[Federal Register Volume 73, Number 199 (Tuesday, October 14, 2008)]
[Rules and Regulations]
[Pages 60616-60622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-23922]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 745

RIN 3133-AD54


Share Insurance for Revocable Trust Accounts

AGENCY: National Credit Union Administration (NCUA).

ACTION: Interim final rule with request for comments.

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SUMMARY: NCUA is amending its share insurance rules to simplify 
coverage for revocable trust accounts. The amendments will make the 
rules easier to understand and apply without decreasing coverage, 
result in faster share insurance determinations in the event of a 
credit union closing, and help improve public confidence in the credit 
union system. The amendments eliminate the concept of ``qualifying 
beneficiaries.'' Also, for members with revocable trust accounts 
totaling no more than $500,000, coverage will be determined without 
regard to the proportional beneficial interest of each beneficiary in 
the trust.
    Under the amended rules, a trust account owner with up to five 
different beneficiaries named in all of his or her revocable trust 
accounts at one NCUA-insured institution will be insured up to $100,000 
per beneficiary. Revocable trust account owners with more than $500,000 
and more than five different beneficiaries named in the trust(s) will 
be insured for the greater of either: $500,000 or the aggregate amount 
of all the beneficiaries' interests in the trust(s), limited to 
$100,000 per beneficiary.

DATES: This rule is effective on October 14, 2008. Written comments 
must be received on or before December 15, 2008.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web Site: http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html. Follow the 
instructions for submitting comments.
     E-mail: Address to [email protected]. Include ``[Your 
name] Comments on Share Insurance for Revocable Trust Accounts'' in the 
e-mail subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for e-mail.
     Mail: Address to Mary Rupp, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.
    Public Inspection: All public comments are available on the 
agency's Web site at http://www.ncua.gov/RegulationsOpinionsLaws/comments as submitted, except as may not be possible for technical 
reasons. Public comments will not be edited to remove

[[Page 60617]]

any identifying or contact information. Paper copies of comments may be 
inspected in NCUA's law library at 1775 Duke Street, Alexandria, 
Virginia 22314, by appointment weekdays between 9 a.m. and 3 p.m. To 
make an appointment, call (703) 518-6546 or send an e-mail to 
[email protected].

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

SUPPLEMENTARY INFORMATION: 

I.

A. Background

    NCUA insures member share accounts in all federally-chartered 
credit unions and the vast majority of state-chartered credit unions. 
This accounts for approximately 98% of all credit unions in the United 
States. Despite NCUA's best efforts to provide clear information on 
insurance coverage for revocable trust accounts and recent rule changes 
to simplify that determination, NCUA recognizes there is still 
significant public and industry confusion about the insurance coverage 
of revocable trust accounts. See NCUA Web site at http://www.ncua.gov/ShareInsurance/index.htm; 68 FR 75111 (December 30, 2003); 69 FR 8798 
(February 26, 2004). This is evidenced by the great volume of share 
insurance inquiries NCUA has received as a result of recent events in 
the financial markets and is particularly true of living trust 
accounts, one of the two types of revocable trust accounts NCUA 
insures. This is largely due to the increasingly complex nature of 
living trusts.\1\ NCUA believes the amendments in this interim rule 
will further clarify how revocable trust accounts are covered, enhance 
NCUA's ability to help maintain public confidence and stability in the 
credit union system, and protect insured members.
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    \1\ Because of the complexities of living trusts, NCUA's 
insurance determinations on those accounts could be time consuming 
and delay members receiving their insured account proceeds.
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B. Current Share Insurance Rules for Revocable Trust Accounts

