[Federal Register Volume 88, Number 205 (Wednesday, October 25, 2023)]
[Proposed Rules]
[Pages 73249-73265]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-23481]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 745

[NCUA-2023-0082]
RIN 3133-AF53


Simplification of Share Insurance Rules

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

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SUMMARY: The NCUA Board (Board) is seeking comment on proposed 
amendments to its regulations governing share insurance coverage. The 
proposed rule would address the following items: simplify the share 
insurance regulations by establishing a ``trust accounts'' category 
that would provide for coverage of funds of both revocable trusts and 
irrevocable trusts deposited at federally insured credit unions 
(FICUs); provide consistent share insurance treatment for all mortgage 
servicing account balances held to satisfy principal and interest 
obligations to a lender; and provide more flexibility for the NCUA to 
consider various records in determining share insurance coverage in 
liquidations.

DATES: Comments must be received on or before December 26, 2023.

ADDRESSES: You may submit written comments by any of the following 
methods (Please send comments by one method only):
     Federal eRulemaking Portal: https://www.regulations.gov. 
The docket number for this proposed rule is NCUA-2023-0082. Follow the 
instructions for submitting comments.
     Mail: Address to Melane Conyers-Ausbrooks, Secretary of 
the Board, National Credit Union Administration, 1775 Duke Street, 
Alexandria, Virginia 22314.
     Hand Delivery/Courier: Same as mail address.
    Public inspection: All public comments are available on the Federal 
eRulemaking Portal at https://

[[Page 73250]]

www.regulations.gov as submitted, except when impossible for technical 
reasons. Public comments will not be edited to remove any identifying 
or contact information. If you are unable to access public comments on 
the internet, you may contact the NCUA for alternative access by 
calling (703) 518-6540 or emailing [email protected].

FOR FURTHER INFORMATION CONTACT: Thomas Zells, Senior Staff Attorney, 
Office of General Counsel, at (703) 518-6540 or by mail at National 
Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 
22314.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. General Background and Legal Authority
    A. General Background
    B. Legal Authority
II. Simplification of Share Insurance Trust Rules
    A. Policy Objectives
    B. Background and Need for Rulemaking
    1. Evolution of Insurance Coverage of Funds Held in Trust 
Accounts
    2. Current Rules for Coverage of Funds Held in Trust Accounts
    3. Need for Further Rulemaking
    C. Description of Proposed Rule
    D. Examples Demonstrating Coverage Under Current and Proposed 
Rules
    E. Request for Comment
III. Amendments to Mortgage Servicing Account Rule
    A. Policy Objectives
    B. Background and Need for Rulemaking
    C. Description of Proposed Rule
    D. Request for Comment
IV. Recordkeeping Requirements
    A. Policy Objectives
    B. Background and Need for Rulemaking
    C. Description of Proposed Rule
    D. Request for Comment
V. Regulatory Procedures
    A. Regulatory Flexibility Act
    B. Paperwork Reduction Act
    C. Executive Order 13132 on Federalism
    D. Assessment of Federal Regulations and Policies on Families

I. General Background and Legal Authority

A. General Background

    The NCUA is an independent Federal agency that insures funds 
maintained in accounts of members or those otherwise eligible to 
maintain insured accounts (member accounts) at FICUs, protects the 
members who own credit unions, and charters and regulates Federal 
credit unions (FCUs). The NCUA protects the safety and soundness of the 
credit union system by identifying, monitoring, and reducing risks to 
the National Credit Union Share Insurance Fund (Share Insurance Fund). 
Backed by the full faith and credit of the United States, the Share 
Insurance Fund provides Federal share insurance to millions of account 
holders in all FCUs and the majority of state-chartered credit unions.
    Under the Federal Credit Union Act (FCU Act), the NCUA is 
responsible for paying share insurance to any member, or to any person 
with funds lawfully held in a member account, in the event of a FICU's 
failure up to the standard maximum share insurance amount (SMSIA), 
which is currently set at $250,000.\1\ The FCU Act states the 
determination of the net amount of share insurance paid ``shall be in 
accordance with such regulations as the Board may prescribe'' and 
requires that, ``in determining the amount payable to any member, there 
shall be added together all accounts in the credit union maintained by 
that member for that member's own benefit, either in the member's own 
name or in the names of others.'' \2\ However, the FCU Act also 
specifically authorizes the Board to ``define, with such 
classifications and exceptions as it may prescribe, the extent of the 
share insurance coverage provided for member accounts, including member 
accounts in the name of a minor, in trust, or in joint tenancy.'' \3\
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    \1\ 12 U.S.C. 1787(k)(1)(A), (k)(6).
    \2\ 12 U.S.C. 1787(k)(1)(B).
    \3\ 12 U.S.C. 1787(k)(1)(C).
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    The NCUA has implemented these requirements by issuing regulations 
recognizing particular categories of accounts, such as single ownership 
accounts, joint ownership accounts, revocable trust accounts, and 
irrevocable trust accounts.\4\ If an account meets the requirements for 
a particular category, the account is insured up to the $250,000 limit 
separately from shares held by the member in a different account 
category at the same FICU. For example, provided all requirements are 
met, shares in the single ownership category will be separately insured 
from shares in the joint ownership category held by the same member at 
the same FICU.
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    \4\ 12 CFR part 745.
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    The NCUA's share insurance categories have been defined through 
both statute and regulation. Certain categories, such as the accounts 
held by government depositors \5\ and certain retirement accounts, 
including individual retirement accounts, have been expressly defined 
by Congress.\6\ Other categories, such as joint accounts \7\ and 
corporate accounts,\8\ have been based on statutory interpretation and 
recognized through regulations issued in 12 CFR part 745 pursuant to 
the NCUA's rulemaking authority. In addition to defining the insurance 
categories, the share insurance regulations in part 745 provide the 
criteria used to determine insurance coverage for shares in each 
category.
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    \5\ See 12 U.S.C. 1787(k)(2).
    \6\ See 12 U.S.C. 1787(k)(3).
    \7\ 12 CFR 745.8.
    \8\ 12 CFR 745.6.
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    It is also worth noting that the FCU Act provides a definition of 
the term ``member account.'' The NCUA insures ``member accounts'' at 
all FICUs.\9\ Importantly, the term ``member account'' is not limited 
to those persons enumerated in the credit union's field of membership 
who have become members. It also permits certain nonmembers, such as 
other nonmember credit unions, nonmember public units and political 
subdivisions, and, in the case of low-income designated credit unions, 
deposits of nonmembers generally. In other words, the NCUA provides 
share insurance coverage to members and those otherwise eligible to 
maintain insured accounts at FICUs.
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    \9\ 12 U.S.C. 1752(5).
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    As discussed in more detail below, the proposed amendments reflect 
the Board's aim to: (1) provide FICUs, FICU employees, and those with 
member accounts at FICUs, with a rule that is easier to understand; (2) 
provide parity with changes adopted by the FDIC in January 2022; and 
(3) facilitate the prompt payment of share insurance in accordance with 
the FCU Act, among other objectives.

B. Legal Authority

    The Board has issued this proposed rule pursuant to its authority 
under the FCU Act. Under the FCU Act, the NCUA is the chartering and 
supervisory authority for FCUs and the Federal supervisory authority 
for FICUs.\10\ The FCU Act grants the NCUA a broad mandate to issue 
regulations governing both FCUs and FICUs. Section 120 of the FCU Act 
is a general grant of regulatory authority and authorizes the Board to 
prescribe rules and regulations for the administration of the FCU 
Act.\11\ Section 207 of the FCU Act is a specific grant of authority 
over share insurance coverage, conservatorships, and liquidations.\12\ 
Section 209 of the FCU Act is a plenary grant of regulatory authority 
to the NCUA to issue rules and regulations necessary or appropriate to 
carry out its role as share insurer for all FICUs.\13\ Accordingly, the 
FCU Act grants the Board broad rulemaking

[[Page 73251]]

authority to ensure that the credit union industry and the Share 
Insurance Fund remain safe and sound.
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    \10\ 12 U.S.C. 1751 et seq.
    \11\ 12 U.S.C. 1766(a).
    \12\ 12 U.S.C. 1787.
    \13\ 12 U.S.C. 1789(a)(11).
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II. Simplification of Share Insurance Trust Rules

A. Policy Objectives

    The Board is seeking comment on proposed amendments to its 
regulations governing share insurance coverage for funds held in member 
accounts at FICUs in connection with trusts.\14\ The proposed 
amendments are intended to: (1) provide FICUs, FICU employees, and 
those with member accounts at FICUs with a rule for trust account 
coverage that is easier to understand; (2) provide parity with changes 
adopted by the FDIC in January 2022; \15\ and (3) facilitate the prompt 
payment of share insurance in accordance with the FCU Act, among other 
objectives. Accomplishing these objectives also would further the 
NCUA's mission in other respects, as discussed in greater detail below.
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    \14\ Trusts include informal revocable trusts (commonly referred 
to as payable-on-death accounts, in-trust-for accounts, or Totten 
trusts), formal revocable trusts, and irrevocable trusts.
    \15\ 87 FR 4455 (Jan. 28, 2022).
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Clarifying Insurance Coverage for Trust Accounts
    The share insurance trust rules have evolved over time and can be 
difficult to apply in some circumstances. The proposed amendments would 
clarify for FICUs, their employees, their accountholders, and other 
interested parties the insurance rules and limits for trust accounts. 
The proposal both reduces the number of rules governing coverage for 
trust accounts and establishes a straightforward calculation to 
determine coverage. The proposed amendments are intended to alleviate 
some of the confusion that FICUs, their employees, and their 
accountholders may experience with respect to insurance coverage and 
limits.
    Under the current regulations, there are distinct and separate sets 
of rules applicable to shares of revocable trusts as opposed to 
irrevocable trusts. Each set of rules has its own criteria for coverage 
and methods by which coverage is calculated. Despite the NCUA's efforts 
to simplify the revocable trust rules in 2008, the consistently high 
volume of complex inquiries about trust accounts over an extended 
period suggests continued confusion about insurance limits.\16\ NCUA 
share insurance specialists have answered over 13,000 calls with 
questions since the fourth quarter of 2019 alone.\17\ It is estimated 
that over 50 percent of these inquiries, which do not include those 
received through email or submitted through mycreditunion.gov, pertain 
to share insurance coverage for trust accounts (revocable or 
irrevocable). To help clarify insurance limits, the proposed amendments 
would further simplify insurance coverage of trust accounts (revocable 
and irrevocable) by harmonizing the coverage criteria for revocable and 
irrevocable trust accounts and by establishing a simplified formula for 
calculating coverage that would apply to these funds deposited at 
FICUs. The NCUA proposes using the calculation the NCUA first adopted 
in 2008 for revocable trust accounts with five or fewer beneficiaries. 
This formula is straightforward and is already generally familiar to 
FICUs and their members.\18\ The current formulas for revocable trust 
accounts with more than five beneficiaries and irrevocable trust 
accounts would be eliminated.
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    \16\ 73 FR 60616 (Oct. 14, 2008).
    \17\ The NCUA's Office of Credit Union Resources and Expansion, 
which fields most share insurance inquiries, only began tracking 
calls received on October 31, 2019. The high volume of trust-related 
inquires predates this tracking.
    \18\ In 2008, the NCUA adopted an insurance calculation for 
revocable trusts that have five or fewer beneficiaries. Under this 
rule, 12 CFR 745.4(a), each trust grantor is insured up to $250,000 
per beneficiary.
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Parity
    Adoption of the proposed changes would also align with changes the 
FDIC adopted in January 2022, which are set to take effect on April 1, 
2024.\19\ As it stressed in its 2021 final rule addressing the share 
insurance coverage of joint ownership accounts, the Board believes it 
is important to maintain parity between the nation's two Federal 
deposit/share insurance programs, which are backed by the full faith 
and credit of the United States.\20\ The Board believes it is important 
that members of the public who use trust accounts receive the same 
protection whether the accounts are maintained at FICUs or other 
federally insured institutions.
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    \19\ 87 FR 4455 (Jan. 28, 2022).
    \20\ 86 FR 11098 (Feb. 24, 2021).
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Prompt Payment of Share Insurance
    The FCU Act requires the NCUA to pay accountholders ``as soon as 
possible'' after a FICU liquidation.\21\ However, the insurance 
determination and subsequent payment for many trust accounts can be 
delayed when NCUA staff must review complex trust agreements and apply 
various rules for determining share insurance coverage. The proposed 
amendments are intended to facilitate more timely share insurance 
determinations for trust accounts by reducing the time needed to review 
trust agreements and determine coverage. These amendments should 
promote the NCUA's ability to pay insurance proceeds to accountholders 
more quickly following the liquidation of a FICU, enabling 
accountholders to meet their financial needs and obligations.
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    \21\ 12 U.S.C. 1787(d)(1).
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Facilitating Liquidations
    The proposed changes will also facilitate the liquidation of failed 
FICUs. The NCUA is routinely required to make share insurance 
determinations in connection with FICU liquidations. In many of these 
instances, however, share insurance coverage for certain trust accounts 
is based upon information that is not maintained in the FICU's account 
records. As a result, NCUA staff work with accountholders to obtain 
trust documentation following a FICU's liquidation to complete share 
insurance determinations. The difficulties associated with completing 
such a determination are exacerbated by the substantial growth in the 
use of formal trusts in recent decades. The proposed amendments could 
reduce the time spent reviewing such information, thereby reducing 
potential delays in the completion of share insurance determinations 
and payments.

