(Sec. 745.8(a)).
Example 3
Question: Two accounts of $100,000 each are held by a member
husband and his wife under the following names: John Doe and Mary
Doe, husband and wife, as joint tenants with right of survivorship.
Mrs. John Doe and John Q. Doe (community property). How much
insurance do the husband and wife have?
Answer: They have $200,000 of insurance. Both the husband and
wife are deemed to have a one half interest ($50,000) in each
account. (Sec. 745.2(c)(4).) The husband's interest in both accounts
would be added together and insured for $100,000. The wife's
insurance coverage would be determined the same way.
(Sec. 745.8(a).)
Example 4
Question: The following accounts are held by members A, B and C,
each of whom has personally executed signature cards for the
accounts in which he has an interest. Each co-owner of a joint
account possesses the necessary withdrawals rights.
1. A, as an individual--$100,000.
2. B, as an individual--$100,000.
3. C, as an individual--$100,000.
4. A and B, as joint tenants w/r/o survivorship--$90,000.
5. A and C, as joint tenants w/r/o survivorship--$90,000.
6. B and C, as joint tenants w/r/o survivorship--$90,000.
7. A, B and C, as joint tenants w/r/o survivorship--$90,000.
What is the insurance coverage?
Answer: Accounts numbered 1, 2 and 3 are each separately insured
for $100,000 as individual accounts held by A, B and C, respectively
(Sec. 745.3(a)(1)). The interest of the co-owners of each joint
account are deemed equal for insurance purposes (Sec. 745.2(c)(4)).
A's interest in accounts numbered 4, 5, and 7 are added together for
insurance purposes (Sec. 745.8(e)). Thus, A has an interest of
$45,000 in account No. 4, $45,000 in account No. 5 and $30,000 in
account No. 7, for a total joint account interest of $120,000, of
which $100,000 is insured. The interest of B and C are similarly
insured.
Example 5(a)
Question: A, B and C hold accounts as set forth in Example 4.
Members A and B are husband and wife; C, their minor child, has
failed to sign the signature card for Account No. 7. In Account No.
5, according to the terms of the account, C cannot make a withdrawal
without A's written consent. (This is not a limitation imposed under
state law.) In Account No. 6, the signatures of both B and C are
required for withdrawal. A has provided all of the funds for
Accounts numbered 5 and 7 and under state law has the entire actual
ownership interest in these two accounts. What is the insurance
coverage?
Answer: If any of the co-owners of a joint account have failed
to meet any of the joint account requirements, the account is not a
qualifying joint account. Instead, the account is treated as if it
consisted of commingled individual accounts of each of the co-owners
in accordance with his or her actual ownership interest in the
funds, as determined under applicable state law. (Sec. 745.8(c).)
Account No. 5 is not a qualifying joint account because C does
not have equal withdrawal rights with A. Based on the terms of the
account, C can only make a withdrawal if he has A's written consent.
Account No. 7 is not a qualifying joint account because C did not
personally sign the signature card. Therefore, all of the funds in
Accounts 5 and 7 are treated as individually owned by A and added to
A's individual account, Account No. 1. For insurance purposes then,
A has $280,000 in one individual account that is insured for
$100,000, leaving $180,000 uninsured.
Account 6 is a qualifying joint account for insurance purposes
since each co-owner has the right to withdraw funds on the same
basis. Account 4 is also a qualifying joint account. A's interest in
Account 4 is insured for $45,000. B's interest of $45,000 in Account
4 is added to her interest of $45,000 in Account 6 and insured for
$90,000. C's interest in Account 6 is insured for $45,000.
Example 5(b)
Question: Assume the same accounts as Example 5(a) except that,
on Account No. 5, C's right to make a withdrawal is limited by state
law which precludes a minor from making a withdrawal without the co-
owner's written consent. What is the insurance coverage?
Answer: In this situation, Accounts 4, 5, and 6 all qualify as
joint accounts. A, B, and
[[Page 19689]]
C will each have $90,000 of insured funds based on: A's interest in
Account 4 ($45,000) and 5 ($45,000), B's interest in Accounts 4
($45,000) and 6 ($45,000), and C's interest in Accounts 5 ($45,000)
and 6 ($45,000). As in Example 5(a), Account No. 7 does not qualify
as a joint account and would be added to A's individual account for
insurance purposes.
* * * * *
[FR Doc. 99-9930 Filed 4-21-99; 8:45 am]
BILLING CODE 7535-01-U