    NCUA insures informal and formal revocable trust accounts under its 
share insurance rules. 12 CFR Part 745. Informal trust accounts are 
comprised simply of a signature card on which the member designates the 
beneficiaries to whom the funds in the account will pass upon the 
member's death. These are the most common type of revocable trust 
accounts and generally are referred to as ``payable-on-death'' (POD) 
accounts or in-trust-for (ITF) accounts or Totten Trust accounts. 
Throughout this preamble, NCUA will refer to all informal trust 
accounts as POD accounts. Formal revocable trust accounts are 
established in connection with a formal written revocable trust 
document. They are increasingly popular trusts created for estate 
planning purposes and are often referred to as: Living trusts, family 
trusts, marital trusts, survivor's trusts, by-pass trusts, generation-
skipping trusts, AB trusts or special needs trusts. Throughout this 
preamble, NCUA will refer to all formal revocable trusts as living 
trusts. Like an informal revocable trust, a living trust is created by 
a member, also known as a grantor or settlor, over which the member as 
owner retains control during his or her lifetime. Upon the owner's 
death, the trust generally becomes irrevocable. NCUA insures POD and 
living trust accounts under Sec.  745.4 of its share insurance rules. 
12 CFR 745.4.
    NCUA's rules provide that all revocable trust accounts (both POD 
accounts and living trust accounts) are insured up to $100,000 per 
``qualifying beneficiary'' designated by the owner of the account. Id. 
If there are multiple owners of a revocable trust account, coverage is 
available separately for each owner, per qualifying beneficiary as to 
each owner. Qualifying beneficiaries are defined as the owner's spouse, 
children, grandchildren, parents and siblings. 12 CFR 745.4(b).
    The per-qualifying beneficiary coverage available on revocable 
trust accounts is separate from the insurance coverage afforded to 
members in connection with other accounts they own in other ownership 
capacities at the same NCUA-insured credit union. For example, if a 
member has a single-ownership account with a balance of $100,000 and a 
POD account (naming at least one qualifying beneficiary) with a balance 
of $100,000 at the same NCUA-insured credit union, both accounts would 
be insured separately for a combined coverage amount of $200,000.
    Under our current rules, separate, per-beneficiary insurance 
coverage is available for revocable trust accounts only if the account 
satisfies certain requirements including: (1) The account must evidence 
the owner's intent that the funds shall belong to the designated 
beneficiaries upon the owner's death; (2) each beneficiary must be a 
qualifying beneficiary; and (3) for POD accounts, the beneficiaries 
must be specifically named in the account records of the credit union. 
Under the current rules, the beneficiaries of a living trust need not 
be indicated in the credit union's records. 12 CFR 745.4(e).
    If a revocable trust account owner names one or more non-qualifying 
beneficiaries in the account or trust, the funds corresponding to those 
non-qualifying beneficiaries are considered the single-ownership funds 
of the owner and insured under that category of coverage. For example, 
assume a member owns a POD account (and no other accounts at the same 
credit union) that names his spouse and a friend as beneficiaries. The 
account has a balance of $200,000. The coverage would be $100,000 under 
the revocable trust coverage rules because he has named one qualifying 
beneficiary, and $100,000 would be insured under the single-ownership 
coverage rules because the funds attributable to the non-qualifying 
beneficiary (the friend) would be considered the owner's single-
ownership funds and thus insured under that category of ownership. If 
the account owner in this example also had a single-ownership account 
with a balance of $50,000, then the $100,000 (attributable to the non-
qualifying beneficiary) from his POD account would be added to the 
$50,000 held in the single-ownership account and insured to a limit of 
$100,000. Thus, $50,000 would be uninsured.
    As discussed above, both POD accounts and living trust accounts are 
types of revocable trust accounts insured under the revocable trust 
account category in NCUA's share insurance rules. Consequently, all 
funds that a member holds in living trust accounts and POD accounts 
naming the same beneficiaries are aggregated for insurance purposes and 
insured to the applicable coverage limits. For example, if a member has 
a living trust account for $200,000 naming his children, A and B, and 
also has a $200,000 POD account naming A and B, the combined coverage 
on the two aggregated accounts would be $200,000 in total, not $200,000 
per account.

II. The Interim Rule

A. Overview

    In this rulemaking, NCUA seeks to make the insurance coverage rules 
for revocable trust accounts easy to understand and apply, without 
decreasing coverage currently available for revocable trust account 
owners, and retain reasonable limitations on coverage levels for 
revocable trust account owners. Under the interim rule, a trust account 
owner with up to $500,000 in revocable trust accounts at one NCUA-
insured institution is insured up to $100,000 per beneficiary. NCUA 
believes this is the scenario that will apply to the vast majority of

