Final deposit insurance rule combines revocable, irrevocable trusts for coverage, FDIC says

Rule also tweaks treatment of mortgage servicing accounts

A final rule aimed at simplifying deposit insurance coverage for deposits held in connection with revocable and irrevocable trusts was approved Friday by the Federal Deposit Insurance Corp. (FDIC) Board, the agency announced.

The rule, set to take effect April 1, merges the two above-noted deposit insurance categories and applies a simpler, common calculation to determine coverage, it said.

As explained in the final rule, each grantor’s trust deposits will be insured in an amount up to the standard maximum deposit insurance amount (currently $250,000) multiplied by the number of trust beneficiaries, not to exceed five. “This, in effect, will limit coverage for a grantor’s trust deposits at each IDI [insured depository institution] to a total of $1,250,000; in other words, maximum coverage of $250,000 per beneficiary for up to five beneficiaries,” it states.

The FDIC, in Friday’s announcement, said it expects that the “vast majority” of trust depositors will experience no change in the coverage for their deposits when the final rule takes effect.

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

The final rule also revises coverage for mortgage servicing accounts to allow principal and interest funds advanced by a mortgage servicer to be included in the deposit insurance calculation, the agency said.

The agency’s proposed rule, issued last June, generated seven comment letters from the public. The rule was adopted generally as proposed, with “only technical, non-substantive” changes, it said.

FDIC Approves Final Rule Regarding Deposit Insurance Simplification

Final rule text

Fact sheet on final rule