B. Background and Need for Rulemaking

1. Evolution of Insurance Coverage of Funds Held in Trust Accounts
    The NCUA first adopted regulations governing share insurance 
coverage in 1971.\22\ Over the years, share insurance coverage has 
evolved to reflect both the NCUA's experience and changes in the credit 
union industry. While the regulations addressing irrevocable trusts 
have undergone minimal change, the regulations addressing revocable 
trusts have seen numerous changes, largely aimed at providing increased 
flexibility and simplifying coverage. Of note, in 2004 the NCUA amended 
the revocable trust rules, pointing to continued confusion about the 
coverage for revocable trust deposits and the need for parity with then 
recent FDIC amendments.\23\ Specifically, the NCUA eliminated the 
defeating contingency provisions of the rules, with the result that 
coverage would be based on the interests of qualifying beneficiaries, 
irrespective of any defeating

[[Page 73252]]

contingencies in the trust agreement.\24\ This more closely aligned 
coverage for formal revocable trust accounts with payable-on-death 
accounts. Importantly, and of relevance to this proposal, defeating 
contingency provisions were not eliminated for irrevocable trusts and 
remain relevant for calculating share insurance coverage under the 
irrevocable trust provisions.\25\ At the same time, the NCUA also 
eliminated the requirement to name the beneficiaries of a formal 
revocable trust in the FICU's account records.\26\ The NCUA recognized 
that a grantor may elect to change the beneficiaries or their interests 
at any time before his or her death and that requiring a FICU to 
maintain a current record of this information is impractical and 
unnecessarily burdensome.
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    \22\ 36 FR 2477 (Feb. 5, 1971).
    \23\ 69 FR 8798 (Feb. 26, 2004).
    \24\ Prior to the changes adopted in 2004, if the interest of a 
qualifying beneficiary in an account established under the terms of 
a living trust agreement was contingent upon fulfillment of a 
specified condition, referred to as a defeating contingency, 
separate insurance was not available for that beneficial interest. 
Instead, the beneficial interest would be added to any individual 
account(s) of the grantor and insured up to the SMSIA, then 
$100,000. An example of a defeating contingency is where an account 
owner names his son as a beneficiary but specifies in the living 
trust document that his son's ability to receive any share of the 
trust funds is dependent upon him successfully completing college.
    \25\ 12 CFR 745.2(d).
    \26\ 69 FR 8798, 8799 (Feb. 26, 2004).
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    More recently, the NCUA's experience and adoption of similar 
revisions by the FDIC suggested that further changes to the trust rules 
were necessary. Specifically, in 2008, the NCUA simplified the rules in 
several respects.\27\ First, it eliminated the kinship requirement for 
revocable trust beneficiaries, instead allowing any natural person, 
charitable organization, or non-profit to qualify for per-beneficiary 
coverage. Second, a simplified calculation was established if a 
revocable trust named five or fewer beneficiaries; coverage would be 
determined without regard to the allocation of interests among the 
beneficiaries. This eliminated the need to discern and consider 
beneficial interests in many cases.
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    \27\ 73 FR 60616 (Oct. 14, 2008).
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    A different insurance calculation applied to revocable trusts with 
more than five beneficiaries. At that time, the SMSIA was $100,000, and 
thus, if more than five beneficiaries were named in a revocable trust, 
coverage would be the greater of (1) $500,000; or (2) the aggregate 
amount of all beneficiaries' interests in the trust(s), limited to 
$100,000 per beneficiary. When the SMSIA was increased to $250,000, a 
similar adjustment was made from $100,000 to $250,000 for the 
calculation of per beneficiary coverage.
2. Current Rules for Coverage of Funds Held in Trust Accounts
    The NCUA recognizes two different insurance categories for funds 
held in connection with trusts at FICUs: (1) revocable trusts and (2) 
irrevocable trusts. The current rules for determining insurance 
coverage for shares in each of these categories are described below. 
Additionally, share insurance coverage is always limited to FICU 
members and those otherwise eligible to maintain insured accounts at 
the FICU. The NCUA's longstanding position has been that, for revocable 
trust accounts, all grantors (sometimes described as settlors) of the 
trust must be members of the FICU or otherwise eligible to maintain an 
insured account.\28\ For irrevocable trust accounts, the NCUA has 
maintained the position that either all grantors/settlors or all 
beneficiaries of the trust must be members of the FICU or otherwise 
eligible to maintain an insured account.\29\ As described in greater 
detail in section II.E., the NCUA appreciates commenter feedback as to 
whether these positions should be revisited.
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    \28\ See 12 CFR part 701, app. A. Art. III, sec. 6 (``Shares 
issued in a revocable trust--the settlor must be a member of this 
credit union in his or her own right.'').
    \29\ See 12 CFR part 701, app. A. Art. III, sec. 6 (``Shares 
issued in an irrevocable trust--either the settlor or the 
beneficiary must be a member of this credit union.'').
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Revocable Trust Accounts
    The revocable trust category applies to funds for which the member 
has evidenced an intention that the funds shall belong to one or more 
beneficiaries upon his/her/their death. This category includes funds 
held in connection with formal revocable trusts--that is, revocable 
trusts established through a written trust agreement. It also includes 
funds that are not subject to a formal trust agreement, where the FICU 
makes payment to the beneficiaries identified in the FICU's records 
upon the member's death, based on account titling and applicable state 
law. The NCUA refers to these types of accounts, including Totten trust 
accounts, payable-on-death accounts, and similar accounts, as 
``informal revocable trusts.'' Funds associated with formal and 
informal revocable trusts are aggregated for the purposes of the share 
insurance rules; thus, funds that will pass from the same grantor to 
beneficiaries are aggregated and insured up to the SMSIA, currently 
$250,000, per beneficiary, regardless of whether the transfer would be 
accomplished through a written revocable trust or an informal revocable 
trust.\30\
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    \30\ 12 CFR 745.4(a).
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    Under the current revocable trust rules, beneficiaries with 
insurable interests are limited to natural persons, charitable 
organizations, and non-profit entities recognized as such under the 
Internal Revenue Code of 1986.\31\ If a named beneficiary does not 
satisfy this requirement, funds held in trust for that beneficiary are 
treated as single ownership funds of the grantor and aggregated with 
any other single ownership accounts the grantor maintains at the same 
FICU.\32\
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    \31\ 12 CFR 745.4(c).
    \32\ 12 CFR 745.4(d).
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    Certain requirements also must be satisfied for an account to be 
insured in the revocable trust category. The required intention that 
the funds shall belong to the beneficiaries upon the grantor's death 
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 ``in trust for,'' ``as trustee for,'' ``payable-on-death to,'' or 
any acronym for these terms.\33\ For the purposes of this requirement, 
a FICU's electronic account records are included. For example, a FICU's 
electronic account records could identify the account as a revocable 
trust account through coding or a similar mechanism. In addition, the 
beneficiaries of informal trusts (i.e., payable-on-death accounts) must 
be named in the FICU's account records.\34\ The requirement to name 
beneficiaries in the FICU's account records does not apply to formal 
revocable trusts; the NCUA generally obtains information on 
beneficiaries of such trusts from accountholders following a FICU's 
liquidation. Therefore, if a member's account funds exceed $250,000 at 
a liquidated FICU, this will result in a hold being placed on the 
member's funds in excess of the SMSIA until the NCUA can review the 
ownership documents and trust agreement to verify the beneficiary rules 
are satisfied, thereby delaying insurance determinations and full 
insurance payments to some insured accountholders.
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    \33\ 12 CFR 745.4(b).
    \34\ Id.
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    The calculation of share insurance coverage for revocable trust 
accounts depends upon the number of unique beneficiaries named by a 
member accountholder.\35\ If five or fewer

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beneficiaries have been named, the member accountholder is insured in 
an amount up to the total number of named beneficiaries multiplied by 
the SMSIA, and the specific allocation of interests among the 
beneficiaries is not considered.\36\ If more than five beneficiaries 
have been named, the member accountholder is insured up to the greater 
of: (1) five times the SMSIA; or (2) the total of the interests of each 
beneficiary, with each such interest limited to the SMSIA.\37\ For the 
purposes of this calculation, a life estate interest is valued at the 
SMSIA.\38\
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    \35\ For a FICU to open a revocable trust account, all grantors/
settlors of the trust must be members of the FICU or otherwise 
eligible to maintain an insured account. See 12 CFR part 701, app. 
A. Art. III, sec. 6 (``Shares issued in a revocable trust--the 
settlor must be a member of this credit union in his or her own 
right.'').
    \36\ 12 CFR 745.4(a).
    \37\ 12 CFR 745.4(e).
    \38\ 12 CFR 745.4(g). For example, if a revocable trust provides 
a life estate for the member accountholder's spouse and remainder 
interests for six other beneficiaries, the spouse's life estate 
interest would be valued at the lesser of $250,000 or the amount 
held in the trust for the purposes of the share insurance 
calculation.
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    Where a revocable trust account is jointly owned, the interests of 
each account owner are separately insured up to the SMSIA per 
beneficiary.\39\ However, if the co-owners are the only beneficiaries 
of the trust, the account is instead insured under the NCUA's joint 
account rule.\40\
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    \39\ 12 CFR 745.4(f)(1).
    \40\ 12 CFR 745.4(f)(2).
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    The current revocable trust rule also contains a provision that was 
intended to reduce confusion and the potential for a decrease in share 
insurance coverage in the case of the death of a grantor. Specifically, 
if a revocable trust becomes irrevocable due to the death of the 
grantor, the trust account may continue to be insured under the 
revocable trust rules.\41\ Absent this provision, the irrevocable trust 
rules would apply following the grantor's death, as the revocable trust 
becomes irrevocable at that time, which could result in a reduction in 
coverage.\42\
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    \41\ 12 CFR 745.4(h).
    \42\ The revocable trust rules tend to provide greater coverage 
than the irrevocable trust rules because contingencies are not 
considered for revocable trusts. In addition, where five or fewer 
beneficiaries are named by a revocable trust, specific allocations 
to beneficiaries also are not considered.
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Irrevocable Trust Accounts
    Accounts maintaining funds held by an irrevocable trust that has 
been established either by written agreement or by statute are insured 
in the irrevocable trust share insurance category. Calculating coverage 
in this category requires a determination of whether beneficiaries' 
interests in the trust are contingent or non-contingent.\43\ Non-
contingent interests are interests that may be determined without 
evaluation of any contingencies, except for those covered by the 
present worth and life expectancy tables and the rules for their use 
set forth in the Internal Revenue Service (IRS) Federal Estate Tax 
Regulations.\44\ Funds held for non-contingent trust interests are 
insured up to the SMSIA for each such beneficiary.\45\ Funds held for 
contingent trust interests are aggregated and insured up to the SMSIA 
in total.\46\
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    \43\ 12 CFR 745.2(d) and 745.9-1.
    \44\ 12 CFR 745.2(d)(1). For example, a life estate interest is 
generally non-contingent, as it may be valued using the life 
expectancy tables. However, where a trustee has discretion to divert 
funds from one beneficiary to another to provide for the second 
beneficiary's medical needs, the first beneficiary's interest is 
contingent upon the trustee's discretion.
    \45\ 12 CFR 745.9-1(b).
    \46\ 12 CFR 745.2(d)(2).
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    The irrevocable trust rules do not apply to funds held for a 
grantor's retained interest in an irrevocable trust.\47\ Such funds are 
aggregated with the grantor's other single ownership funds for the 
purposes of applying the share insurance limit.
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    \47\ See 12 CFR 745.2(d)(4) (The term ``trust interest'' does 
not include any interest retained by the settlor.).
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3. Need for Further Rulemaking
    As noted, the rules governing share insurance coverage for trust 
accounts have been simplified on several occasions. However, these 
rules are still frequently misunderstood and can present some 
implementation challenges. The trust rules can require overly detailed, 
time-consuming, and resource-intensive reviews of trust documentation 
to obtain the information necessary to calculate share insurance 
coverage. This information is often not found in a FICU's records and 
must be obtained from members after a FICU's liquidation. Revision of 
the share insurance coverage rules for trust accounts along the lines 
proposed would reduce the amount of information that must be provided 
for trust accounts, as well as the complexity of the NCUA's review. 
This revision should enable the NCUA to complete share insurance 
determinations more rapidly if a FICU with a large number of trust 
accounts is liquidated. Delays in the payment of share insurance can be 
consequential for accountholders and the proposal would help to 
mitigate those delays.
    Several factors contribute to the challenges of making insurance 
determinations for trust accounts. First, there are two different sets 
of rules governing share insurance coverage for trust accounts. 
Understanding the coverage for a particular account requires a 
threshold inquiry to determine which set of rules to apply--the 
revocable trust rules or the irrevocable trust rules. This requires 
review of the trust agreement to determine the type of trust (revocable 
or irrevocable), and the inquiry may be complicated by innovations in 
state trust law that are intended to increase the flexibility and 
utility of trusts. In some cases, this threshold inquiry is also 
complicated by the provision of the revocable trust rules that allows 
for continued coverage under the revocable trust rules where a trust 
becomes irrevocable upon the grantor's death. The result of an 
irrevocable trust deposit being insured under the revocable trust rules 
has proven confusing for both accountholders and FICUs.
    Second, even after determining which set of rules applies to a 
particular account, it may be challenging to apply the rules. For 
example, the revocable trust rules include unique titling requirements 
and beneficiary requirements. These rules also provide for two separate 
calculations to determine insurance coverage, depending in part upon 
whether there are five or fewer trust beneficiaries or at least six 
beneficiaries. In addition, for revocable trusts that provide benefits 
to multiple generations of potential beneficiaries, the NCUA needs to 
evaluate the trust agreement to determine whether a beneficiary is a 
primary beneficiary (immediately entitled to funds when a grantor 
dies), contingent beneficiary, or remainder beneficiary. Only eligible 
primary beneficiaries and remainder beneficiaries are considered in 
calculating NCUA share insurance coverage. The irrevocable trust rules 
may require detailed review of trust agreements to determine whether 
beneficiaries' interests are contingent and may also require actuarial 
or present value calculations. These types of requirements complicate 
the determination of insurance coverage for trust deposits, have proven 
confusing for accountholders, and extend the time needed to complete a 
share insurance determination and insurance payment.
    Third, the complexity and variety of account holders' trust 
arrangements adds to the difficulty of determining share insurance 
coverage. For example, trust interests are sometimes defined through 
numerous conditions and formulas, and a careful analysis of these 
provisions may be necessary to calculate share insurance coverage under 
the current rules. Arrangements involving multiple trusts where the 
same beneficiaries are named by the same grantor(s) in different trusts 
add to the

