Compliance Journal March 2023
Special Focus FDIC Simplification of Deposit Insurance Rules for “Trust Account” Category and Mortgage Servicing Accounts Financial institutions have just short of a year to prepare for Federal Deposit Insurance Corporation’s (FDIC’s) rule which amends deposit insurance rules, Part 330. FDIC’s amendments were meant to simplify the deposit insurance regulations by establishing a ‘‘trust accounts’’ category that governs coverage of deposits of both revocable trusts and irrevocable trusts using a common calculation, and provide consistent deposit insurance treatment for all mortgage servicing account balances held to satisfy principal and interest obligations to a lender. This article outlines the rule changes for trust deposits and mortgage servicing accounts, provides recommendations to consider in advance of the effective date, and provides links to various resources. The final rule is effective April 1, 2024. I.
Background
Before discussing the recent rule amendments, a quick mention of the current categories of deposit insurance is helpful as sections of the revised rule refer to the other categories. A mention of the standard deposit insurance coverage amount is also helpful in understanding the impact of the changes. FDIC’s current deposit insurance ownership categories consist of: (a) single accounts; (b) certain retirement accounts; (c) joint accounts; (d) revocable trust accounts; (e) irrevocable trust accounts; (f) employee benefit plan accounts; (g) corporation/partnership/unincorporated association accounts; and (h) government accounts. FDIC’s standard maximum deposit insurance amount (SMDIA) is $250,000 per depositor, per insured bank, for each account ownership category. This means a customer who has multiple accounts may qualify for more than $250,000 of deposit insurance coverage if the customer’s funds are deposited in different ownership categories and the requirements of each ownership category are met. Each category of coverage has requirements that need be met for deposits to be covered under the particular category. As this article is focused on the changes made to trust deposits and mortgage servicing accounts, it does not address the requirements of other categories. However, the information may be found in the resources provided at the end of the article. II.
Current Rules for Coverage of Trust Deposits
Revocable Trusts FDIC currently recognizes three different insurance categories for deposits held in connection with trusts: (1) revocable trusts; (2) irrevocable trusts; and (3) irrevocable trusts with an insured depository institution (IDI) as trustee. The revocable trust category applies to deposits for which the depositor has evidenced an intention that the deposit will belong to one or more beneficiaries upon his or her death. The category includes deposits held in connection with formal revocable trusts—that is, revocable trusts established through a written trust agreement. It also includes deposits that are not subject to a formal trust agreement, where the IDI makes payment to the beneficiaries identified in the IDI’s