Deposit Insurance Limits And Trusts And Mortgage Servicing – Financial Services

The FDIC released a “Small Entity Compliance Guide” that
provides a summary of its final rule allowing for the “simplification of deposit insurance,“
which takes effect on April 1, 2024.

The Compliance Guide provides an overview of how the final rule,
which will be published as 12 C.F.R. §330, affects the
coverage rules for trusts (revocable and irrevocable), as well as
for mortgage servicing accounts. In any case other than when an
insured depository institution (“IDI”) is the trustee,
all trusts, regardless of their revocability status, will be
subject to the same set of deposit insurance rules, and eligible
beneficiaries will include natural persons, charitable
organizations and non-profit entities. Going forward, all trusts
are subject to the calculation that has applied to revocable trust
accounts with five or fewer beneficiaries since 2008, which
effectively allows for 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, then the total amount of deposit
insurance available is the standard maximum deposit insurance
amount (“SMDIA”), which is currently $250,000, times the
total number of beneficiaries, again, regardless of the allocation
of funds to the beneficiaries within the trust. For mortgage
servicing accounts, the amount of per-borrower coverage, up to the
SMDIA, includes “any funds paid into the account to satisfy
the principal and interest obligation of the mortgagors to the
lender, regardless of the origin of the funds.” This change
provides consistent treatment for all mortgage servicing account
balances held to satisfy the principal and interest obligations to
a lender.

Depository institutions are not required to reach out to their
depositors ahead of the changes in April 2024, but the Compliance
Guide provides suggestions regarding how banks might consider
identifying affected accounts nonetheless.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.