[Federal Register Volume 68, Number 128 (Thursday, July 3, 2003)]
[Proposed Rules]
[Pages 39868-39870]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-16794]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 745


Share Insurance and Appendix

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule with request for comments.

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SUMMARY: NCUA proposes to amend its share insurance rules. The 
amendments simplify and clarify these rules and provide parity with the 
deposit insurance rules of the Federal Deposit Insurance Corporation 
(FDIC). Specifically, the amendments: clarify how revocable trust 
accounts are established and insured; provide continuation of coverage 
following the death of a member and for separate coverage after the 
merger of insured credit unions for limited periods of time; and 
clarify that there is coverage for Coverdell Education Savings 
Accounts, formerly Education IRAs.

DATES: Comments must be received on or before September 2, 2003.

ADDRESSES: Direct comments to Becky Baker, Secretary of the Board. Mail 
or hand-deliver comments to: National Credit Union Administration, 1775 
Duke Street, Alexandria, Virginia 22314-3428. You are encouraged to fax 
comments to (703) 518-6319 or email comments to [email protected] 
instead of mailing or hand-delivering them. Whatever method you choose, 
please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: Frank Kressman, Staff Attorney, Office 
of General Counsel, at the above address or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION: 

A. Background

    In accordance with NCUA's regulatory review process, NCUA staff has 
identified part 745 as a regulation in need of updating, clarification 
and simplification. To that end, NCUA is proposing the below amendments 
to improve part 745 and to maintain parity between the separate federal 
insurance programs administered by NCUA and FDIC.

B. Proposed Amendments

Revocable Trust Accounts

    A revocable trust account is a testamentary account that evidences 
the owner's intent to have funds in the account pass to named 
beneficiaries upon the owner's death. NCUA is increasingly receiving 
inquiries from credit unions and credit union members regarding three 
aspects of revocable trust accounts. Specifically, these inquiries 
concern how: (1) Revocable trusts are created; (2) an owner 
demonstrates testamentary intent; and (3) the interests of 
nonqualifying beneficiaries are treated.
    Unlike more complicated trusts such as living trusts, which require 
formal, often complex, written trust documents, simple revocable trusts 
can be created at the credit union merely by indicating that intent in 
the title to an account. Common terms used in the account title to 
create a revocable trust and indicate the owner's intent include 
``payable on death'', ``in trust for'', and ``as trustee for'', or 
acronyms for these phrases, respectively, POD, ITF and ATF. For 
example, the account title ``John Smith POD to Mary Smith'' is 
sufficient to create a revocable trust account. Although not 
preferable, the account title ``John Smith POD'' is also sufficient to 
create a revocable trust account. To be insurable as a revocable trust 
account, however, the beneficiaries must be specifically named in the 
credit union's account records. NCUA believes that naming the 
beneficiaries in the account title is the most effective way of 
establishing insurance coverage.
    NCUA's share insurance rules provide that an owner's funds in a 
revocable trust account are separately insured up to $100,000 for each 
qualifying beneficiary named in the account. 12 CFR 745.4. A qualifying 
beneficiary is the owner's spouse, child, grandchild, parent, brother 
or sister. Id. All others are nonqualifying beneficiaries.
    NCUA treats the interests of nonqualifying beneficiaries named in 
the revocable trust account as the individually owned funds of the 
owner of the account. In this context, these funds would be aggregated 
with all other individual accounts of the owner and insured up to 
$100,000. The current language of Sec.  745.4(c) could be read as 
providing that these nonqualifying beneficiary interests will only be 
insured as the individually owned funds of the owner if the owner has 
actually opened an individual account in the insured credit union where 
the revocable trust account is held. 12 CFR 745.4(c). NCUA proposes to 
revise that section to make clear that it will treat nonqualifying 
beneficiary interests as the individually owned funds of the owner even 
where the owner has not actually opened an individual account at the 
credit union. This is consistent with FDIC's treatment of these funds.

