ALEXANDRIA, Va. — NCUA regulations permit deposit insurance coverage for individual retirement accounts and trusts upon the death of the accountholder even if the beneficiary is not a credit union member.
NCUA Associate General Counsel Sheila Albin wrote in an April 18 legal opinion letter (07-0132) that NCUSIF coverage on IRAs "is based on the present vested ascertainable interest of a participant or designated beneficiary." She explained, "While the participant or original owner of the IRA would have to have been a member to open the account in the first instance, ?745.9-2(c)(2) provides coverage to a designated beneficiary without specifically requiring the designated beneficiary to be a member."
However, she cautioned that NCUA does not govern the actual inheritability of an IRA.
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"For an irrevocable trust to qualify for share insurance coverage from a membership perspective, the settlor or beneficiary of the trust must be a member of the credit union. If there are two or more settlors or beneficiaries, then either all the settlors or all the beneficiaries must be members…" Albin explained. "After a valid, irrevocable trust account with multiple settlors or beneficiaries is created, no one settlor or beneficiary can control whether the others maintain their membership."
Considering this, NCUA believes deposit insurance coverage would continue even after a settlor or beneficiary closed their membership so long as other settlers or beneficiaries maintained theirs. "Otherwise, it would be unfair and against the public policy underlying NCUA share insurance to deprive coverage to a properly created irrevocable trust account that satisfied the membership requirement at the time the account was opened," Albin wrote.
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