[[Page 60618]]

revocable trust account owners. Revocable trust account owners with 
more than $500,000 in those accounts and more than five different 
beneficiaries named in the trust(s) are insured differently. They will 
be insured for the greater of either: $500,000 or the aggregate amount 
of all the beneficiaries' interests in the trust(s), limited to 
$100,000 per beneficiary. Under the interim final rule, coverage is 
based on the existence of any beneficiary named in the revocable trust, 
as long as the beneficiary is a natural person, or a charity or other 
non-profit organization. If in establishing a POD account, the owner 
names a living trust as the beneficiary, we will consider the 
beneficiaries of the trust to be the beneficiaries of the POD account. 
As discussed below, under the interim rule the concept of ``qualifying 
beneficiaries'' is eliminated. For an account owner with combined 
revocable trust account balances of $500,000 or less, the maximum 
available coverage would be determined simply by multiplying the number 
of beneficiaries by $100,000.
    A living trust account with a balance of $400,000, for example, 
would be insured for up to $400,000 as long as there are at least four 
beneficiaries named in the trust.\2\ Different proportional ownership 
interests of the beneficiaries in the trust assets would not affect the 
share insurance coverage. So, in this example, the maximum coverage 
would be $400,000 even if the trust provided that beneficiaries A and B 
are entitled to twenty percent each of the trust assets and 
beneficiaries C and D are entitled to thirty percent each of the trust 
assets. As under the current rules, however, a member would receive a 
combined maximum coverage amount of $100,000 for the same beneficiary 
named in more than one revocable trust account he or she owns at one 
credit union. For example, if a member has a POD account naming her son 
as a beneficiary and a living trust account at the same credit union 
naming the same son as a beneficiary, the member would be entitled to 
no more than $100,000 with respect to having named her son a 
beneficiary of her revocable trust accounts.
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    \2\ This assumes the account owner has no other revocable trust 
accounts at the same credit union.
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B. Eliminating the Concept of ``Qualifying Beneficiaries''

    As explained above, previous revocable trust account coverage was 
based, in large part, on the number of qualifying beneficiaries named 
in the trust(s). In the most recent revocable trust account rule 
amended by this interim final rule, qualifying beneficiaries were 
defined as the revocable trust account owner's spouse, children, 
grandchildren, parents and siblings. 12 CFR 745.4(b). In previous 
versions of that rule, the definition included only the owner's spouse, 
children and grandchildren. The rationale for expanding the definition 
of qualifying beneficiaries to include the account owner's parents and 
siblings was to recognize other family members likely to be named in a 
person's revocable trust(s).
    Before and since the expansion of the definition of qualifying 
beneficiaries, members and industry participants have questioned the 
fairness of limiting the coverage on revocable trust accounts to only 
certain beneficiaries. Many have stated the definition of qualifying 
beneficiaries should include, among others, an account holder's nieces 
and nephews, in-laws, great-grandchildren, cousins, friends and 
charities. Historically, in response to these complaints, NCUA has 
taken the position that there must be a reasonable limitation of the 
amount of coverage available on revocable trust accounts, otherwise, 
there would be potentially unlimited coverage under this account 
category. Accordingly, NCUA has been reluctant to amend the rules to 
provide coverage for any beneficiary(ies) named in a revocable trust 
without limitation. Under the interim rule, however, the NCUA believes 
that it can achieve greater fairness under the revocable trust rules by 
basing coverage on the naming of any beneficiary in a revocable trust, 
but concurrently imposing the coverage qualifications discussed below 
on accounts over $500,000.
    In addition to addressing the fairness issue, eliminating the 
concept of ``qualifying beneficiaries'' makes the coverage rules easier 
to understand. Members and credit unions no longer need to know who is 
a qualifying beneficiary and who is not. Also, this revision will 
obviate the need for NCUA claims agents, upon a credit union's failure 
to confirm that a beneficiary named in a revocable trust account is a 
``qualifying beneficiary.'' Thus, under the interim rule, the NCUA 
anticipates being able to make quicker share insurance determinations 
on revocable trust accounts, if necessary.