[[Page 73254]]

difficulty of applying the trust rules. The NCUA believes 
simplification of the share insurance rules presents an opportunity to 
more closely align the coverage provided for different types of trust 
funds. For example, the revocable trust rules generally provide for a 
greater amount of coverage than the irrevocable trust rules. This 
outcome occurs because contingent interests for irrevocable trusts are 
aggregated and insured up to the SMSIA rather than up to the SMSIA per 
beneficiary, while contingencies are not considered and therefore do 
not limit coverage in the same manner for revocable trusts.
    Finally, as previously noted, adoption of the proposed changes 
would align with changes the FDIC adopted in January 2022, which are 
set to take effect on April 1, 2024. The Board believes it is important 
to maintain parity between the nation's two Federal deposit/share 
insurance programs. It is imperative that members of the public who use 
trust accounts for the transfer of ownership of assets better 
understand the rules governing such accounts and receive the same 
protection, whether the accounts are maintained at FICUs or other 
federally insured institutions.

C. Description of Proposed Rule

    The NCUA is proposing to amend the rules governing share insurance 
coverage for funds held in trust accounts at FICUs. Generally, the 
proposed amendments would: (1) merge the revocable and irrevocable 
trust categories into one category; (2) apply a simpler, common 
calculation method to determine insurance coverage for funds held by 
revocable and irrevocable trusts; and (3) eliminate certain 
requirements found in the current rules for revocable and irrevocable 
trusts.
Merger of Revocable and Irrevocable Trust Categories
    As discussed above, the NCUA historically has insured revocable 
trust funds and irrevocable trust funds held at FICUs under two 
separate insurance categories. The NCUA's experience has been that this 
bifurcation often confuses FICUs and their members, as it requires a 
threshold inquiry to determine which set of rules to apply to a trust 
account. Moreover, all trust funds deposited at a FICU must be 
categorized before the aggregation of trust funds deposited within each 
category can be completed. The NCUA believes funds held in connection 
with revocable and irrevocable trusts are sufficiently similar, for the 
purposes of share insurance coverage, to warrant the merger of these 
two categories into one category. Under the NCUA's current rules, share 
insurance coverage is provided because the trustee maintains the funds 
for the benefit of the beneficiaries. This is true regardless of 
whether the trust is revocable or irrevocable. Merger of the revocable 
and irrevocable trust categories would better conform share insurance 
coverage to the substance--rather than the legal form--of the trust 
arrangement. This underlying principle of the share insurance rules is 
particularly important in the context of trusts, as state law often 
provides flexibility to structure arrangements in different ways to 
accomplish a given purpose.\48\
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    \48\ For example, the NCUA currently aggregates funds in 
payable-on-death accounts and funds of written revocable trusts for 
the purposes of share insurance coverage, despite their separate and 
distinct legal mechanisms. Also, where the co-owners of a revocable 
trust are also that trust's sole beneficiaries, the NCUA instead 
insures the trust's funds as joint funds, reflecting the 
arrangement's substance rather than its legal form.
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    FICU members may have a variety of reasons for selecting a 
particular legal arrangement, but that decision should not 
significantly affect share insurance coverage. Importantly, the 
proposed merger of the revocable trust and irrevocable trust categories 
into one category for share insurance purposes would not affect the 
application or operation of state trust law; this would only affect the 
determination of share insurance coverage for these types of trust 
funds in the event of a FICU's liquidation.
    Accordingly, the NCUA is proposing to amend Sec.  745.4 of its 
regulations, which currently applies only to revocable trust accounts, 
to establish a new ``trust accounts'' category that would include both 
revocable and irrevocable trust funds deposited at a FICU. The proposed 
rule defines the funds that would be included in this category as 
follows: (1) informal revocable trust funds, such as payable-on-death 
accounts, in-trust-for accounts, and Totten trust accounts; (2) formal 
revocable trust funds, defined to mean funds held pursuant to a written 
revocable trust agreement under which funds pass to one or more 
beneficiaries upon the grantor's death; and (3) irrevocable trust 
funds, meaning funds held pursuant to an irrevocable trust established 
by written agreement or by statute.
    In addition, the merger of the revocable trust and irrevocable 
trust categories eliminates the need for Sec. Sec.  745.4(h) through 
(i) of the current revocable trust rules, which provide that the 
revocable trust rules may continue to apply to an account where a 
formal revocable trust becomes irrevocable due to the death of one or 
more of the trust's grantors. These provisions were intended to benefit 
accountholders, who sometimes were unaware that a trust owner's death 
could trigger a significant decrease in insurance coverage as a 
revocable trust becomes irrevocable.
    However, in the NCUA's experience, this rule has proven complex in 
part because it results in some irrevocable trusts being insured per 
the revocable trust rules, while other irrevocable trusts are insured 
under the irrevocable trust rules.\49\ As a result, an accountholder 
could know a trust was irrevocable but not know which share insurance 
rules to apply. The proposed rule would insure funds of formal and 
informal revocable trusts and irrevocable trusts according to a common 
set of rules, eliminating the need for these provisions (Sec. Sec.  
745.4(h) through (i)) and simplifying coverage for accountholders. 
Accordingly, the death of a formal revocable trust owner would not 
result in a decrease in share insurance coverage for the trust. 
Coverage for irrevocable and formal revocable trusts would fall under 
the same category and share insurance coverage would remain the same, 
even after the expiration of the six-month grace period following the 
death of an account owner.\50\
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    \49\ As noted above, if a revocable trust becomes irrevocable 
due to the death of the grantor, the account continues to be insured 
under the revocable trust rules. 12 CFR 745.4(h).
    \50\ The death of an account owner can affect share insurance 
coverage, often reducing the amount of coverage that applies to a 
family's accounts. To ensure that families dealing with the death of 
a family member have adequate time to review and restructure 
accounts if necessary, the NCUA insures a deceased owner's accounts 
as if he/she/they were still alive for a period of 6 months after 
his/her/their death. 12 CFR 745.2(e).
---------------------------------------------------------------------------

    Informal revocable trust accounts would also be insured under this 
same trust account category but are highly unlikely to result in the 
creation of an irrevocable trust account upon an owner or co-owner's 
death. As is the case under the existing share insurance regulations, 
when a co-owner of an informal revocable trust account dies, share 
insurance coverage for the deceased owner's interest in the account 
will cease after the expiration of the 6-month grace period allowed for 
the death of share account owners. After the expiration of the 6-month 
grace period, share insurance coverage will be calculated as if the 
deceased co-owner did not exist and the deceased co-owner's name did 
not remain on the account. This treatment of the account will be based 
upon the fact that all funds in the account will be owned by

[[Page 73255]]

one person (i.e., the surviving co-owner).
Calculation of Coverage
    The NCUA is proposing to use one streamlined calculation to 
determine the amount of share insurance coverage for funds of both 
revocable and irrevocable trusts. This method is already used by the 
NCUA to calculate coverage for revocable trusts that have five or fewer 
beneficiaries, and it is an aspect of the rules that is generally well-
understood by FICUs and their members. The proposed rule would provide 
that a grantor's trust funds are insured in an amount up to the SMSIA 
(currently $250,000) multiplied by the number of trust beneficiaries, 
not to exceed five beneficiaries. The NCUA would presume that, for 
share insurance purposes, the trust provides for equal treatment of 
beneficiaries such that specific allocation of the funds to the 
respective beneficiaries will not be relevant, consistent with the 
NCUA's current treatment of revocable trusts with five or fewer 
beneficiaries. This would, in effect, limit coverage for a grantor's 
trust funds at each FICU to a total of $1,250,000; in other words, 
maximum coverage would be equivalent to $250,000 per beneficiary for up 
to five beneficiaries. In determining share insurance coverage, the 
NCUA would continue to consider only beneficiaries who are expected to 
receive the funds held by the trust in a member account at the FICU; 
the NCUA would not consider beneficiaries who are expected to receive 
only non-deposit assets of the trust.
    The NCUA is proposing to calculate coverage in this manner, in 
part, based on its experience with the revocable trust rules after the 
modifications to these rules in 2008.\51\ The NCUA has found that the 
share insurance calculation method for revocable trusts with five or 
fewer beneficiaries has been the most straightforward and is easy for 
FICUs and the public to understand. This calculation provides for 
insurance in an amount up to the total number of unique grantor-
beneficiary trust relationships (i.e., the number of grantors, 
multiplied by the total number of beneficiaries, multiplied by the 
SMSIA).\52\ In addition to being simpler, this calculation has proven 
beneficial in liquidations, as it leads to more prompt share insurance 
determinations and quicker access to insured funds for accountholders. 
Accordingly, the NCUA proposes to calculate share insurance coverage 
for trust accounts based on the simpler calculation currently used for 
revocable trusts with five or fewer beneficiaries.
---------------------------------------------------------------------------

    \51\ 73 FR 60616 (Oct. 14, 2008).
    \52\ For example, two co-grantors that designate five 
beneficiaries are insured for up to $2,500,000 (2 times 5 times 
$250,000).
---------------------------------------------------------------------------

