Provides a discussion of proper bank account titling needed by representative payees when establishing collective bank accounts to ensure beneficiaries receive full protection from the FDIC.

QUESTIONS PRESENTED

You asked for guidance on how organizational representative payees (payee) should ensure Federal Deposit Insurance Corporation (FDIC) coverage for beneficiary funds. Specifically, you asked:

1. If a payee establishes a fiduciary bank account titled ABC Payee, Federal Fiduciary Trust Account and receives SSA and SSI direct deposits each month, is there full FDIC insurance ($250,000) provided for each and every beneficiary whose funds were deposited into the account?

2. If a payee establishes a fiduciary bank account to house savings and accrue interest titled ABC Payee, Savings Trust Account and deposits lump sums each month which contain unidentified various individual beneficiary savings, does each individual (if not specifically identified in the deposit process) receive full FDIC insurance?

3. Do the deposit actions require the identification of the specific individual beneficiary to gain FDIC insurance? If yes, what elements are required? If no, please explain how FDIC insurance is allocated.

SHORT ANSWERS

1. No. The Federal Deposit Insurance Act and its implementing regulations require more than simply naming a bank account a “federal fiduciary trust account” before the payee’s actions will have protected the multiple beneficiaries’ respective interests in the deposited funds. First, a proper account title must clearly show that the payee (a) has only a fiduciary and not a personal interest in the funds, and (b) holds the funds in trust (c) for multiple beneficiaries. Second, the deposit account records (account ledgers, signature cards, certificates of deposit, passbooks) must confirm that the payee has only a fiduciary interest in the funds, and that multiple Social Security beneficiaries actually own the funds. Third, the payee’s business records must provide evidence of the actual identities of all fund owners and the amounts that each beneficiary owns in the account.

2. No. Under the regulations implementing the Federal Deposit Insurance Act, a proper account title is necessary for FDIC insurance to cover the funds of multiple beneficiaries in a collective account. The account title must show that the payee is the manager of the account and that multiple beneficiaries are the owners of the funds in the account. The account title here does not provide the requisite information and thus does not assure FDIC coverage in excess of $250,000 for one account holder.

3. No. Payees can assure FDIC coverage for each beneficiary’s separate interest in the monies held in a collective account by complying with agency policy in establishing and maintaining collective fiduciary trust accounts. Specifically, the account title must generally show that the funds in the account belong to multiple beneficiaries and not to the payee; the account must be separate from the operating account of the institution, agency, or individual payee; interest flowing from interest-bearing accounts must be prorated and credited to the individual beneficiaries on the basis of his or her share of funds in the account; the payee must keep clear and current records showing the amount of each individual beneficiary’s share in the account and showing that proper procedures are followed for documenting credits and debits of the individual beneficiaries. So long as the payee follows each of these requirements, there is no additional requirement that the name of the beneficiary be included on each deposit.

ANALYSIS

A. Agency Regulations and Policy Describe Requirements That, if Followed, Allow a Payee’s Trust Account to Qualify for Insurance under Federal or State Law

The Social Security Act (Act), regulations, and agency policy require payees to use the benefits they receive for the current needs of the beneficiary and in the beneficiary’s best interests. Act §§ 205(j)(3), 42 U.S.C. §§ 405(j)(3), 1383(a)(2)(C); 20 C.F.R. §§ 404.2035 – 404.2045, 416.635 – 416.645; GN 00602.001.A.1, GN 00605.001.B.1. After the payee uses benefit funds to satisfy the beneficiary’s immediate and reasonably foreseeable needs, the payee must conserve or invest any remaining funds for the beneficiary. 20 C.F.R. §§ 404.2045(a), 416.645(a); GN 00602.001.A., GN 00603.001.A. The agency’s preferred investments for conserved funds are either U.S. Savings Bonds or deposits in an FDIC or State insured interest or dividend paying account. 20 C.F.R. §§ 404.2045(b), 404.645(b); see GN 00603.010.A. Any interest or dividends earned through such investments belong to the beneficiary and not to the payee. 20 C.F.R. §§ 404.2045(a), 416.645(a); GN 00603.010.A.

Payees must keep records and report on the use of benefit funds. 20 C.F.R. §§ 404.2065, 416.665; GN 00605.001.B.1. The funds must be deposited in an account that is titled to show the payee has only a fiduciary interest in the funds. 20 C.F.R. §§ 404.2045(b), 416.645(b); GN 00603.010.A. Proper account titling affords FDIC protection with FDIC-insured banks (insured banks). GN 00603.010.B.1. Proper account titling also protects beneficiary funds from claims by a payee’s creditor. Id.

The agency’s preferred account title is: (Name of Beneficiary) by (Name of Payee), representative payee .^[1] 20 C.F.R. §§ 404.2045(b)(2), 416.645(b)(2); GN 00603.010.B. However, other account titles are acceptable if they clearly show that the payee (1) has only a fiduciary and not a personal interest in the funds, and (2) holds the funds in trust for the beneficiary. GN 00603.010.B.1.

In addition to individual beneficiary accounts, under certain conditions, the Field Office may approve collective checking and savings accounts that a payee establishes to hold funds belonging to multiple beneficiaries. GN 00603.020.B. As with individual beneficiary trust accounts, the collective trust account title must show that the payee holds the account in a fiduciary capacity on behalf of multiple beneficiaries. Id. The proper account title shows the payee as the manager of the account and the beneficiaries as the owners: for example, either (Name of Payee) for SSA/SSI Beneficiaries; or (Name of Payee), representative payee for Social Security Beneficiaries. Id. (agency policy provides an exception for State/local government organizational payees).

Agency policy also requires payees utilizing collective accounts – except for certain State/local government agency payees – to comply with the following policies and procedures:

1. a. 