C. Accounts With Aggregate Balances of $500,000 or Less; Determining 
Coverage Without the Necessity of Discerning Each Beneficiary's 
Interest in the Trust(s)

    Previously, one of the most complex and confusing aspects of 
determining revocable trust account coverage was having to discern and 
consider unequal beneficial interests in revocable trusts. This issue 
typically arises in the context of a living trust that, for example, 
provides either varying lump-sum payments for designated beneficiaries 
or different percentage interests in trust assets to certain 
beneficiaries, or different ``remainder'' interests in the assets to 
the same or other beneficiaries. The method for determining coverage in 
some situations involving unequal beneficial interests necessitates the 
formulation and solving of simultaneous equations. Credit unions and 
members alike find applying these equations far too complex. NCUA 
agrees. Accordingly, a key component of the interim rule is the ability 
to determine coverage available to account owners without regard to 
unequal interests of the beneficiaries named in the revocable trust(s). 
NCUA believes this rule change, coupled with the recognition of all 
beneficiaries, will make the revocable trust account rules simpler and 
more transparent.

D. Retaining Current Coverage Levels for Revocable Trust Accounts With 
More Than $500,000 and More Than Five Beneficiaries Named in the 
Trust(s)

    NCUA believes the vast majority of revocable trust account owners 
have less than $500,000 in revocable trust accounts at one NCUA-insured 
institution. In this scenario, under the interim rule, coverage for an 
account owner's revocable trust accounts will be determined simply by 
multiplying the number of different beneficiaries named in the trust(s) 
by $100,000.
    To set reasonable limits on the maximum coverage available to 
revocable trust account owners and also retain the coverage levels 
available to revocable trust account owners under previous rules, the 
interim rule provides special treatment for members with revocable 
trust accounts over $500,000 naming more than five beneficiaries. Under 
the interim rule, revocable trust account owners with more than 
$500,000 and more than five beneficiaries named in the trusts are 
insured for the greater of either: $500,000 or the aggregate amount of 
all the beneficiaries' interests in the trust(s), limited to $100,000 
per beneficiary. This coverage is no less than the coverage afforded to 
such account owners under previous rules, particularly because under 
the interim rule the coverage is based on the number of beneficiaries, 
not the number of qualifying beneficiaries. Also, as discussed below, 
under the interim rule, life-estate interest holders are deemed to

[[Page 60619]]

have a $100,000 interest in the trust assets.
    For example, assume a member has a living trust account that 
provides a life estate interest for the member's spouse, $15,000 for 
his college alma mater, $5,000 for each of three brothers and the 
remaining amount to his friend. The balance in the account is $600,000. 
The analysis begins with recognizing the account balance exceeds 
$500,000 and the number of beneficiaries exceeds five. Accordingly, 
under the interim rule, the maximum coverage would be the greater of 
either: $500,000 or the aggregate beneficial interests of all the 
beneficiaries (up to a limit of $100,000 per beneficiary). The 
beneficial interests are: $100,000 for the spouse's life estate 
interest, $15,000 for the college, $5,000 for each brother (totaling 
$15,000), and $100,000 for the friend (because of the per-beneficiary 
limitation of $100,000). The total beneficial interests, therefore, are 
$230,000. Hence, the maximum coverage afforded to the account owner 
would be $500,000, the greater of $500,000 or $230,000.
    NCUA believes basing the coverage of trust accounts in excess of 
$500,000 with more than five different beneficiaries, on the ownership 
interest of each beneficiary named in the applicable trust(s) would 
prevent the potential of having to provide unlimited coverage with 
respect to revocable trust accounts. Without such a limitation, a 
member could name a limitless number of beneficiaries each with a 
nominal interest in the trust and obtain coverage up to $100,000 for 
naming each such beneficiary. For example, a revocable trust account 
held in connection with a trust entitling one beneficiary to $1 million 
and entitling each of nine other beneficiaries to $1 would be insured 
for $1 million, without the limitation discussed above being imposed as 
part of the interim rule.