    The streamlined calculation that would be used to determine 
coverage for revocable trust funds and irrevocable trust funds includes 
a limit on the total amount of share insurance coverage for all of an 
accountholder's funds in the trust category at the same FICU. The 
proposed rule would provide coverage for trust funds at each FICU up to 
a total of $1,250,000 per grantor; in other words, each grantor's 
insurance limit would be $250,000 per beneficiary up to a maximum of 
five beneficiaries. The level of five beneficiaries is an important 
threshold in the current revocable trust rules, as it defines whether a 
grantor's coverage is determined using the simpler calculation of the 
number of beneficiaries multiplied by the SMSIA or the more complex 
calculation involving the consideration of the amount of each 
beneficiary's specific interest (which applies when there are six or 
more beneficiaries). The trust rules currently limit coverage by tying 
coverage to the specific interests of each beneficiary of an 
irrevocable trust or of each beneficiary of a revocable trust with more 
than five beneficiaries. The proposed rule's $1,250,000 per-grantor, 
per-FICU limit is more straightforward and balances the objectives of 
simplifying the trust rules, promoting timely payment of share 
insurance, facilitating liquidations, ensuring consistency with the FCU 
Act, and limiting risk to the Share Insurance Fund. The proposed rule 
would also provide parity between the NCUA's regulations and those 
adopted by the FDIC in early 2022.\53\
---------------------------------------------------------------------------

    \53\ 87 FR 4455 (Jan. 28, 2022).
---------------------------------------------------------------------------

    The NCUA anticipates that limiting coverage to $1,250,000 per 
grantor, per FICU, for trust funds would not have a substantial effect 
on accountholders, as most trust accounts in past FICU liquidations 
have had balances well below this level. The NCUA lacks sufficient 
information, however, to project the exact effects of the proposed 
limit on current accountholders and requests that commenters provide 
information that might be helpful in this regard.
    Under the proposed rule, to determine the level of insurance 
coverage that would apply to funds held in trust accounts, 
accountholders would still need to identify the grantors and the 
eligible beneficiaries of the trust. The level of coverage that applies 
to trust accounts would no longer be affected by the specific 
allocation of trust funds to each of the beneficiaries of the trust or 
by contingencies outlined in the trust agreement. Instead, the proposed 
rule would provide that a grantor's trust funds are insured up to a 
total of $1,250,000 per grantor, or an amount up to the SMSIA 
multiplied by the number of eligible beneficiaries, with a limit of no 
more than five beneficiaries.
Aggregation
    The proposed rule also provides for the aggregation of funds held 
in revocable and irrevocable trust accounts for the purposes of 
applying the share insurance limit. Under the current rules, funds held 
in informal revocable trust accounts and formal revocable trust 
accounts are aggregated for this purpose.\54\ The proposed rule would 
aggregate a grantor's informal and formal revocable trust accounts, as 
well as irrevocable trust accounts. For example, all informal revocable 
trusts, formal revocable trusts, and irrevocable trusts held for the 
same grantor at the same FICU would be aggregated, and the grantor's 
insurance limit would be determined by how many eligible and unique 
beneficiaries were identified among all of their trust accounts.\55\ 
The share insurance coverage provided in the ``trust accounts'' 
category would remain separate from the coverage provided for other 
funds held in a different right and capacity at the same FICU. However, 
some accountholders who currently maintain both revocable trust and 
irrevocable trust deposits at the same FICU may have funds in excess of 
the insurance limit if these separate categories are combined. The NCUA 
lacks data on accountholders' trust arrangements that would allow it to 
estimate the number of accountholders who might be affected in this 
manner. The agency does not believe this would impact a substantial 
number of accountholders but requests

[[Page 73256]]

that commenters provide information that might be helpful in this 
regard.
---------------------------------------------------------------------------

    \54\ See 12 CFR 745.4(a) (``All funds that an owner holds in 
both living trust accounts and payable-on-death accounts, at the 
same NCUA-insured credit union and naming the same beneficiaries, 
are aggregated for insurance purposes and insured to the applicable 
coverage limits. . . .'').
    \55\ For example, if a grantor maintained both an informal 
revocable trust account with three beneficiaries and a formal 
revocable trust account with three separate and unique 
beneficiaries, the two accounts would be aggregated and the maximum 
share insurance available would be $1.25 million (1 grantor times 
the SMSIA times the number of unique beneficiaries, limited to 5). 
However, if the same three people were the beneficiaries of both 
accounts, the maximum share insurance available would be $750,000 (1 
grantor times the SMSIA times the 3 unique beneficiaries).
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Eligible Beneficiaries
    Currently, the revocable trust rules provide that eligible 
beneficiaries include natural persons, charitable organizations, and 
non-profit entities recognized as such under the Internal Revenue Code 
of 1986,\56\ while the irrevocable trust rules do not establish 
criteria for beneficiaries. The NCUA believes that a single definition 
should be used to determine whether an entity is an eligible 
beneficiary for all trust funds and proposes to use the current 
revocable trust rule's definition. The NCUA believes that this single 
definition will result in a change in share insurance coverage only in 
very rare cases.
---------------------------------------------------------------------------

    \56\ 12 CFR 754.4(c).
---------------------------------------------------------------------------

    The proposed rule also would exclude from the calculation of share 
insurance coverage beneficiaries who only would obtain an interest in a 
trust if one or more named beneficiaries are deceased (often referred 
to as contingent beneficiaries). In this respect, the proposed rule 
would codify existing practice to include only primary, unique 
beneficiaries in the share insurance calculation.\57\ This would not 
represent a substantive change in coverage. Consistent with treatment 
under the current trust rules, naming a chain of contingent 
beneficiaries that would obtain trust interests only in the event of a 
beneficiary's death would not increase share insurance coverage.
---------------------------------------------------------------------------

    \57\ See NCUA Your Insured Funds at 42 (``The beneficiaries are 
the people or entities entitled to an interest in the trust. 
Contingent or alternative trust beneficiaries are not considered to 
have an interest in the trust funds and other assets as long as the 
primary or initial beneficiaries are still living, with the 
exception of revocable living trusts with a life estate 
interest.'').
---------------------------------------------------------------------------

    Finally, the proposed rule would codify an interpretation of the 
trust rules where an informal revocable trust designates the 
depositor's formal trust as its beneficiary. A formal trust generally 
does not meet the definition of an eligible beneficiary for share 
insurance purposes, but the NCUA has treated such accounts as revocable 
trust accounts under the trust rules, insuring the account as if it 
were titled in the name of the formal trust.\58\
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    \58\ See 74 FR 55747, 55748 (Oct. 29, 2009).
---------------------------------------------------------------------------

Retained Interests and Ineligible Beneficiaries' Interests
    The current trust rules provide that, in some instances, funds 
corresponding to specific beneficiaries are aggregated with a grantor's 
single ownership deposits at the same FICU for the purposes of the 
share insurance calculation. These instances include a grantor's 
retained interest in an irrevocable trust \59\ and interests of 
beneficiaries who do not satisfy the definition of ``beneficiary.'' 
\60\ This adds complexity to the share insurance calculation, as a 
detailed review of a trust agreement may be required to value such 
interests so they may be aggregated with a grantor's other funds. To 
implement the streamlined calculation for funds held in trust accounts, 
the NCUA is proposing to eliminate these provisions. Under the proposed 
rule, the grantor and other beneficiaries who do not satisfy the 
definition of ``eligible beneficiary'' would not be included for the 
purposes of the share insurance calculation.\61\ Importantly, this 
would not in any way limit a grantor's ability to establish such trust 
interests under state law. These interests simply would not factor into 
the calculation of share insurance coverage.
---------------------------------------------------------------------------

    \59\ See 12 CFR 745.2(d)(4).
    \60\ 12 CFR 745.4(d).
    \61\ In the unlikely event a trust does not name any eligible 
beneficiaries, the NCUA would treat the funds in the trust account 
as funds held in a single ownership account. Such funds would be 
aggregated with any other single ownership funds that the grantor 
maintains at the same FICU and insured up to the SMSIA of $250,000.
---------------------------------------------------------------------------

Future Trusts Named as Beneficiaries
    Trusts often contain provisions for the establishment of one or 
more new trusts upon the grantor's death, and the proposed rule also 
would clarify share insurance coverage in these situations. 
Specifically, if a trust agreement provides that trust funds will pass 
into one or more new trusts upon the death of the grantor (or 
grantors), the future trust (or trusts) would not be treated as 
beneficiaries for the purposes of the calculation. The future trust(s) 
instead would be considered mechanisms for distributing trust funds, 
and the natural persons or organizations that receive the trust funds 
through the future trusts would be considered the beneficiaries for the 
purposes of the share insurance calculation. This clarification is 
consistent with the NCUA's current interpretations and would not 
represent a substantive change in share insurance coverage.
Naming of Beneficiaries in Share Account Records
    Consistent with the current revocable trust rules, the proposed 
rule would continue to require the beneficiaries of an informal 
revocable trust to be specifically named in the account records of the 
FICU.\62\ The NCUA does not believe this requirement imposes a burden 
on FICUs, as informal revocable trusts by their nature require the FICU 
to be able to identify the individuals or entities to which funds would 
be paid upon the accountholder's death.
---------------------------------------------------------------------------

    \62\ See 12 CFR 745.4(b).
---------------------------------------------------------------------------

Presumption of Ownership
    The proposed rule also would state that, unless otherwise specified 
in a FICU's account records, funds held in an account for a trust 
established by multiple grantors are presumed to be owned in equal 
shares. This presumption is consistent with the current revocable trust 
rules.\63\
---------------------------------------------------------------------------

    \63\ See 12 CFR 745.4(f).
---------------------------------------------------------------------------

Funds Covered Under Other Rules
    The proposed rule would exclude from coverage under Sec.  745.4 
certain trust funds that are covered by other sections of the share 
insurance regulations. For example, employee benefit plan accounts are 
insured pursuant to current Sec.  745.9-2. In addition, if the co-
owners of an informal or formal revocable trust are the trust's sole 
beneficiaries, funds held in connection with the trust would be treated 
as a joint ownership account under Sec.  745.8. In each of these cases, 
the NCUA is not proposing to change the current rule.
Removal of the Appendix to Part 745
    Finally, the NCUA is proposing to remove the appendix to part 745, 
which provides examples of share insurance coverage. The NCUA plans to 
update its Your Insured Funds brochure to reflect any amendments made 
to part 745.\64\ The Board believes an updated brochure and other 
updated resources available on mycreditunion.gov will provide a more 
consumer friendly and easier-to-update avenue for providing examples of 
share insurance coverage.
---------------------------------------------------------------------------

    \64\ https://mycreditunion.gov/sites/default/static-files/insured-funds-brochure.pdf.
---------------------------------------------------------------------------

    The NCUA is also proposing to remove references to the appendix in 
the heading of part 745 and Sec.  745.0, Sec.  745.2, and Sec.  745.13. 
This would mean that provision of the appendix would no longer satisfy 
the notification to members/shareholders requirement in Sec.  745.13. 
Instead, FICUs would have to make available either the rules in part 
745 of the NCUA's regulations or the Your Insured Funds brochure.
Conforming Changes
    The proposed simplification of the calculation for insurance 
coverage for funds held in trust accounts also would permit the 
elimination of current Sec.  745.2(d) of the regulations addressing

[[Page 73257]]

the valuation of trust interests. As discussed further below, the 
description of non-contingent interests in Sec. Sec.  745.2(d)(1) and 
(2) would no longer be relevant to trust accounts under the proposed 
rule. Additionally, Sec.  745.2(d)(3) regarding the deemed pro rata 
contribution of settlors to a trust would be replaced by proposed Sec.  
745.4(b)(4), which would presume equal allocation. Section 745.2(d)(4) 
defining a ``trust interest'' would be replaced by the proposed 
definition of ``irrevocable trust'' in Sec.  745.4(a)(3).
    Regarding non-contingent interests, the NCUA is also proposing to 
move the current description of a non-contingent interest in Sec.  
745.2(d)(1) to the definitions section of part 745. The new definition 
of ``non-contingent interest'' in Sec.  745.1 would remain 
substantively the same but would now only be relevant to evaluating 
participants' non-contingent interests in shares of an employee benefit 
plan under Sec.  745.9-2(a). The proposed definition of ``non-
contingent interest'' would add language to include any present worth 
or life expectancy tables that the IRS may adopt that are similar to 
those set forth in Sec.  20.2031-7 of the Federal Estate Tax 
Regulations (26 CFR 20.2031-7). This is not intended to be a 
substantive change but is instead intended to provide flexibility 
should the IRS make any changes. As part of this change, the NCUA is 
also proposing to make non-substantive changes to Sec.  745.1 to 
improve readability. Additionally, the NCUA proposes to remove the 
reference to Sec.  745.2 in current Sec.  745.9-2.
    Finally, the NCUA is proposing to redesignate current Sec.  745.9-2 
as Sec.  745.9 to reflect the elimination of current Sec.  745.9-1 
governing irrevocable trust accounts. The reference in Sec.  745.9-2(a) 
to Sec.  745.2 would also be removed to reflect the elimination of the 
description of a non-contingent interest in current Sec.  745.2(d) and 
adoption of a definition of ``non-contingent interest'' in proposed 
Sec.  745.1.

