Deposit Insurance Limits and Trusts and Mortgage Service | Cadwalader, Wickersham & Taft LLP
The compliance guide provides an overview of how the final rule, which will be published as 12 CFR §330, affects coverage rules for trusts (revocable and irrevocable), as well as mortgage servicing accounts. In all cases other than where an insured depository institution (“IDI”) is the trustee, all trusts, regardless of revocability status, will be subject to the same set of deposit insurance rules, and beneficiaries eligible will include individuals, charities and not-for-profit entities. Going forward, all trusts are subject to the calculation that applies to revocable trust accounts with five or fewer beneficiaries since 2008, effectively allowing deposit insurance up to $1,250,000 for a single trust that has five or more beneficiaries, regardless of the allocation of funds to beneficiaries within the trust. If the trust has fewer than five beneficiaries, the total amount of deposit insurance available is the Standard Maximum Deposit Insurance Amount (“SMDIA”), which is currently $250,000, multiplied by the total number of beneficiaries, again, regardless of the allocation of funds. to beneficiaries within the trust. For mortgage servicing accounts, the amount of coverage per borrower, up to SMDIA, includes “all funds paid into the account to satisfy the principal and interest obligation of the mortgagors to the lender, regardless of or the origin of the funds”. This change ensures consistent treatment of all mortgage servicing account balances held to meet principal and interest obligations to a lender.
Depository institutions are not required to contact their depositors until the April 2024 changes, but the compliance guide provides suggestions on how banks might still consider identifying affected accounts.