Insurance Coverage Following the Death of a Member

    The death of a member results in an immediate change in the 
ownership of the member's share accounts. This change in ownership 
could significantly change the amount of share insurance coverage 
available for those accounts, most likely reducing coverage.
    For example, a husband and wife may hold a joint account, a joint 
revocable trust account for the benefit of their two children, and two 
individual accounts in their own names. Assuming these accounts satisfy 
all applicable requirements, these four accounts would be insured up to 
a maximum of $800,000. The $800,000 is broken down as follows: $200,000 
for the joint account; $400,000 for the joint revocable trust account; 
and $100,000 for each of the two individual accounts. Upon the death of 
either the husband or wife,

[[Page 39869]]

however, the surviving spouse would become the sole owner of the joint 
account and the joint revocable trust account. Under NCUA share 
insurance rules, the joint account would be transformed into an 
individual account subject to aggregation with the surviving spouse's 
other individual account and insured up to a maximum of $100,000. The 
single ownership (individual) account in the name of the deceased 
spouse would continue to be insured separately from the other accounts. 
The maximum coverage of the joint revocable trust account would be 
reduced from $400,000 to $200,000, because coverage for this type of 
account is calculated as $100,000 for each combination of settlors and 
qualifying beneficiaries. In sum, the maximum coverage of the four 
accounts would be reduced immediately upon the death of the husband or 
wife from $800,000 to $400,000.
    NCUA does not believe this result is fair or desirable. NCUA 
recognizes there are a number of practical difficulties a member's 
survivors might encounter in attempting to restructure the member's 
share accounts immediately upon the member's death. NCUA further 
recognizes that these difficulties are worsened in that they would 
occur at a time of grief when dealing with financial matters may not be 
a priority for the member's survivors. Accordingly, NCUA believes it 
would be beneficial to grant a six-month grace period after a member's 
death for his or her survivors to restructure the accounts. During this 
grace period, the insurance coverage of the deceased member's accounts 
would not change from that available immediately before the member's 
death, unless the accounts are restructured during the grace period by 
those authorized to do so. Because the intent of this grace period is 
to avoid reduced insurance coverage, the grace period will not be 
applied if doing so would result in decreased share insurance coverage.

Insurance Coverage After the Merger of Insured Credit Unions

    NCUA encourages members to structure their accounts at insured 
credit unions in a manner that will provide maximum share insurance 
coverage and has developed a share insurance program to facilitate that 
goal. As part of that program, a member's share accounts at an insured 
credit union are insured separately from that member's share accounts 
at any other separately chartered, insured credit union. Because of 
this, the merger of insured credit unions could jeopardize a member's 
insurance coverage even when a member has structured his or her 
accounts at different insured credit unions to be fully insured. 
Specifically, when a member has accounts at more than one insured 
credit union, a merger of those credit unions could reduce the amount 
of share insurance coverage the member had before the merger. For 
example, member X has a $75,000 individual account at insured credit 
union A and a $50,000 individual account at insured credit union B. 
Both accounts are fully insured because a member is entitled to 
$100,000 of coverage in the aggregate for all individual accounts in 
each insured credit union. 12 CFR 745.1; 12 CFR 745.3. If insured 
credit unions A and B merge, then X would have individual accounts in 
the surviving insured credit union totaling $125,000. X would be 
insured for $100,000 and uninsured for $25,000.
    NCUA does not believe members should immediately have reduced share 
insurance coverage as a result of credit union mergers. Accordingly, 
NCUA proposes to provide members with a six-month grace period 
following the merger of insured credit unions, during which time 
members will receive separate insurance of their accounts as though no 
merger had occurred. NCUA believes six months is sufficient time for 
members to restructure their accounts to maximize share insurance 
coverage.
    A share certificate that matures after the six-month grace period 
will receive the separate insurance treatment until the first maturity 
date following the grace period. A share certificate that matures 
during the six-month grace period and is renewed for the same term and 
dollar amount will receive the separate insurance treatment until the 
first maturity date after the grace period under the terms of the 
renewed certificate. A share certificate that matures during the grace 
period that is not renewed, or is renewed on any basis other than for 
the same term and dollar amount as the original certificate, is 
separately insured only for the six-month grace period.

Coverdell Education Savings Accounts

    In May 2000, Education IRAs were specified as insurable under 
NCUA's share insurance rules as irrevocable trust accounts. 65 FR 34921 
(June 1, 2000). Since that time, Education IRAs have been replaced with 
Coverdell Education Savings Accounts. NCUA proposes to revise the share 
insurance rules to reflect that change.

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a proposed rule may have on 
a substantial number of small credit unions (those under one million 
dollars in assets). The proposed rule only clarifies the share 
insurance coverage available to credit union members, without imposing 
any regulatory burden. The proposed rule would not have a significant 
economic impact on a substantial number of small credit unions, and, 
therefore, a regulatory flexibility analysis is not required.

Paperwork Reduction Act

    NCUA has determined that the proposed rule would not increase 
paperwork requirements under the Paperwork Reduction Act of 1995 and 
regulations of the Office of Management and Budget.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order. The proposed rule would not have substantial 
direct effects 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. NCUA has 
determined that this proposed rule does not constitute a policy that 
has federalism implications for purposes of the executive order.