D. Examples Demonstrating Coverage Under Current and Proposed Rules

    To assist commenters, the NCUA is providing examples demonstrating 
how the proposed rule would apply to determine share insurance coverage 
for funds held in trust accounts. These examples are not intended to be 
all-inclusive; they merely address a few possible scenarios involving 
funds held in trust accounts. The NCUA expects that for most 
accountholders, insurance coverage would not change under the proposed 
rule. The examples here specifically highlight a few instances where 
coverage could be reduced to ensure that commenters are aware of them.
    In addition, all examples involve members or those otherwise 
entitled to maintain insured accounts at the FICU. It is worth 
reiterating that share insurance coverage is only available to FICU 
members and those otherwise entitled to maintain insured accounts. For 
revocable trust accounts, all grantors must be members of the FICU or 
otherwise eligible to maintain an insured account to receive share 
insurance coverage. In the case of an irrevocable trust account, all 
grantors or all beneficiaries must be members of the FICU or otherwise 
eligible to maintain an insured account to receive share insurance 
coverage. Where a revocable trust account has become irrevocable 
because of the death of a grantor, the deceased grantor's membership 
will continue to satisfy their membership requirement as long as the 
trust account continues to be maintained at the FICU.
Example 1: Payable-on-Death Account
    Member A establishes a payable-on-death account at a FICU. Member A 
has designated three beneficiaries for this account--B, C, and D--who 
will receive the funds upon member A's death and listed all three on a 
form provided to the FICU. The only other share account that member A 
maintains at the same FICU is a share draft account with no designated 
beneficiaries. What is the maximum amount of share insurance coverage 
for member A's shares at the FICU?
    Under the proposed rule, member A's payable-on-death account 
represents an informal revocable trust and would be insured in the 
trust accounts category. The maximum coverage for this account would be 
equal to the SMSIA (currently $250,000) multiplied by the number of 
grantors (in this case one because member A established the account) 
multiplied by the number of beneficiaries, up to a maximum of five 
(here three, the number of beneficiaries is less than five). Member A's 
payable-on-death account would be insured for up to ($250,000) times 
(1) times (3) = $750,000.
    The coverage for member A's payable-on-death account is separate 
from the coverage provided for member A's share draft account, which 
would be insured in the single ownership category because she has not 
named any beneficiaries for that account. The single ownership share 
draft account would be insured up to the SMSIA, $250,000. Member A's 
total insurance coverage for shares at the FICU would be $750,000 + 
$250,000 = $1,000,000. Notably, this level of coverage is the same as 
that provided by the current share insurance rules.
Example 2: Formal Revocable Trust and Informal Revocable Trust
    Members E and F jointly establish a payable-on-death account at a 
FICU. Members E and F have designated three beneficiaries for this 
account--G, H, and I--who will receive the funds after both members E 
and F are deceased. They list these beneficiaries on a form provided to 
the FICU. Members E and F also jointly establish an account titled in 
the name of the ``E and F Living Trust'' at the same FICU. Members E 
and F are the grantors of the living trust, a formal revocable trust 
that includes the same three beneficiaries, G, H, and I. The grantors, 
members E and F, do not maintain any other share accounts at this same 
FICU. What is the maximum amount of share insurance coverage for 
members E and F's shares?
    Under the proposed rule, members E and F's payable-on-death account 
represents an informal revocable trust and would be insured in the 
trust accounts category. Members E and F's living trust account 
constitutes a formal revocable trust and would also be insured in the 
trust accounts category. To the extent the funds in these accounts 
would pass from the same grantor (E or F) to beneficiaries (G, H, and 
I), the funds would be aggregated for the purpose of applying the share 
insurance limit. As under the current rules, it would be irrelevant 
that the grantors' shares are divided between the payable-on-death 
account and the living trust account.
    The maximum coverage for members E and F's shares would be equal to 
the SMSIA ($250,000) multiplied by the number of grantors (two, because 
members E and F are the grantors with respect to both accounts) 
multiplied by the number of unique beneficiaries, up to a maximum of 
five (here three, the number of beneficiaries, is less than five). 
Therefore, the coverage for E and F's trust accounts would be: 
($250,000) times (2) times (3) = $1,500,000. This level of coverage is 
the same as that provided by the current share insurance rules.
Example 3: Two-Owner Trust and a One-Owner Trust
    Members J and K jointly establish a payable-on-death account at a 
FICU. Members J and K have designated three beneficiaries for this 
account--L, M, and N--who will receive the funds after both J and K are 
deceased. They list these beneficiaries on a form provided to the FICU. 
At the same FICU, member

[[Page 73258]]

J establishes a payable-on-death account and designates member K as the 
beneficiary upon J's death. What is the maximum amount of coverage for 
members J and K's shares?
    Under the proposed rule, both accounts would be insured under the 
trust account category. To the extent these shares would pass from the 
same grantor (J or K) to beneficiaries (such as L, M, and N), they 
would be aggregated for the purpose of applying the share insurance 
limit. For example, member K identified three beneficiaries (L, M, and 
N), and therefore, member K's insurance limit is $750,000 (or 1 times 3 
times SMSIA). Member K would be fully insured as long as one-half 
interest of the co-owned trust account was $750,000 or less, which is 
the same level of coverage provided under current rules. In this 
example, member J's situation differs from member K's because J has a 
second trust account, but the insurance calculation remains the same. 
Specifically, member J has two trust accounts and identified four 
unique beneficiaries (L, M, N, and K); therefore, member J's insurance 
limit is $1,000,000 (or 1 times 4 times SMSIA). Member J would remain 
fully insured as long as J's trust shares--equal to one-half of the co-
owned trust account plus J's personal trust account--total no more than 
$1,000,000. This methodology and level of coverage is the same as that 
provided by the current share insurance rules.
Example 4: Revocable and Irrevocable Trusts
    Member O establishes a share account at a FICU titled the ``O 
Living Trust.'' Member O is the grantor of this living trust, a formal 
revocable trust that includes three beneficiaries--P, Q, and R. The 
grantor, member O, also establishes an irrevocable trust for the 
benefit of the same three beneficiaries. The trustee of the irrevocable 
trust maintains a share account at the same FICU as the living trust 
account, titled in the name of the irrevocable trust. Neither member O 
nor the trustee maintains other share accounts at the same FICU. What 
is the insurance coverage for these accounts?
    Under the proposed rule, the living trust account is a formal 
revocable trust and would be insured in the trust accounts category. 
The account containing the funds from the irrevocable trust account 
would also be insured in the trust accounts category. To the extent 
these shares would pass from the same grantor (member O) to 
beneficiaries (P, Q, or R), they would be aggregated for the purposes 
of applying the share insurance limit. It would be irrelevant that the 
shares are divided between the living trust account and the irrevocable 
trust account. The maximum coverage for these shares would be equal to 
the SMSIA ($250,000) multiplied by the number of grantors (one, because 
member O is the grantor with respect to both accounts) multiplied by 
the number of beneficiaries, up to a maximum of five (here three, the 
number of beneficiaries, is less than five). Therefore, the maximum 
coverage for the shares in the trust accounts would be: ($250,000) 
times (1) times (3) = $750,000.
    This is one of the isolated instances where the proposed rule may 
provide a reduced amount of coverage as a result of the aggregation of 
revocable and irrevocable trust accounts, depending on the structure of 
the trust agreement. Under the current rules, member O would be insured 
for up to $750,000 for revocable trust shares and separately insured 
for up to $750,000 for irrevocable trust shares (assuming non-
contingent beneficial interests), resulting in $1,500,000 in total 
coverage. If that were the case, current coverage would exceed that 
provided by the proposed rule. However, the terms of irrevocable trusts 
sometimes lead to less coverage than expected. It is often the case 
that irrevocable trust accounts are only insured up to $250,000 under 
the current rules due to contingencies in the trust agreement, but 
determining this with certainty often requires careful consideration of 
the trust agreement's contingency provisions. Under the current rule, 
if contingencies existed, current coverage would exceed that provided 
by the proposed rule, as member O would be insured up to $1,000,000; 
$750,000 for the revocable trust and $250,000 for the irrevocable 
trust. In the NCUA's view, one of the key benefits of the proposed rule 
versus the current rule would be greater clarity and predictability in 
share insurance coverage because whether contingencies exist would no 
longer be a factor that could affect share insurance.
Example 5: Many Beneficiaries Named
    Member S establishes a share account at a FICU titled in the name 
of the ``S Living Trust.'' This trust is a revocable trust naming seven 
beneficiaries--T, U, V, W, X, Y, and Z. The grantor, member S, does not 
maintain any other shares at the same FICU. What is the coverage for 
this account?
    Under the proposed rule, the living trust is a formal revocable 
trust and would be insured in the trust accounts category. The maximum 
coverage for this account would be equal to the SMSIA ($250,000) 
multiplied by the number of grantors (one, because member S is the sole 
grantor) multiplied by the number of beneficiaries, up to a maximum of 
five. Here the number of named beneficiaries (seven) exceeds the 
maximum (five), so insurance is calculated using the maximum (five). 
Coverage for the account would be: ($250,000) times (1) times (5) = 
$1,250,000.
    This is another limited instance where the proposed rule may 
provide for less coverage than the current rule. Under the current 
rule, because more than five beneficiaries are named, the account is 
insured up to the greater of the following: (1) five times the SMSIA; 
or (2) the total of the interests of each beneficiary, with each such 
interest limited to the SMSIA. Determining coverage requires review of 
the trust agreement to ascertain each beneficiary's interest. Each such 
insurable interest is limited to the SMSIA, and the total of all these 
interests is compared with $1,250,000 (five times the SMSIA). The 
current rule provides coverage in the greater of these two amounts. The 
result would fall into a range from $1,250,000 to $1,750,000, depending 
on the precise allocation of trust interests among the 
beneficiaries.\65\ In the NCUA's view, one of the key benefits of the 
proposed rule versus the current rule would be greater clarity and 
predictability in share insurance coverage because a single formula 
would be used to determine maximum coverage, and this formula would not 
depend upon the specific allocation of funds among beneficiaries.
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    \65\ For example, if all the beneficiaries' interests were 
equal, coverage would be: $250,000 times (7 beneficiaries) = 
$1,750,000. This is the maximum coverage possible under the current 
rule. Conversely, if a few beneficiaries had a large interest in the 
trust, the total of all beneficiaries' interests (limited to the 
SMSIA per beneficiary) could be less than $1,250,000, in which case 
the current rule would provide a minimum of $1,250,000 in coverage. 
Depending upon the precise allocation of interests, the amount of 
coverage provided would fall somewhere within this range.
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E. Request for Comment

    The NCUA is requesting comment on all aspects of the proposed rule. 
Comment is specifically invited with respect to the following 
questions:
     Would the proposed amendments to the share insurance rules 
make insurance coverage for trust accounts easier to understand for 
FICUs and the public?
     The NCUA believes that accountholders generally would have 
the information necessary to readily calculate share insurance coverage 
for their trust accounts under the proposed rule, allowing them to 
better understand