E. Treatment of Life-Estate Interests

    Another complicating factor in determining the coverage for living 
trust accounts is determining the value of life estate interests. A 
life estate interest usually means the life-estate beneficiary is 
entitled to the income on the trust assets during his or her lifetime. 
A large percentage of living trusts provide a life estate interest for 
one or more beneficiaries. The most typical situation is where a 
married person creates a trust providing a life estate interest for his 
or her surviving spouse and a remainder interest for their children. 
NCUA's previous rules provide that, in such situations, each life-
estate holder and each remainder-man (also known as residuary 
beneficiaries) is deemed to have an equal interest in the trust assets 
for account insurance purposes. 12 CFR 745.4(e). This rule has proven 
difficult to apply, especially where the living trust provides for 
lump-sum gifts for certain beneficiaries, life estate interests for 
others and different percentage interests for the remainder-men, who 
may be the same as or different from the other beneficiaries. To 
simplify the coverage rules, the interim rule revises the previous 
valuation method for life estate interests by deeming each such 
interest to be $100,000, for purposes of determining deposit insurance 
coverage. The example above, involving a trust providing for a spousal 
life estate interest and bequests to the owner's college alma mater, 
brothers and friend, demonstrates how the interim rule would apply to a 
living trust providing for a life-estate interest.

F. Treatment of Irrevocable Trusts Springing From a Revocable Trust

    Another complexity in determining coverage for living trust 
accounts is that, when it is created, a living trust is a revocable 
trust but, when the owner dies, the trust becomes irrevocable.\3\ At 
that stage in the lifecycle of the living trust, the funds 
corresponding to the irrevocable trust are insured under NCUA's rules 
for irrevocable trust accounts.\4\ Under those rules, coverage is based 
on the non-contingent interest of each beneficiary named in the trust. 
In effect, when a living trust evolves from a revocable trust to an 
irrevocable trust the insurance coverage available on the account is 
based on a different set of rules, the irrevocable trust account rules. 
As such, the coverage on the account often decreases from what it had 
been when the trust was insured solely under the revocable trust rules.
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    \3\ For jointly-owned living trusts, upon the death of one of 
the owners, typically part of the trust remains revocable and part 
becomes irrevocable.
    \4\ 12 CFR 745.9-1.
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    To eliminate this complexity and the confusion it generates, the 
interim final rule provides that the methods for determining the 
coverage of the living trust account will remain the same when the 
trust (or part of the trust) converts to an irrevocable trust. For 
example, a grantor has a living trust account naming three 
beneficiaries, each of whom receives a specified share of the trust 
assets if he or she graduates from college by age 25. Under the 
previous insurance rules, when the grantor is alive (meaning that the 
trust is still a revocable trust) the maximum coverage on the account 
is $300,000--one grantor times three beneficiaries times $100,000. Also 
under the previous rules, upon the grantor's death (allowing for the 
six-month grace period during which coverage would remain the same), 
the coverage reduces to $100,000 (if none of the beneficiaries has 
graduated from college yet) because of the contingent nature of the 
beneficial interests provided for in the trust. Under the interim rule, 
contingencies would continue to be irrelevant for coverage purposes 
after the grantor's death, even though the trust has evolved into an 
irrevocable trust. In this example, under the interim rule the coverage 
would still be up to $300,000.
    NCUA believes the continuity of coverage provided for under this 
component of the interim rule will greatly simplify previous methods 
for determining coverage for living trust accounts. It is important to 
note, however, that under the interim rule the coverage on a living 
trust account could still change during the lifecycle of the trust. For 
example, when both grantors in a co-grantor trust are alive, the 
maximum coverage on the account would be $1,000,000, because the 
formula for determining coverage would be: two grantors times five 
beneficiaries times $100,000.\5\ If one of the grantors dies, then the 
maximum coverage would be one grantor times five beneficiaries times 
$100,000.\6\ Coverage would likewise decrease if one or more of the 
beneficiaries named in the revocable trust died, assuming the death of 
the beneficiary(ies) would cause the total number of beneficiaries to 
drop below five.
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    \5\ This assumes neither grantor has any other revocable trust 
accounts at the same insured institution.
    \6\ Of course, NCUA's rules provide for a six-month grace period 
after the death of a member during which the coverage would be the 
same as if the member (grantor) were still alive. 12 CFR 745.2(e).
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G. Effective Date of the Interim Rule

    The interim rule is effective on October 3, 2008, the date on which 
the NCUA Board approved the interim rule by notation vote. 12 CFR 
791.4. It is also the date this interim rule was filed for public 
inspection with the Office of the Federal Register. In this regard, 
NCUA invokes the ``good cause'' exception to the requirements in the 
Administrative Procedure Act \7\ (APA) that, before a rulemaking can be 
finalized, it must first be issued for public comment and, once 
finalized, must have a delayed effective date of thirty days from the 
publication date. NCUA believes good cause exists for making the 
interim rule effective immediately because, based on recent experience, 
it is clear that many members and credit unions do not fully

