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NCUA Calculation of new revocable trust insurance coverage

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WASHINGTON (10/20/08)—Although the National Credit Union Administration (NCUA) still has to make technical corrections to its interim regulation on how to calculate share insurance coverage on revocable trust accounts, credit unions can find examples of how the new beneficiary rules work on the agency's website, advised the Credit Union National Association (CUNA). The NCUA rule parallels Federal Deposit Insurance Corp. coverage and was effective Oct. 3. According to Kathy Thompson, CUNA’s senior vice president for regulatory compliance, for a living trust account with up to five beneficiaries, the account will be insured up to $250,000 per each beneficiary (up to $1.25 million) – the agency won’t look at each beneficiary’s proportional interest in the account to calculate the insurance coverage. For instance, if there are three beneficiaries of a living trust account with a balance of $800,000, the account will be insured for $750,000 – regardless of how the trust document itself calls for dividing the $800,000 among the three beneficiaries. For a living trust account with more than 5 beneficiaries, the account will be insured for the greater of $1.25 million or the aggregate of all beneficiaries' proportional interests in the trust, limited to $250,000 per beneficiary. An example provided in the NCUA's share insurance training Power Point presentation helps to clarify how to calculate coverage, she said. In an example provided:
* Adam has a living trust account with a balance of $1,500,000. Under the terms of the trust, upon Adam’s death, Adam’s three children are each entitled to $125,000, Adam’s friend is entitled to $12,500, a designated charity is entitled to $175,000, with the remainder of the trust assets going to Adam’s wife. Since there are 6 beneficiaries, the insurance coverage on Adam’s account would be the greater of $1,250,000 or the aggregate of each different beneficiary’s interest to a limit of $250,000 per beneficiary. * Although the spouse’s interest in the account upon Adam’s death would be $937,500, the rule limits the coverage calculation to $250,000, so the aggregate of the beneficiaries’ interests is $812,500. But the insurance coverage would be $1,250,000 (the greater of $1,250,000 or $812,500).
Thompson added an example to show how insurance coverage can exceed $1.25 million – so credit unions shouldn’t mistakenly think the $1.25 million figure is a cap. Assume, she says, that Adam has $1,500,000 in his living trust account at the credit union and has six beneficiaries. He plans to leave $250,000 to each of his three children, $100,000 to his friend, $300,000 to charity and the remainder ($350,000) to his wife. The share insurance coverage on this account would be $1.35 million (5 beneficiaries times the $250,000 limit + $100,000 to the friend). However, Thompson also clarified that credit unions won't know the details of the living trust agreement. They aren't required to have the names of the beneficiaries in their records, let alone know the proportional interest of each beneficiary, said Thompson.Therefore, a credit union isn't in a position to exactly calculate the insurance coverage if asked by the member who owns the living trust account. But the member should be able to determine the member’s insurance coverage by applying these rules to his or her plan of distributing the money in the account upon death.

Inside Washington (10/17/2008)

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* WASHINGTON (10/20/08)--The Treasury may have wide powers to stabilize the market, according to observers. A provision in the $700 billion rescue bill gives the Treasury the ability to invest in banks directly, but the provision also provides for other options--such as rewriting mortgages, helping the auto industry and securing credit-default swaps (American Banker Oct. 17). The provision is “extraordinarily broad,” said Michael Barr, law professor at the University of Michigan and former Treasury official. Unlike other provisions in the bailout bill, which specify how the Treasury can purchase whole loans, securities or assets, there are no specifics on broad equity investments. The Treasury also could purchase student, auto, commercial construction and credit card loans as well ... * WASHINGTON (10/20/08)--Critics at a Senate Banking Committee hearing criticized the Federal Reserve Board, saying that it did not act quickly enough to stop abusive mortgage lending (American Banker Oct. 17). The crisis was preventable four or five years ago, said Senate Banking Committee Chairman Christopher Dodd (D-Conn.). New mortgage rules were finalized by the Fed earlier this year ...

November IRS webcast on Form 990 changes

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WASHINGTON (10/20/08)--The Internal Revenue Service (IRS) said it’s next “Tax Talk Today” Webcast, on Nov. 4, will focus on issues involved in preparing for the new Form 990. The IRS redesigned Form 990--Return of Organization Exempt from Income Tax--to reflect changes that have taken place in the tax law and the tax-exempt sector. The form is filed annually by state-chartered credit unions. Federal credit unions are not required to file, since they are not subject to unrelated business income taxes. The new Form 990 will be filed in 2009, for the 2008 tax year. Revised instructions, unveiled in August by the IRS, include changes in content and format. They provide additional examples to explain the instructions. The IRS encouraged “organizations and their (tax) preparers” to tune into the free Webinar to gain a full understanding of how the form changes will affect the filing process. Panelists scheduled to participate in the November session include Eve Rose Borenstein, exempt organizations tax attorney, Borenstein and McVeigh Law Offices; Stephen Clarke, IRS tax law specialist, Rulings and Agreements, Exempt Organizations; Julie Floch, CPA, Eisner Director of Not-For-Profit Services; and Ronald Schultz, senior technical advisor to the IRS Commissioner, Tax Exempt and Government Entities Division. The IRS also has a Web page on the Form 990 redesign and background documents. Use the resource links below to register and to access more information.

High Desert FCU taken over by NCUA

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ALEXANDRIA, Va. (10/20/08)—High Desert FCU, a $149 million-asset, Apple Valley, Calif. credit union, has been taken over by the National Credit Union Administration (NCUA), a step intended to conserve assets and protect members’ interests. The action also is used at times to protect the National Credit Union Share Insurance Fund (NCUSIF) from losses. Service to High Desert’s more than 13,000 continues under the NCUA’s management. Members may make deposits, access funds, make loan payments and use share drafts. An NCUA announcement said, “While the credit union was placed into conservatorship because of a declining financial condition, the decision to conserve a credit union enables the institution to continue normal operations with expert management in place.” It reiterated that member accounts are insured to at least $250,000 while IRA and KEOGH retirement accounts are separately insured up to $250,000 under coverage provided by the NCUSIF. High Desert was chartered in 1951 and serves those who live, work, or worship in San Bernardino County.