[[Page 73259]]

insurance coverage for their trust accounts. Are there instances where 
an accountholder would not likely have the necessary information?
     Are there any other types of trusts not described in this 
proposal whose funds maintained in FICU accounts would be affected by 
the proposed rule if adopted? What types of trusts are those, and how 
would they be impacted?
     While the NCUA has substantial experience regarding trust 
arrangements, the NCUA does not possess sufficiently detailed 
information on accountholders' existing trust arrangements to allow the 
NCUA to project the proposed rule's effects on current accountholders. 
Are there any other sources of empirical information the NCUA should 
consider that may be helpful in understanding the effects of the 
proposed rule? The NCUA also encourages commenters to provide such 
information, if possible.
     Grandfathering of the share insurance rules would result 
in significantly greater complexity for the period during which two 
sets of rules could apply to accounts--especially in conducting 
liquidations. Therefore, the NCUA is not inclined to consider allowing 
grandfathering but prefers to rely on a delayed implementation date to 
allow stakeholders to make necessary adjustments because of the new 
rules. However, the NCUA recognizes there are instances, such as trusts 
holding share certificates or other account relationships, which may 
not be easily restructured without adverse consequences to the 
accountholder. Are there fact patterns where grandfathering the current 
rules may be appropriate? Would grandfathering be appropriate with 
respect to the proposed rule's coverage limit of $1,250,000 per FICU 
for an accountholder's funds held in trust accounts?
     Are the examples provided clear and understandable? Are 
there other common trust scenarios that would benefit from an example 
being provided?
     Historically, the NCUA has maintained the position that 
the membership requirement for a revocable trust account is satisfied 
when all grantors (sometimes described as settlors) of the trust are 
members of the FICU or otherwise eligible to maintain an insured 
account. For an irrevocable trust account, the NCUA has said that the 
membership requirement is satisfied if either all the grantors/settlors 
or all the beneficiaries of the trust are members of the FICU or 
otherwise eligible to maintain an insured account. Are there 
alternatives the NCUA should consider for fulfilling the membership 
requirement for share insurance coverage of revocable and irrevocable 
trust accounts? Should informal revocable trust accounts that are 
established with a right of survivorship be treated akin to joint 
accounts with member and nonmember co-owners who own the account with a 
right of survivorship? \66\ Should a trustee who deposits funds at a 
FICU pursuant to a revocable or irrevocable trust they administer be 
considered to be maintaining a member account, providing share 
insurance coverage to eligible beneficiaries?
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    \66\ See 12 CFR 745.8(e) (``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.'').
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     Are there any other amendments to the share insurance 
rules applicable to trusts that the NCUA should consider?

III. Amendments to Mortgage Servicing Account Rule

A. Policy Objectives

    The NCUA's regulations governing share insurance coverage include 
specific rules on accounts maintained at FICUs by mortgage 
servicers.\67\ These rules are intended to be easy to understand and 
apply in determining the amount of share insurance coverage for a 
mortgage servicer's account. The NCUA generally strives to maintain 
parity with FDIC's regulations in furtherance of this aim.
---------------------------------------------------------------------------

    \67\ 12 CFR 745.3(a)(3).
---------------------------------------------------------------------------

    The NCUA is proposing an amendment to its rules governing insurance 
coverage for accounts maintained at FICUs by mortgage servicers that 
consist of mortgagors' principal and interest payments. The proposed 
rule would mirror a change made by the FDIC in early 2022,\68\ 
scheduled to become effective in April 2024, intended to address a 
servicing arrangement that is not addressed in the current rules. 
Specifically, some servicing arrangements may permit or require 
servicers to advance their own funds to the lenders when mortgagors are 
delinquent in making principal and interest payments, and servicers 
might commingle such advances in the mortgage servicing account (MSA) 
with principal and interest payments collected directly from 
mortgagors. The FDIC reasoned that the factors that motivated the FDIC 
to establish its current rules for mortgage servicing accounts, which 
the NCUA also adopted and are further described below, weigh in favor 
of treating funds advanced by a mortgage servicer in order to satisfy 
mortgagors' principal and interest obligations to the lender as if such 
funds were collected directly from borrowers. The FDIC also noted that 
it seeks to avoid uncertainty concerning the extent of deposit 
insurance coverage for such accounts. The NCUA concurs with the 
importance of avoiding uncertainty regarding the extent of insurance 
coverage and believes that an important aspect of avoiding uncertainty 
is maintaining parity between the share insurance and deposit insurance 
regimes.
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    \68\ 87 FR 4455 (Jan. 28, 2022).
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B. Background and Need for Rulemaking

    The NCUA's rules governing coverage for MSAs were last amended in 
2008 and corresponded to changes made by the FDIC. More specifically, 
in 2008 the FDIC recognized that securitization methods and vehicles 
for mortgages had become more complex, exacerbating the difficulty of 
determining the ownership of deposits consisting of principal and 
interest payments by mortgagors and extending the time required to make 
a deposit insurance determination for deposits of a mortgage servicer 
in the event of an insured depository institution's (IDI's) 
failure.\69\ The FDIC expressed concern that a lengthy insurance 
determination could lead to continuous withdrawal of deposits of 
principal and interest payments from IDIs and unnecessarily reduce a 
funding source for such institutions. The FDIC therefore amended its 
rules to provide coverage to lenders based on each mortgagor's payments 
of principal and interest into the MSA, up to the standard maximum 
deposit insurance amount (SMDIA) (currently $250,000) per mortgagor. 
The FDIC did not amend the rule for coverage of tax and insurance 
payments, which continued to be insured to each mortgagor on a pass-
through basis and aggregated with any other deposits maintained by each 
mortgagor at the same IDI in the same right and capacity. The NCUA 
agreed that this treatment of principal and interest payments provided 
greater and fairer coverage for credit union members and decided to 
take the same approach in its share insurance rules.\70\
---------------------------------------------------------------------------

    \69\ See 73 FR 61658, 61658-59 (Oct. 17, 2008).
    \70\ 73 FR 62856, 62857 (Oct. 22, 2008).
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    Importantly, the 2008 amendments to the rules for MSAs did not 
provide for the fact that servicers may be required to advance their 
own funds to make payments of principal and interest on behalf of 
delinquent borrowers to the lenders. However, in its recent rulemaking 
the FDIC identified that this

[[Page 73260]]

is required of mortgage servicers in some instances. For example, the 
FDIC noted that some IDIs identified challenges to implementing certain 
recordkeeping requirements with respect to MSA deposit balances because 
of the way in which servicer advances are administered and 
accounted.\71\
---------------------------------------------------------------------------

    \71\ The FDIC noted that, to fulfill their contractual 
obligations with investors, covered IDIs maintain mortgage principal 
and interest balances at a pool level and remittances, advances, 
advance reimbursements, and excess funds applications that affect 
pool-level balances are not allocated back to individual borrowers.
---------------------------------------------------------------------------

    The NCUA's and the FDIC's rules currently in effect provide 
coverage for principal and interest funds only to the extent ``paid 
into the account by the mortgagors''; they do not provide coverage for 
funds paid into the account from other sources, such as the servicer's 
own operating funds, even if those funds satisfy mortgagors' principal 
and interest payments. As a result, advances are not provided the same 
level of coverage as other deposits in an MSA consisting of principal 
and interest payments directly from the borrower, which are insured up 
to the SMSIA/SMDIA for each borrower. Instead, the advances are 
aggregated and insured to the servicer as corporate funds for a total 
of $250,000. In adopting changes to its rule in early 2022, the FDIC 
expressed concern that this inconsistent treatment of principal and 
interest amounts could result in financial instability during times of 
stress, and could further complicate the insurance determination 
process, a result that is inconsistent with their policy objective. The 
NCUA shares these concerns and believes it is important that parity is 
maintained between the insurance regimes.

C. Description of Proposed Rule

    The NCUA is proposing to amend the rules governing coverage for 
funds in MSAs to provide parity with the FDIC's regulation and provide 
consistent share insurance treatment for all MSA balances held to 
satisfy principal and interest obligations to a lender, regardless of 
whether those funds are paid into the account by borrowers, or paid 
into the account by another party (such as the servicer) to satisfy a 
periodic obligation to remit principal and interest due to the lender. 
Under the proposed rule, accounts maintained by a mortgage servicer in 
an agency, custodial, or fiduciary capacity, which consist of payments 
of principal and interest, would be insured for the cumulative balance 
paid into the account to satisfy principal and interest obligations to 
the lender, whether paid directly by the borrower or by another party, 
up to the limit of the SMSIA per mortgagor. Mortgage servicers' 
advances of principal and interest funds on behalf of delinquent 
borrowers would therefore be insured up to the SMSIA per mortgagor, 
consistent with the coverage rules for payments of principal and 
interest collected directly from borrowers.
    The composition of an MSA attributable to principal and interest 
payments would also include collections by a servicer, such as 
foreclosure proceeds, that are used to satisfy a borrower's principal 
and interest obligation to the lender. In some cases, foreclosure 
proceeds may not be paid directly by a mortgagor. The current rule does 
not address whether foreclosure collections represent payments of 
principal and interest by a mortgagor. Under the proposed rule, 
foreclosure proceeds used to satisfy a borrower's principal and 
interest obligation would be insured up to the limit of the SMSIA per 
mortgagor.
    The proposed rule would make no change to the share insurance 
coverage provided for MSAs comprised of payments from mortgagors of 
taxes and insurance premiums. Such aggregate escrow accounts are held 
separately from the principal and interest MSAs, and the funds therein 
are held for the mortgagors until such time as tax and insurance 
payments are disbursed by the servicer on the borrower's behalf. Under 
the proposed rule, such funds would continue to be insured based on the 
ownership interest of each mortgagor in the account and aggregated with 
other funds maintained by the mortgagor at the same FICU in the same 
capacity and right.

D. Request for Comment

    The NCUA is requesting comment on all aspects of the proposed rule. 
Comment is specifically invited with respect to the following 
questions:
     Would the proposed amendments to the rules governing 
coverage for MSAs adequately address servicers' practices with respect 
to these accounts, as described above? Are there any other funds 
representing principal and interest that are commingled with borrowers' 
payments that the NCUA should consider in the share insurance 
calculation, consistent with its policy objectives?
     Would share insurance coverage of servicer principal and 
interest advances help to promote financial stability in the financial 
system? If the NCUA does not amend the rule as proposed, how would 
mortgage servicers react if their FICU, or the credit union industry as 
a whole, appears stressed? How would funding arrangements or deposit 
relationships change?
     Are there any alternatives to the proposed rule that would 
better achieve the NCUA's policy objectives in connection with this 
rulemaking? Are there any other amendments to the share insurance rules 
applicable to MSAs that the NCUA should consider?
     If the NCUA opts to issue a final rule adopting the 
proposed change is there any reason to delay its effective date, as is 
being contemplated for the proposed changes to trust accounts? Or 
should the NCUA make the change effective as soon as possible?

IV. Recordkeeping Requirements

A. Policy Objectives

    The NCUA's regulations governing share insurance coverage include 
general principles applicable in determining insurance of accounts.\72\ 
Among these general principles are provisions addressing 
recordkeeping.\73\ The NCUA intends for these provisions to clearly 
articulate the records the agency will look to in order to evaluate 
insurance coverage. As discussed in more detail below, over time it has 
become apparent that the recordkeeping provisions do not clearly 
address all situations and may be especially unclear as to accounts 
maintained by an agent, custodian, fiduciary, or other party on behalf 
of a member or beneficial owner eligible to maintain an insured account 
at a FICU. To better address these situations, the NCUA proposes to 
amend the recordkeeping requirements as discussed below.
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    \72\ 12 CFR 745.2.
    \73\ 12 CFR 745.2(c).
---------------------------------------------------------------------------

B. Background and Need for Rulemaking

    Section 745.2(c) of the NCUA's regulations addresses general 
recordkeeping requirements. Other recordkeeping requirements applicable 
to specific account types are addressed as needed in the relevant 
sections of part 745. Current Sec.  745.2(c)(1) provides that, as a 
general matter, the account records of the FICU shall be conclusive as 
to the existence of any relationship pursuant to which the funds in the 
account are deposited and on which a claim for insurance coverage is 
founded. Examples would be trustee, agent, custodian, or executor. No 
claim for insurance based on such a relationship will be recognized in 
the absence of such disclosure.
    Section 745.2(c)(2) provides that, if the account records of a FICU 
disclose

[[Page 73261]]

the existence of a relationship which may provide a basis for 
additional insurance, as required under Sec.  745.2(c)(1), the details 
of the relationship and the interest of other parties in the account 
must be ascertainable either from the records of the FICU or the 
records of the member maintained in good faith and in the regular 
course of business. It is this provision that has raised questions 
regarding accounts maintained by an agent, fiduciary, or similar party. 
Specifically, the NCUA has received several questions regarding whether 
records maintained by an agent, fiduciary, or similar third party on 
behalf of the member or beneficial owner eligible to maintain an 
insured account would qualify as the ``records of the member.'' Due to 
the frequency with which these agent or fiduciary arrangements will 
involve a party other than the FICU or member maintaining records on 
the FICU's or member's behalf, the NCUA is proposing to add language 
explicitly clarifying that such records, when maintained in good faith 
and in the regular course of business, can be looked to when evaluating 
the details of the relationship and the interest of other parties in 
the account at the FICU.