[[Page 60620]]

understand the insurance rules for revocable trust accounts. Also, the 
Federal Deposit Insurance Corporation has recently issued an almost 
identical interim rule and it is important for NCUA to do the same 
immediately to maintain parity between the nation's two federal 
deposit/share insurance programs. The interim rule simplifies the 
coverage rules for revocable trust accounts and, therefore, will 
provide greater certainty to members and credit unions as to how and to 
what extent revocable trust accounts are insured.
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    \7\ 5 U.S.C. 553.
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    Importantly, under the interim rule, no member will be insured for 
an amount less than he or she would have been entitled to under the 
previous revocable trust account rules. Some members will be entitled 
to greater coverage under the interim rule than under previous rules, 
especially because the interim rule eliminates the requirement that a 
beneficiary be a ``qualifying beneficiary'' for the account owner to be 
insured on a per-beneficiary basis. Moreover, NCUA believes the interim 
final rule will result in faster share insurance determinations after a 
credit union closing and will help improve public confidence in the 
credit union system.
    For these reasons, NCUA has determined that the public notice and 
participation that ordinarily are required by the APA before a 
regulation may take effect would, in this case, be contrary to the 
public interest and that good cause exists for waiving the customary 
30-day delayed effective date.\8\ Nevertheless, NCUA desires to have 
the benefit of public comment before adopting a permanent final rule 
and invites interested parties to submit comments during a 60-day 
comment period. In adopting the final regulation, NCUA will revise the 
interim final rule, if appropriate, in light of the comments received.
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    \8\ Id.
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III. Request for Comments

    NCUA requests comments on all aspects of the proposed rulemaking 
including comments on: (1) Whether ``over $500,000'' is the proper 
threshold for determining coverage for revocable trust account owners 
based on the beneficial interests of the trust beneficiaries; (2) 
whether NCUA's irrevocable trust account rules, 12 CFR 745.9-1, should 
be revised so that all trusts are covered by substantially the same 
rules; and (3) what effect the interim rule will have on the level of 
insured shares.

IV. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a rule may have on a 
substantial number of small entities (primarily those under ten million 
dollars in assets). This interim final rule simplifies and clarifies 
certain share insurance coverages. Accordingly, it will not have a 
significant economic impact on a substantial number of small credit 
unions, and therefore, no regulatory flexibility analysis is required.

Paperwork Reduction Act

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

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

    NCUA 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, Pub. L. 105-277, 112 Stat. 2681 
(1998).

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(Pub. L. 104-121) (SBREFA) provides generally for congressional review 
of agency rules. A reporting requirement is triggered in instances 
where NCUA issues a final rule as defined by Section 551 of the APA. 5 
U.S.C. 551. NCUA does not believe this interim final rule is a ``major 
rule'' within the meaning of the relevant sections of SBREFA. NCUA has 
submitted the rule to the Office of Management and Budget for its 
determination in that regard.

Agency Regulatory Goal

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

List of Subjects

12 CFR Part 745

    Credit unions, Share insurance.

    By the National Credit Union Administration Board, this 3rd day 
of October 2008.
Paul Peterson,
Acting Secretary of the Board.

0
For the reasons discussed above, NCUA amends 12 CFR part 745 as 
follows:

PART 745--SHARE INSURANCE AND APPENDIX

0
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.


0
2. Section 745.4 is revised to read as follows:


Sec.  745.4  Revocable trust accounts.

