Can a member opening a trust account list an organization as a beneficiary, and will that beneficiary be insured by the NCUA? That question was sent to CUNA’s compliance staff recently, and the answer depends on a number of factors.
Since a 2008 rule change, beneficiaries named in a revocable trust account that are natural persons, charities, or nonprofit organizations are insured separately. While this doesn’t mean a member can’t list a for-profit organization as a beneficiary, it means additional insurance coverage won’t exist and the funds in the trust account will be calculated under individual share insurance rules.
There are revocable and irrevocable trusts.
One type of revocable trust is typically known as “payable-on-death” accounts, where the member has designated one or more people to receive whatever funds are in the account at the time of the member/account holder’s death.
The other typical revocable trust account is established because a member has created a living trust. Members may put assets in a trust during their lifetime, have full access to use these assets, and designate beneficiaries to receive any assets that remain in the living trust upon the death of the trust owner.
Funds held in a revocable trust account are insured, for each owner, up to $250,000 for each beneficiary. This is separate from any individual accounts held by either the account holder or the beneficiary.
An irrevocable trust is established by a written trust agreement, where the grantor of the trust contributes funds and gives up all power to revoke the trust. Trust money can be put into a trust account at the credit union.
Under an irrevocable trust account, the interest of each beneficiary has separate coverage up to $250,000. Irrevocable trust accounts established for the same beneficiary by the same grantor at the credit union are added together and insured up to $250,000 in the aggregate, separately from other accounts of the grantor or beneficiary.
Though federal credit unions may open trust accounts, they do not have trust powers. Some state laws may allow state-chartered credit unions to have trust powers, generally very few state-chartered credit unions exercise these powers--except through a credit union service organization.
This means that while a credit union may be the account-holding institution for a trust account, it is generally not the trustee, manager, or administrator of the trust.