C. Description of Proposed Rule

    Section 745.3(a)(2) of the NCUA's regulations provides that when an 
account is held by an agent or nominee, funds owned by a principal and 
deposited in one or more accounts in the name or names of agents or 
nominees shall be added to any individual account of the principal and 
insured up to the SMSIA in the aggregate. The NCUA will also generally 
look to the principal or beneficial owner for satisfying the membership 
requirement or other eligibility to maintain an insured account at the 
FICU. As such, records maintained by an agent or nominee on behalf of 
the member principal or beneficial owner may not clearly be considered 
``records of the member'' for the purpose of ascertaining their 
interests in the account under current Sec.  745.2(c)(2).
    The NCUA's Office of General Counsel has previously issued a legal 
opinion stating that where an agent or custodian ``has an agreement 
with the beneficial owner/member to maintain custody of the beneficial 
owner/member's records, [the] NCUA would consider those records to be 
`records of the member' within the meaning of 12 CFR 745(c)(2).'' \74\ 
However, the NCUA acknowledges that it would be beneficial for the 
regulation to more clearly address this situation to allow the details 
of the relationship and the interests of other parties in the account 
to be ascertainable either from the account records of the FICU or from 
records maintained, in good faith and in the regular course of 
business, by the member or by some person or entity that has undertaken 
to maintain such records for the member. Such a change would provide 
much greater clarity, particularly in the event of multi-tiered 
fiduciary relationships, and would more closely compare to language 
previously adopted by the FDIC.\75\ Importantly, the NCUA retains 
discretion to determine when records are maintained on behalf of a 
member, in good faith and in the regular course of business. 
Ultimately, the NCUA must be able to establish ownership interests in 
the account by following the chain of records maintained by parties at 
each level of the relationship from the account records maintained at 
the FICU.
---------------------------------------------------------------------------

    \74\ NCUA Legal Op. 97-0909 (Feb. 6, 1998), available at https://www.ncua.gov/regulation-supervision/legal-opinions/1997/pass-through-insurance.
    \75\ 12 CFR 330.5(b)(2).
---------------------------------------------------------------------------

    Additionally, Sec.  745.2(c)(3) of the current regulations provides 
that the account records of a FICU in connection with a trust account 
shall disclose the name of both the settlor (grantor) and the trustee 
of the trust and shall contain an account signature card executed by 
the trustee. This requirement goes beyond the recordkeeping 
requirements of Sec.  745.2(c)(1) through (2) and poses an unnecessary 
burden on FICUs and their members. Further, the FDIC previously 
eliminated a similar requirement.\76\ To eliminate unnecessary 
recordkeeping complexity and provide parity with FDIC, the NCUA is 
proposing to eliminate current Sec.  745.2(c)(3).
---------------------------------------------------------------------------

    \76\ 51 FR 21137 (June 11, 1986).
---------------------------------------------------------------------------

    Section 745.2(c)(4) states that the interests of the co-owners of a 
joint account shall be deemed equal, unless otherwise stated on the 
insured credit union's records in the case of a tenancy in common. The 
NCUA is not proposing any substantive amendments to this provision but 
is proposing to move it to Sec.  745.2(c)(3) given the proposed 
elimination of the current requirement in that section.
    Finally, Sec.  745.14(a)(2) notes that interest on lawyers' trust 
accounts (IOLTAs) and other similar escrow accounts are subject to the 
recordkeeping requirements of Sec.  745.2(c)(1) and (2). In doing so, 
Sec.  745.14(a)(2) provides an example of how the details of the 
relationship between the attorney or escrow agent and their clients and 
principals must be ascertainable from the records of the FICU or from 
records maintained, in good faith and in the regular course of 
business, by the member attorney or member escrow agent administering 
the account. The NCUA proposes to amend this description to conform to 
the change to Sec.  745.2(c)(2) to explicitly state that the records 
detailing the relationship and the interest of other parties in the 
account must be maintained, in good faith and in the regular course of 
business, by (1) the FICU or (2) the member attorney or member escrow 
agent, or a person or entity acting on their behalf.

D. Request for Comment

    The NCUA is requesting comment on all aspects of the proposed rule. 
Comment is specifically invited with respect to the following 
questions:
     Would the proposed amendments to the recordkeeping 
requirements in part 745 provide adequate clarity for FICUs, members, 
and other relevant third parties as to the records the NCUA will look 
to in evaluating the details of account relationships and the interests 
of other parties in accounts maintained at FICUs?
     Are there any alternatives to the proposed rule that would 
better achieve the NCUA's policy objectives in connection with this 
rulemaking?
     Are there any other amendments to the recordkeeping 
requirements applicable to the share insurance rules that the NCUA 
should consider? For example, should the NCUA consider adopting a 
definition of ``account records'' similar to the definition the FDIC 
has provided for ``deposit account records'' in its regulations 
governing deposit insurance coverage? \77\ Or, similarly, should the 
NCUA adopt specific provisions addressing multi-tiered fiduciary 
relationships like the FDIC has done? \78\
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    \77\ See 12 CFR 330.1 (``Deposit account records means account 
ledgers, signature cards, certificates of deposit, passbooks, 
corporate resolutions authorizing accounts in the possession of the 
insured depository institution and other books and records of the 
insured depository institution, including records maintained by 
computer, which relate to the insured depository institution's 
deposit taking function, but does not mean account statements, 
deposit slips, items deposited or cancelled checks.'').
    \78\ See 12 CFR 330.5(b)(3).
---------------------------------------------------------------------------

     Relatedly, the FDIC has adopted regulations to facilitate 
prompt payment of FDIC-insured deposits when large IDIs fail.\79\ The 
FDIC's recordkeeping for timely deposit insurance determination 
regulations require each IDI that has two million or more deposit 
accounts to (1)

[[Page 73262]]

configure its information technology system to be capable of 
calculating the insured and uninsured amount in each deposit account by 
ownership right and capacity, which would be used by the FDIC to make 
deposit insurance determinations in the event of the institution's 
failure, and (2) maintain complete and accurate information needed by 
the FDIC to determine deposit insurance coverage with respect to each 
deposit account, except as otherwise provided. These requirements are 
intended to facilitate the FDIC's prompt payment of deposit insurance 
after the failure of covered IDIs. By law, the FDIC must pay deposit 
insurance ``as soon as possible'' after an IDI fails while also 
resolving the IDI in the manner least costly to the Deposit Insurance 
Fund.\80\ Similarly, the FCU Act requires the NCUA to pay 
accountholders ``as soon as possible'' after a FICU liquidation.\81\ 
Should the NCUA consider adopting similar requirements for FICUs? If 
so, would a lower threshold, such as 500,000 or 1 million member 
accounts, be more appropriate?
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    \79\ See 12 CFR part 370.
    \80\ 12 U.S.C. 1821(f)(1); 12 U.S.C. 1823(c)(4).
    \81\ 12 U.S.C. 1787(d)(1).
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     If the NCUA opts to issue a final rule adopting the 
proposed change, is there any reason to delay its effective date, as 
contemplated for the proposed changes to trust accounts? Or should the 
NCUA make the change effective as soon as permitted by law?

V. Regulatory Procedures

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires that, in 
connection with a notice of proposed rulemaking, an agency prepare and 
make available for public comment an initial regulatory flexibility 
analysis that describes the impact of a proposed rule on small 
entities. A regulatory flexibility analysis is not required, however, 
if the agency certifies that the rule will not have a significant 
economic impact on a substantial number of small entities (defined for 
the purposes of the RFA to include credit unions with assets less than 
$100 million) \82\ and publishes its certification and a short, 
explanatory statement in the Federal Register together with the rule.
---------------------------------------------------------------------------

    \82\ See 80 FR 57512 (Sept. 24, 2015).
---------------------------------------------------------------------------

    The NCUA fully considered the potential economic impact of the 
proposed changes during the development of the proposed rule. As noted 
in the preamble, the proposed rule would simplify the NCUA's current 
share insurance regulations covering various types of trust accounts. 
It would also provide more flexibility on the coverage of MSAs. 
Finally, it would explicitly provide for additional flexibility in what 
records the NCUA can look to when determining the details of account 
relationships and various parties' interests in the accounts.
    In short, the NCUA believes the principal impact of the proposed 
rule will be to streamline its administrative procedures for insurance 
payouts on trust accounts when FICUs fail. While the proposed rule 
would require FICUs and their members to be familiar with the new trust 
rules and the coverage limits imposed on trust accounts, the NCUA 
believes this will not impose any new significant burden on FICUs, may 
ease some existing requirements, and should reduce the complexity of 
questions FICUs receive from their members on share insurance coverage. 
Additionally, FICUs and their members are familiar with the proposed 
formula as it is already applied to revocable trust accounts with five 
or fewer beneficiaries. The formula is also simpler to understand and 
implement than the previous rules governing revocable trust accounts 
with six or more beneficiaries and irrevocable trusts. The proposed 
changes to the rule governing coverage of MSAs and the changes to the 
recordkeeping requirements should only provide greater flexibility for 
coverage of these accounts and should not cause any new burden on FICUs 
or their members. Accordingly, the NCUA certifies that it would not 
have a significant economic impact on a substantial number of small 
FICUs.

B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency by rule creates a new paperwork burden on regulated 
entities or modifies an existing burden.\83\ For the purposes of the 
PRA, a paperwork burden may take the form of a reporting, disclosure, 
or recordkeeping requirement, each referred to as an information 
collection. The NCUA may not conduct or sponsor, and the respondent is 
not required to respond to, an information collection unless it 
displays a currently valid Office of Management and Budget (OMB) 
control number.
---------------------------------------------------------------------------

    \83\ 44 U.S.C. 3507(d).
---------------------------------------------------------------------------

    The proposed rule does not contain information collection 
requirements that require approval by OMB under the PRA. The proposed 
rule will not create new or modify any existing paperwork burdens. 
Rather, the proposed rule will simplify the share insurance regulations 
by merging the revocable and irrevocable trust account categories into 
one trust account category and applying a simpler, common calculation 
method to determine insurance coverage for funds held in revocable and 
irrevocable trust accounts. The proposed rule will also provide 
consistent share insurance treatment for all MSA balances held to 
satisfy principal and interest obligations to a lender, regardless of 
whether those funds are paid into the account by borrowers or paid into 
the account by another party (such as the servicer) to satisfy a 
periodic obligation to remit principal and interest due to the lender. 
Finally, the proposed rule will also explicitly allow the NCUA, when 
making share insurance determinations, to look to records held in the 
normal course of business that are maintained by parties other than a 
FICU and its members on their behalf. As such, no PRA submissions to 
OMB will be made with respect to this proposed rule. The NCUA invites 
comments on its PRA determination.

C. Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. The 
NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), 
voluntarily complies with the principles of the executive order to 
adhere to fundamental federalism principles. This proposed rule would 
only impact the NCUA's regulations related to share insurance coverage; 
it would not affect state law related to trust accounts. The proposed 
rule would also not alter the NCUA's relationship or division of 
responsibilities with state regulatory agencies or bodies because the 
proposed rule would affect the NCUA's Federal share insurance 
determinations exclusively. This proposal would not have a substantial 
direct effect on the states, on the connection between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. The NCUA has 
determined that this proposal does not constitute a policy that has 
federalism implications for the purposes of the executive order.

D. Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this proposed rule will not affect 
family well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Public Law 105-277, 112 
Stat. 2681

[[Page 73263]]

(1998). Under this statute, if the agency determines the proposed 
regulation may negatively affect family well-being, then the agency 
must provide an adequate rationale for its implementation.
    The NCUA has determined that the implementation of this proposed 
rule would not negatively affect family well-being, but rather would 
strengthen it. The NCUA believes that any effect would be limited 
because the change may not affect many accounts, and members or others 
maintaining those accounts would have time and notice to modify the 
accounts before the NCUA adopts and implements any final rule on this 
subject. Overall, the NCUA believes that the proposed rule would not 
negatively affect family well-being despite this possible effect but 
welcomes public comment on this issue. If the NCUA ultimately finds 
that the rule would have a negative effect as the statute describes, it 
believes the benefits that the preamble describes in simplifying 
coverage and potentially reducing costs for the NCUA and for FICUs 
would support implementing the rule.

E. Providing Accountability Through Transparency Act of 2023

    The Providing Accountability Through Transparency Act of 2023 (5 
U.S.C. 553(b)(4)) (Act) requires that a notice of proposed rulemaking 
include the internet address of a summary of not more than 100 words in 
length of a proposed rule, in plain language, that shall be posted on 
the internet website under section 206(d) of the E-Government Act of 
2002 (44 U.S.C. 3501 note) (commonly known as regulations.gov).
    In summary, the proposed rule would simplify the share insurance 
regulations by establishing a ``trust accounts'' category that would 
provide for coverage of funds of both revocable trusts and irrevocable 
trusts deposited at FICUs, provide consistent share insurance treatment 
for all mortgage servicing account balances held to satisfy principal 
and interest obligations to a lender, and provide more flexibility for 
the NCUA to consider various records in determining share insurance 
coverage in liquidations.
    The proposal and the required summary can be found at https://www.regulations.gov.

List of Subjects in 12 CFR Part 745

    Credit, Credit Unions, Share Insurance.

    By the National Credit Union Administration Board on October 19, 
2023.
Melane Conyers-Ausbrooks,
Secretary of the Board.

    For the reasons discussed in the preamble, the Board proposes to 
amend 12 CFR part 745 as follows:

PART 745--SHARE INSURANCE COVERAGE

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; title V, Pub. L. 109-351;120 Stat. 1966.

0
2. The heading for part 745 is revised to read as set forth above.


Sec.  745.0  [Amended]

0
3. Amend Sec.  745.0 by removing the words ``and appendix''.
0
4. Revise Sec.  745.1 to read as follows:


Sec.  745.1   Definitions.

    For the purposes of this part:
    Account or accounts mean share, share certificate, or share draft 
accounts (or their equivalent under state law, as determined by the 
Board in the case of insured state-chartered credit unions) of a member 
(which includes other credit unions, public units, and nonmembers where 
permitted under the Act) in a credit union of a type approved by the 
Board which evidences money or its equivalent received or held by a 
credit union in the usual course of business and for which it has given 
or is obligated to give credit to the account of the member.
    Member or members mean those persons enumerated in the credit 
union's field of membership who have been elected to membership in 
accordance with the Act or state law in the case of state-chartered 
credit unions. It also includes those nonmembers permitted under the 
Act to maintain accounts in an insured credit union, including 
nonmember credit unions and nonmember public units and political 
subdivisions.
    Non-contingent interest means an interest capable of determination 
without evaluation of contingencies except for those covered by the 
present worth tables and rules of calculation for their use set forth 
in Sec.  20.2031-7 of the Federal Estate Tax Regulations (26 CFR 
20.2031-7) or any similar present worth or life expectancy tables which 
may be adopted by the Internal Revenue Service.
    Political subdivision includes any subdivision of a public unit, as 
defined in paragraph (c) of this section, or any principal department 
of such public unit,
    (1) The creation of which subdivision or department has been 
expressly authorized by state statute;
    (2) To which some functions of government have been delegated by 
state statute; and
    (3) To which funds have been allocated by statute or ordinance for 
its exclusive use and control. It also includes drainage, irrigation, 
navigation improvement, levee, sanitary, school or power districts and 
bridge or port authorities, and other special districts created by 
state statute or compacts between the states. Excluded from the term 
are subordinate or nonautonomous divisions, agencies, or boards within 
principal departments.
    Public unit means the United States, any state of the United 
States, the District of Columbia, the Commonwealth of Puerto Rico, the 
Panama Canal Zone, any territory or possession of the United States, 
any county, municipality, or political subdivision thereof, or any 
Indian tribe as defined in section 3(c) of the Indian Financing Act of 
1974.
    Standard maximum share insurance amount referred to as the 
``SMSIA'' hereafter, means $250,000 adjusted pursuant to subparagraph 
(F) of section 11(a)(1) of the Federal Deposit Insurance Act (12 U.S.C. 
1821(a)(1)(F)).
0
5. Amend Sec.  745.2 by:
0
a. Revising paragraph (a);
0
b. Revising paragraph (c)(2);
0
c. Removing paragraph (c)(3);
0
d. Redesignating paragraph (c)(4) as paragraph (c)(3);
0
e. Removing paragraph (d); and
0
f. Redesignating paragraphs (e) and (f) as paragraphs (d) and (e).
    The revisions read as follows:


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

    (a) General. This part provides for determination by the Board of 
the amount of members' insured accounts. The rules for determining the 
insurance coverage of accounts maintained by members in the same or 
different rights and capacities in the same insured credit union are 
set forth in the following provisions of this part. While the 
provisions of this part govern in determining share insurance coverage, 
to the extent local law enters into a share insurance determination, 
the local law of the jurisdiction in which the insured credit union's 
principal office is located will control over the local law of other 
jurisdictions where the insured credit union has offices or service 
facilities.
* * * * *
    (c) * * *
    (2) If the account records of an insured credit union disclose the

[[Page 73264]]

existence of a relationship which may provide a basis for additional 
insurance, the details of the relationship and the interest of other 
parties in the account must be ascertainable either from the records of 
the credit union or the records of the member, maintained in good faith 
and in the regular course of business by the member or by some person 
or entity that has undertaken to maintain such records for the member.
* * * * *
0
6. Amend Sec.  745.3 by revising paragraph (a)(3) to read as follows:


Sec.  745.3   Single ownership accounts.

    (a) * * *
    (3) Mortgage servicing accounts. Accounts maintained by a mortgage 
servicer, in a custodial or other fiduciary capacity, which are 
comprised of payments of principal and interest, shall be insured for 
the cumulative balance paid into the account by mortgagors, or in order 
to satisfy mortgagors' principal or interest obligations to the lender, 
up to the limit of the SMSIA per mortgagor. Accounts maintained by a 
mortgage servicer, in a custodial or other fiduciary capacity, which 
are comprised of payments by mortgagors of taxes and insurance premiums 
shall be added together and insured in accordance with paragraph (a)(2) 
of this section for the ownership interest of each mortgagor in such 
accounts.
* * * * *
0
7. Revise Sec.  745.4 to read as follows:


Sec.  745.4   Trust accounts.

    (a) Scope and definitions. This section governs coverage for funds 
held in connection with informal revocable trusts, formal revocable 
trusts, and irrevocable trusts. For the purposes of this section:
    (1) Informal revocable trust means a trust under which deposited 
funds pass directly to one or more beneficiaries upon the owner's death 
without a written trust agreement, commonly referred to as a payable-
on-death account, in-trust-for account, or Totten trust account.
    (2) Formal revocable trust means a revocable trust established by a 
written trust agreement under which deposited funds pass to one or more 
beneficiaries upon the grantor's death.
    (3) Irrevocable trust means an irrevocable trust established by 
statute or a written trust agreement, except as described in paragraph 
(e) of this section.
    (b) Calculation of coverage--(1) General calculation. Deposited 
trust funds are insured in an amount up to the SMSIA multiplied by the 
total number of beneficiaries identified by each grantor, up to a 
maximum of five beneficiaries.
    (2) Aggregation for purposes of insurance limit. Deposited trust 
funds that pass from the same grantor to beneficiaries are aggregated 
for the purposes of determining coverage under this section, regardless 
of whether those funds are held in connection with an informal 
revocable trust, formal revocable trust, or irrevocable trust.
    (3) Separate insurance coverage. The share insurance coverage 
provided under this section is separate from coverage provided for 
other funds at the same federally insured credit union.
    (4) Equal allocation presumed. Unless otherwise specified in the 
account records of the federally insured credit union, deposited funds 
held in connection with a trust established by multiple grantors are 
presumed to have been owned or funded by the grantors in equal shares.
    (c) Number of beneficiaries. The total number of beneficiaries for 
trust funds deposited under paragraph (b) of this section will be 
determined as follows:
    (1) Eligible beneficiaries. Subject to paragraph (c)(2) of this 
section, beneficiaries include natural persons, as well as charitable 
organizations and other non-profit entities recognized as such under 
the Internal Revenue Code of 1986, as amended.
    (2) Ineligible beneficiaries. Beneficiaries do not include:
    (i) The grantor of a trust; or
    (ii) A person or entity that would only obtain an interest in the 
deposited funds if one or more named beneficiaries are deceased.
    (3) Future trust(s) named as beneficiaries. If a trust agreement 
provides that trust funds will pass into one or more new trusts upon 
the death of the grantor(s) (``future trusts''), the future trust(s) 
are not treated as beneficiaries of the trust; rather, the future 
trust(s) are viewed as mechanisms for distributing trust funds, and the 
beneficiaries are the natural persons or organizations that shall 
receive the trust funds through the future trusts.
    (4) Informal trust account payable to member's formal trust. If an 
informal revocable trust designates the account owner's formal trust as 
its beneficiary, the informal revocable trust account will be treated 
as if titled in the name of the formal trust.
    (d) Account records-- (1) Informal revocable trusts. The 
beneficiaries of an informal revocable trust must be specifically named 
in the account records of the federally insured credit union.
    (2) Formal revocable trusts. The title of a formal trust account 
must include terminology sufficient to identify the account as a trust 
account, such as ``family trust'' or ``living trust,'' or must 
otherwise be identified as a testamentary trust in the account records 
of the federally insured credit union. If eligible beneficiaries of 
such formal revocable trust are specifically named in the account 
records of the federally insured credit union, the NCUA shall presume 
the continued validity of the named beneficiaries' interest in the 
trust.
    (e) Deposited funds excluded from coverage under this section--(1) 
Revocable trust co-owners that are sole beneficiaries of a trust. If 
the co-owners of an informal or formal revocable trust are the trust's 
sole beneficiaries, deposited funds held in connection with the trust 
are treated as joint ownership funds under Sec.  745.8.
    (2) Employee benefit plan deposits. Deposited funds of employee 
benefit plans, even if held in connection with a trust, are treated as 
employee benefit plan funds under Sec.  745.9.


Sec.  745.9-1   [Removed]

0
8. Remove Sec.  745.9-1.


Sec.  745.9-2  [Redesignated as Sec.  745.9 and Amended]

0
9. Redesignate Sec.  745.9-2 as Sec.  745.9 and remove the words ``, in 
accordance with Sec.  745.2 of this part'' in newly redesignated 
paragraph (a).


Sec.  745.13  [Amended]

0
10. Amend Sec.  745.13 by removing the words ``the appendix''.
0
11. Amend Sec.  745.14 by revising paragraph (a)(2) to read as follows:


Sec.  745.14   Interest on lawyers trust accounts and other similar 
escrow accounts.

    (a) * * *
    (2) Pass-through coverage will only be available if the 
recordkeeping requirements of Sec.  745.2(c)(1) of this part and the 
relationship disclosure requirements of Sec.  745.2(c)(2) of this part 
are satisfied. In the event those requirements are satisfied, funds 
attributable to each client and principal will be insured on a pass-
through basis in whatever right and capacity the client or principal 
owns the funds. For example, an IOLTA or other similar escrow account 
must be titled as such, and the underlying account records of the 
insured credit union must sufficiently indicate the existence of the 
relationship on which a claim for insurance is founded. The details of 
the relationship between the attorney or escrow agent and their clients 
and principals must be ascertainable from

[[Page 73265]]

the records of the insured credit union or from records maintained, in 
good faith and in the regular course of business, by the attorney or 
the escrow agent administering the account, or by some person or entity 
that has undertaken to maintain such records for the attorney or escrow 
agent. The NCUA will determine, in its sole discretion, the sufficiency 
of these records for an IOLTA or other similar escrow account.
* * * * *

Appendix to Part 745 [Removed]

0
12. Remove Appendix to Part 745.

[FR Doc. 2023-23481 Filed 10-24-23; 8:45 am]
BILLING CODE 7535-01-P