   The account title must generally show that the funds belong to the multiple beneficiaries and not the payee;

2. b. 

   The account must be separate from the payee’s operating account;

3. c. 

   Beneficiary funds in excess of $500 should be deposited in an interest-bearing account or other relatively risk-free investment;

4. d. 

   The interest must be prorated and credited to the individual beneficiary on the basis of his or her share of funds in the account;

5. e. 

   There must be clear and current records showing the amount of each individual beneficiary’s share in the account and showing that proper procedures are followed for documenting credits and debits of the individual beneficiaries; and

6. f. 

   The accounts and supporting records must be made available to SSA upon request.

GN 00603.020.B.1 (emphasis added).

B. If a Payee Follows the Agency’s Requirements, FDIC Coverage Should Apply to Each Beneficiary’s Interests in Funds Held in a Collective Account

The Federal Deposit Insurance Act (FDIA) (12 U.S.C. §§ 1811, et seq.) and its enacting regulations allow a payee to obtain separate FDIC coverage for each beneficiary’s interests in funds held in a collective fiduciary account if the payee satisfies several requirements. These requirements align with the agency’s requirements identified in GN 00603.020.B.1, and are critical to obtain FDIC coverage of each beneficiary’s interests.

FDIC insurance is for the benefit of the owner or owners of funds on deposit, and not necessarily for the depositor. 12 C.F.R. § 330.3(a) & (h). However, while legal ownership of deposited funds is a necessary condition for FDIC insurance, it is neither sufficient for, nor decisive in, determining coverage. Id. Rather, the FDIC generally presumes that the insured bank’s “deposit account records” indicate the correct ownership of the deposited funds. 12 C.F.R. § 330.5(a)(1). “Deposit account records” means the insured bank’s “account ledgers, signature cards, certificates of deposit, passbooks, corporate resolutions authorizing accounts in the possession of the insured [bank] and other books and records of the insured [bank], including records maintained by computer, which relate to the insured [bank’s] deposit taking function.” 12 C.F.R. § 330.1(e). However, “deposit account records” do not include “account statements, deposit slips, items deposited or cancelled checks.” Id.

If the FDIC determines that the deposit account records clearly and unambiguously describe the ownership of the deposited funds, the records are binding on the depositor. 12 C.F.R. § 330.5(a)(1). If the records are unclear or ambiguous in describing the ownership of the deposited funds, the FDIC may (but is not required to) consider evidence other than the deposit account records to determine ownership. Id.

The FDIA insures deposited trust funds, among other deposit account types. 12 U.S.C. § 1813(l)(2), (m), (p). “Trust funds” are “funds held by an insured depository institution in a fiduciary capacity and includes, without being limited to, funds held as trustee, executor, administrator, guardian, or agent.” 12 U.S.C. § 1813(p). “Trust funds” thus includes funds a payee holds as a fiduciary for Social Security beneficiaries.

The FDIC recognizes a claim for insurance coverage based on a fiduciary relationship only if the deposit account records expressly disclose the relationship. 12 C.F.R. § 330.5(b)(1). The FDIC treats funds held by a fiduciary, on behalf of two or more persons jointly, as a joint ownership account. 12 C.F.R. § 330.7(c). If the fiduciary properly documents the account and the percentages of each co-owner’s interests, the FDIA insures each co-owner’s interests individually. See 12 C.F.R. §§ 330.5(b), 330.9.

Based on our review of these provisions of the FDIA and its implementing regulations, the agency’s existing requirements for establishment and holding of beneficiary accounts appear to meet the FDIC insurance requirements. Agency policy requires that the payee disclose the fiduciary nature of the beneficiary account in the financial institution’s “deposit account records.” GN 00603.010.A. The agency’s titling requirements are also critical, because proper titling provides confirmation that the payee holds the account in a fiduciary capacity for multiple beneficiaries. GN 00603.020.B.

If the deposit account records disclose the existence of a fiduciary relationship, the FDIC must be able to ascertain the details of that relationship and the interests of the multiple beneficiaries in the account either from the deposit account records themselves, or from records maintained, in good faith and in the regular course of business, by the depositing payee. 12 C.F.R. § 330.5(b)(1). Deposit slips are not “deposit account records” and there is thus no express requirement that each deposit indicate the name of the beneficiary on whose behalf the deposit is made. We believe that the FDIC requirements will be satisfied, so long as the payee maintains clear and current records showing the amount and size of each beneficiary’s share in the account and showing that proper procedures are followed for documenting credits and debits relating to each beneficiary, as set out in POMS GN 00603.020.B.1.

Finally, while FDIC regulations allow for account names that do not expressly state that the account is held in a fiduciary capacity, the FDIC reserves the right to determine, in its sole discretion, whether the titling of the deposit account and the underlying deposit account records sufficiently indicate the existence of a fiduciary relationship. 12 C.F.R. § 330.5(b)(1). This exception may apply, for example, where the deposit account title or records indicate that the account is held by an escrow agent, a title company, or a company whose business is to hold deposits and securities for others. Id. Since the business of payees is not primarily to hold deposits and securities for others, clear titling indicating the existence of a fiduciary relationship should eliminate the possibility that the FDIC might ultimately determine that the records do not sufficiently show a fiduciary relationship, and thereby refuse to extend its coverage to individual beneficiaries.

CONCLUSION

Payees can assure FDIC coverage for each beneficiary’s separate interest in the monies held in a collective account by complying with agency policy in establishing and maintaining collective fiduciary accounts, and need not include the beneficiary’s name on each deposit. See GN 00603.020.B.1. Following these requirements will protect both the beneficiary’s and the agency’s interests. See GN 00603.020.A (noting that the agency holds the payee responsible for establishing proper account titling, even if third-party vendors are used to manage fund accounts).