CUNA Regulatory Comment Call
July 1, 2003
NCUA’s Proposed Rule on Share Insurance
(Applies to federally-insured credit unions)
EXECUTIVE SUMMARY
- NCUA has issued a proposed rule with regard to share insurance. The proposed rule clarifies how revocable trust accounts are established and insured, provides continuation of coverage following the death of a member and after the merger of credit unions for a limited period of time, and clarifies that there is coverage for Coverdell Education Savings Accounts.
- Comments are due September 2, 2003. Please submit your comments to CUNA by August 25, 2003.
Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.coop and to Assistant General Counsel Jeff Bloch at jbloch@cuna.coop; or mail them to Mary and Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you would like a copy of the rule.
BACKGROUND
NCUA has issued this proposed rule in an effort to update, clarify, and simplify the existing rules regarding share insurance. The rule will also maintain parity with the deposit insurance rules for banks and thrifts that are administered by the Federal Deposit Insurance Corporation (FDIC).
DESCRIPTION OF THE PROPOSED RULE
Revocable Trust Accounts
Revocable trust accounts are accounts that evidence the owner’s intent to have funds in the account transferred to named beneficiaries at the time of the owner’s death. Unlike more complicated trusts, revocable trusts can be created at the credit union merely be indicating that intent in the title of the account.
The proposed rule will clarify that the intent must be indicated in the title of the account by using commonly accepted terms such as, but not limited to, "in trust for," "as trustee for," or "payable on death to." Acronyms of these terms may also be used. However, beneficiaries must be specifically named in the share account records of the credit union.
NCUA’s share insurance rules currently provide that an owner’s funds in a revocable trust account are separately insured up to $100,000 for each "qualifying beneficiary," which includes the owner’s spouse, child, grandchild, parent, brother, or sister. All others are considered to be "nonqualifying beneficiaries." The interests of nonqualifying beneficiaries are considered to be the funds of the individual owner, which are aggregated with other funds of the owner, with the total being insured up to $100,000.
The proposed rule will clarify that it will treat the interests of the nonqualifying beneficiaries as funds of the owner even when the owner has not actually opened an individual account at the credit union. This is consistent with the FDIC deposit insurance rules for banks and thrifts.
Insurance Coverage Following the Death of a Member
The death of a member can significantly change the amount of share insurance coverage, especially if that member has an interest in joint accounts, joint revocable trust accounts, or has a spouse that has his or her own individual account. The proposed rule will grant a six-month grace period after the member’s death to allow survivors an opportunity to restructure the accounts in order to maximize insurance coverage. This means the insurance coverage will not change during this six-month period, unless the accounts are restructured during this time by those who are authorized to do so. The grace period will not apply if the result would be less insurance coverage during this time period.
Insurance Coverage After the Merger of Insured Credit Unions
Currently, a member’s share account at a credit union is separately insured from other accounts that the member may own at other credit unions. This coverage may be jeopardized when credit unions merge. For example, if a member has an individual account at two credit unions, he or she would have $100,000 coverage at each credit union, for a total of $200,000. If these credit unions merge, the total coverage would be reduced to $100,000.
Under the proposed rule, members in this situation will have a six-month grace period after a credit union merger. During this time, the member will have the coverage that he or she had prior to the merger. This will provide the member with time to restructure the accounts in order to maximize share insurance coverage.
The following will apply to share certificates during this six-month grace period:
- A share certificate that matures after the grace period will receive separate insurance treatment until the first maturity date following the grace period.
- A share certificate that matures during the grace period, and is renewed on the same terms and dollar amount, will receive separate insurance treatment until the first maturity period after the grace period under the terms of the renewed certificate.
- A share certificate that matures during the grace period that is not renewed, or renewed under different terms or a different dollar amount, will be separately insured only for the six-month grace period.
Coverdell Education Savings Accounts
In May 2000, Education Individual Retirement Accounts were specified as insurable as irrevocable trust accounts under NCUA’s share insurance rules. These accounts have now been replaced with Coverdell Education Savings Accounts. The proposed rule will reflect this change.
QUESTIONS TO CONSIDER REGARDING NCUA’s PROPOSED RULE ON SHARE INSURANCE
- For revocable trust accounts, do you agree that naming the beneficiaries in the account title is the most
effective way of establishing insurance coverage?
- Do you agree that for revocable trust accounts, the interests of nonqualifying beneficiaries should be
treated as the owner’s funds for insurance coverage purposes even when the owner has not actually opened an individual
account at the credit union?
- Do you believe that a six-month grace period is sufficient when insurance coverage changes as a result of the
death of the owner or when credit unions merge?
- Other comments?
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Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com |
