Proposal aims to simplify rules for trust account deposit insurance coverage

Simplifying deposit insurance rules for revocable and irrevocable trusts, and amending a rule on mortgage service accounts coverage, are addressed in a proposed regulation issued by the federal insurer of bank deposits Tuesday.

In a release, the Federal Deposit Insurance Corp. (FDIC) said the proposal would merge the deposit insurance categories for the revocable and irrevocable trust accounts. The agency said that would allow application of a “simpler, common calculation to determine coverage for all trust accounts.”

The proposal was approved to be issued for comment by the FDIC Board of Directors, meeting in open session Tuesday.

The agency said it receives more inquiries related to trust deposits insurance coverage than all other types of deposits combined. “The proposal would make the trust rules consistent and easier to understand for bankers and depositors, and also would facilitate prompt payment of deposit insurance by the FDIC in the event of an insured depository institution’s failure,” the agency said.

FDIC noted, in a fact sheet, that the trust deposits under the proposal would be insured up to $250,000 for each trust beneficiary (not to exceed five), regardless of whether a trust was revocable or irrevocable, and regardless of contingencies or the allocation of funds among beneficiaries. The rule would provide maximum insurance coverage of $1.25 million for each account owner, per insured institution, for the trust deposits.

“The proposed rule is also intended to facilitate more timely deposit insurance determinations for trust accounts in the event of a bank failure by streamlining the detailed, time-consuming review of trust agreements that is often required under the current, complicated trust rules,” the FDIC said.

The proposal also amends the rule governing coverage for mortgage service accounts by allowing principal and interest funds advanced by a mortgage servicer to be included in the deposit insurance calculation. The agency’s fact sheet notes that the proposal would insure up to $250,000 per mortgagor servicers’ advances of principal and interest funds on behalf of mortgagors. The amendment, the agency said, is consistent with the coverage for payments of principal and interest collected directly from mortgagors.

The proposal was issued with a 60-day comment period.

FDIC Issues Proposed Rule Regarding Deposit Insurance Simplification

 

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