    (a) General rule. Except as provided in paragraph (e) of this 
section, the funds owned by a member and deposited into one or more 
accounts with respect to which the owner evidences an intention that 
upon his or her death the funds shall belong to one or more 
beneficiaries shall be separately insured from other types of accounts 
the owner has at the same NCUA-insured credit union in an amount equal 
to the total number of different beneficiaries named in the account(s) 
multiplied by the SMSIA. This section applies to all accounts held in 
connection with informal and formal testamentary revocable trusts. Such 
informal trusts are commonly referred to as payable-on-death accounts, 
in-trust-for accounts or Totten Trust accounts, and such formal trusts 
are commonly referred to as living trusts or family trusts. Example 1: 
A member has a living trust account with four beneficiaries named in 
the trust. The account owner has no other revocable trust accounts at 
the same NCUA-insured credit union. The maximum insurance coverage 
would be $400,000, determined by multiplying 4 (the number of 
beneficiaries) times $100,000 (the current SMSIA). Example 2: A member 
has a payable-on-death account naming his niece and cousin as 
beneficiaries and, at the same NCUA-insured credit union, has another 
payable-on-death account naming the same niece and a friend as 
beneficiaries. The maximum coverage available to the account owner 
would be $300,000. This is because the account owner has named three 
different beneficiaries in the revocable trust accounts. The naming of 
the same beneficiary in more than one revocable trust account, whether 
a payable-on-death account or living trust account, does not increase 
the total coverage amount.
    (b) Required intention. The required intention in paragraph (a) of 
this section

[[Page 60621]]