The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this proposed rule would not affect 
family well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat. 
2681 (1998).

Agency Regulatory Goal

    NCUA's goal is to promulgate clear and understandable regulations 
that impose minimal regulatory burden. We request your comments on 
whether the proposed rule is understandable and minimally intrusive.

[[Page 39870]]

List of Subjects in 12 CFR Part 745

    Administrative practice and procedure, Bank deposit insurance, 
Claims, Credit unions.

    By the National Credit Union Administration Board on June 26, 
2003.
Becky Baker,
Secretary of the Board.

    For the reasons stated above, NCUA proposes to amend 12 CFR part 
745 as follows:

PART 745--SHARE INSURANCE AND APPENDIX

    1. The authority citation for part 745 continues to read as 
follows:

    Authority: 12 U.S.C. 1752(5), 1757, 1765, 1766, 1781, 1782, 
1787, 1789.

    2. Section 745.2 is amended by adding paragraphs (e) and (f) to 
read as follows:


Sec.  745.2  General principles applicable in determining insurance of 
accounts.

* * * * *
    (e) Continuation of insurance coverage following the death of a 
member. The death of a member will not affect the member's share 
insurance coverage for a period of six months following death unless 
the member's share accounts are restructured in that time period. If 
the accounts are restructured during the six-month grace period, or 
upon the expiration of the six months if not restructured, the share 
insurance coverage will be provided on the basis of actual ownership of 
the accounts in accordance with the provisions of this part. The 
operation of this grace period, however, will not result in a reduction 
of coverage.
    (f) Continuation of separate share insurance coverage after merger 
of insured credit unions. Whenever the liability to pay the member 
accounts of one or more insured credit unions is assumed by another 
insured credit union, whether by merger, consolidation, other statutory 
assumption or contract:
    (1) The insured status of the credit unions whose member account 
liability has been assumed terminates, for purposes of this section, on 
the date of receipt by NCUA of satisfactory evidence of the assumption; 
and
    (2) The separate insurance of member accounts assumed continues for 
six months from the date the assumption takes effect or, in the case of 
a share certificate, the earliest maturity date after the six-month 
period. In the case of a share certificate that matures within the six-
month grace period that is renewed at the same dollar amount, either 
with or without accrued dividends having been added to the principal 
amount, and for the same term as the original share certificate, the 
separate insurance applies to the renewed share certificate until the 
first maturity date after the six-month period. A share certificate 
that matures within the six-month grace period that is renewed on any 
other basis, or that is not renewed, is separately insured only until 
the end of the six-month grace period.
    3. Section 745.4 is amended by adding two sentences to the end of 
paragraph (a) and revising paragraph (c) to read as follows:


Sec.  745.4  Revocable trust accounts.

    (a) * * * This required intention must be demonstrated in the title 
of the account using commonly accepted terms such as, but not limited 
to, ``in trust for'', ``as trustee for'', ``payable on death to'', or 
any acronym for these terms. In addition, the beneficiaries must be 
specifically named in the share account records of the insured credit 
union.
* * * * *
    (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 corresponding to that beneficiary shall be 
treated as an individually owned account of the owner, aggregated with 
any other individually owned accounts of the owner, and insured up to 
$100,000. For example, if A establishes an account payable upon death 
to his nephew, the account would be insured as an individual account 
owned by A. Similarly, if B establishes an account payable upon death 
to her husband, son and nephew, two-thirds of the account balance would 
be eligible for revocable trust account coverage up to $200,000 
corresponding to the two qualifying beneficiaries, the spouse and 
child. The amount corresponding to the non-qualifying beneficiary, the 
nephew, would be deemed to be owned by B as an individual account and 
insured accordingly.
* * * * *
    4. Section 745.9-1 is amended by revising paragraph (c) to read as 
follows:


Sec.  745.9-1  Trust accounts.

* * * * *
    (c) This section applies to trust interests created in Coverdell 
Education Savings Accounts, formerly Education IRAs, established in 
connection with section 530 of the Internal Revenue Code (26 U.S.C. 
530).
    5. The Appendix to part 745 is amended by revising the third 
sentence of Section B 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. How Are Revocable Trust Accounts Insured?

     * * * 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 corresponding to that beneficiary shall be 
treated as an individually owned account of the owner, aggregated with 
any other individually owned accounts of the owner, and insured up to 
$100,000. * * *
* * * * *
[FR Doc. 03-16794 Filed 7-2-03; 8:45 am]
BILLING CODE 7535-01-P