ALEXANDRIA, Va. – By amending its rule for living trust accounts, NCUA is aiming to simplify the existing rule and provide consistency in how insurance coverage is determined for all types of revocable trust accounts. The regulator proposed the final rule at its Feb. 19 board meeting to also maintain parity with the Federal Deposit Insurance Corp., which recently amended its rules by making a similar change. NCUA rule 12 CFR Part 745 has been amended to eliminate the provisions that would limit insurance coverage where the interest of the beneficiary is subject to a defeating contingency in a living trust agreement. Now, share insurance coverage of up to $100,000 is provided per qualifying beneficiary who, as of the date of an insured credit union's failure, would become the owner of assets in the living trust upon the account owner's death. An example of a defeating contingency is where an account owner names his son as a beneficiary but specifies in the living trust document that his son's ability to receive any share of the trust funds is dependent upon him successfully completing college. Another common example is where a grantor's will provides that funds in the living trust account can be used to satisfy a legacy made in the will. A third example is where the interest of one beneficiary is dependent upon another beneficiary's surviving the grantor. In each case, the current rule operates to prevent separate insurance coverage, even for a qualifying beneficiary, because his or her interest is contingent. The regulator's concern is that many living trust account holders do not understand the impact under the current rules of a defeating contingency on the availability of separate insurance coverage for beneficial interests in the account, even for "qualifying beneficiaries" (the spouse, child, grandchild, parent or sibling of the grantor). NCUA has found that living trusts have become an increasingly popular way for individuals to transfer assets outside of probate while retaining control of the funds during their lifetime. Where a grantor establishes a share account with funds that are subject to a separate living trust agreement, share insurance coverage is provided in accordance with NCUA's rules that govern revocable trust accounts. The rules were designed to cover a straightforward "payable on death" account, sometimes simply referred to as a "POD" account, that provides for the payment of any balance remaining in an account upon its owner's death to specified beneficiaries. Evidence of the intent of the account owner to pass funds to one or more beneficiaries may be as simple as a designation in the account signature card such as "POD." By contrast, a living trust arrangement involves a separate, often complex trust document that may specify that an identified beneficiary's right to receive some portion of the account balance is dependent upon certain conditions, NCUA said. The amended rule seemed necessary because NCUA has received a number of recent examples of trust agreements that appear to have inadvertently created defeating contingencies that would thwart separate insurance for otherwise qualifying beneficiaries. In addition, the current rules may require a detailed review of the trust documents to determine if a defeating contingency exists. Likewise, the FDIC also reports that it has had to deny separate insurance coverage for some beneficiaries of living trusts in cases where it was clear that the grantor was not aware of the impact of language in the trust agreement, NCUA said. The final rule is effective on April 1 and comments must be received on or before 60 days after the publication in the Federal Register. The rule is scheduled to be published the week of Feb. 23. [email protected]