that upon the owner's death the funds shall belong to one or more 
beneficiaries must be manifested in the title of the account or 
elsewhere in the account records of the credit union using commonly 
accepted terms such as, but not limited to, in trust for, as trustee 
for, payable-on-death to, or any acronym therefore, or by listing one 
or more beneficiaries in the account records of the credit union. In 
addition, for informal revocable trust accounts, the beneficiaries must 
be specifically named in the account records of the credit union. The 
settlor of a revocable trust shall be presumed to own the funds 
deposited into the account.
    (c) Definition of beneficiary. For purposes of this section, a 
beneficiary includes natural persons as well as charitable 
organizations and other non-profit entities recognized as such under 
the Internal Revenue Code of 1986.
    (d) Interests of beneficiaries outside the definition of 
beneficiary in this section. If a beneficiary named in a trust covered 
by this section does not meet the definition of beneficiary in 
paragraph (c) of this section, the funds corresponding to that 
beneficiary shall be treated as the individually owned (single 
ownership) funds of the owner(s). As such, they shall be aggregated 
with any other single ownership accounts of such owner(s) and insured 
up to the SMSIA per owner. Example: if a member establishes an account 
payable-on-death to a pet, the account would be insured as a single-
ownership account.
    (e) Revocable trust accounts with aggregate balances exceeding five 
times the SMSIA and naming more than five different beneficiaries. 
Notwithstanding the general coverage provisions in paragraph (a) of 
this section, for funds owned by a member in one or more revocable 
trust accounts naming more than five different beneficiaries and whose 
aggregate balance is more than five times the SMSIA, the maximum 
revocable trust account coverage for the account owner shall be the 
greater of either: five times the SMSIA or the aggregate amount of the 
ownership interests of each different beneficiary named in the trusts, 
to a limit of the SMSIA per different beneficiary. Example: A has a 
living trust account with a balance of $600,000. Under the terms of the 
trust, upon A's death, A's three children are each entitled to $50,000, 
A's friend is entitled to $5,000 and a designated charity is entitled 
to $70,000. The trust also provides that the remainder of the trust 
assets shall belong to A's spouse. In this case, because the balance of 
the account is over $500,000, which is five times the current SMSIA of 
$100,000, and there are more than five different beneficiaries named in 
the trust, the maximum coverage available to A would be the greater of: 
$500,000 or the aggregate of each different beneficiary's interest to a 
limit of $100,000 per beneficiary. The beneficial interests in the 
trust considered for purposes of determining coverage are: $50,000 for 
each of the children (totaling $150,000), $5,000 for the friend, 
$70,000 for the charity, and $100,000 for the spouse ($375,000, subject 
to the $100,000 limit per beneficiary). The aggregate beneficial 
interests, thus, are $325,000. Hence, the maximum coverage afforded to 
the account owner would be $500,000, the greater of $500,000 or 
$325,000.)
    (f) Joint revocable trust accounts. (1) Where an account described 
in paragraph (a) of this section is established by more than one owner, 
the respective interest of each account owner (which shall be deemed 
equal) shall be insured separately, per different beneficiary, up to 
the SMSIA, subject to the limitation imposed in paragraph (e) of this 
section. Example 1: A and B, two individuals, establish a payable-on-
death account naming their three nieces as beneficiaries. Neither A nor 
B has any other revocable trust accounts at the same NCUA-insured 
credit union. The maximum coverage afforded to A and B would be 
$600,000, determined by multiplying the number of owners (2) times the 
SMSIA (currently $100,000) times the number of different beneficiaries 
(3). In this example, A would be entitled to revocable trust coverage 
of $300,000 and B would be entitled to revocable trust coverage of 
$300,000. Example 2: A and B, two individuals, establish a payable-on-
death account naming their two children, two cousins and a charity as 
beneficiaries. The balance in the account is $700,000. Neither A nor B 
has any other revocable trust accounts at the same NCUA-insured credit 
union. The maximum coverage would be determined under paragraph (a) of 
this section by multiplying the number of account owners (2) times the 
number of different beneficiaries (5) times $100,000, or $1 million. 
Because the account balance is less than the maximum coverage amount, 
the account would be fully insured.
    Example 3: A and B, two individuals, establish a living trust 
account with a balance of $1.5 million. Under the terms of the trust, 
upon the death of both A and B, each of A's and B's three children is 
entitled to $200,000, B's cousin is entitled to $150,000, A's friend is 
entitled to $30,000, and the remaining amount ($720,000) goes to a 
charity. Under paragraph (e) of this section, the maximum coverage, as 
to each joint account owner, would be the greater of $500,000 or the 
aggregate amount (as to each joint owner) of the interest of each 
different beneficiary named in the trust, to a limit of $100,000 per 
account owner per beneficiary. The beneficial interests in the trust 
considered for purposes of determining coverage for account owner A 
are: $300,000 for the children (three times $100,000), $75,000 for the 
cousin, $15,000 for the friend, and $100,000 for the charity ($360,000 
subject to the $100,000 per-beneficiary limitation). As to A, the 
aggregate amount of the beneficial interests eligible for share 
insurance coverage is $490,000. Hence, the maximum coverage afforded to 
joint account owner A would be $500,000, the greater of $500,000 or 
$490,000 (the aggregate of all the beneficial interests attributable to 
A, limited to $100,000 per beneficiary). The same analysis and coverage 
determination also would apply to B.
    (2) Notwithstanding paragraph (f)(1) of this section, where the 
owners of a joint revocable trust account are themselves the sole 
beneficiaries of the corresponding trust, the account shall be insured 
as a joint account under section 745.8 and shall not be insured under 
the provisions of this section. Example: If A and B establish a 
payable-on-death account naming themselves as the sole beneficiaries of 
the account, the account will be insured as a joint account because the 
account does not satisfy the intent requirement under paragraph (a) of 
this section that the funds in the account belong to the named 
beneficiaries upon the owners' death. The beneficiaries are in fact the 
actual owners of the funds during the account owners' lifetimes.
    (g) For accounts held in connection with a living trust that 
provides for a life-estate interest for designated beneficiaries, NCUA 
shall value each such life estate interest as the SMSIA for purposes of 
determining the insurance coverage available to the account owner.
    (h) Revocable trusts that become irrevocable trusts. 
Notwithstanding the provisions in section 745.9-1 on the insurance 
coverage of irrevocable trust accounts, a revocable trust account shall 
continue to be insured under the provisions of this section even if the 
corresponding revocable trust, upon the death of one or more of the 
owners thereof, converts, in part or entirely, to an irrevocable trust. 
Example: Assume A and B have a trust account in connection with a 
living trust, of which they are joint grantors. If upon the death of 
either A or B the trust transforms into an irrevocable trust as to the 
deceased

[[Page 60622]]

grantor's ownership in the trust, the account will continue to be 
insured under the provisions of this section.
    (i) This section shall be effective as of October 14, 2008 for all 
existing and future revocable trust accounts and for existing and 
future irrevocable trust accounts resulting from formal revocable trust 
accounts.

Appendix to Part 745--[Amended]

0
3. The appendix to part 745 is amended by removing Section B and by 
redesignating Sections C through G as B through F respectively.

 [FR Doc. E8-23922 Filed 10-10-08; 8:45 am]
BILLING CODE 7535-01-P