Congress created the National Credit Union Share Insurance Fund (NCUSIF) back in 1970, with the purpose of insuring deposits made by members at federally insured credit unions. The NCUSIF is backed by the full faith and credit of the United States, meaning that this guarantee is made by the federal government (rather than just by a credit union itself).
Credit unions and their members should always be aware of share insurance, but it typically only becomes an issue if the credit union were to fail or enter conservatorship. In that rare event, a member would be able to access the funds in his or her insured accounts up to the Standard Maximum Share Insurance Amount (SMSIA), which is currently set at $250,000.
Part 745 of NCUA’s regulations addresses share insurance for the various types of accounts that may be held at credit unions. It is important to note that a person can have a personal share account that is insured up to $250,000 and also have other types of accounts that are insured separately. While not a comprehensive list, here are a few different types of accounts covered by share insurance:
Revocable trusts: A revocable trust is a trust that can be created during a person’s lifetime, and it can also be revoked/modified by the grantor (i.e., the person that created the trust). In general, insurance coverage for trust accounts stems from the beneficiaries, and each beneficiary may be fully insured up to $250,000 each. Section 745.4 outlines the requirements for revocable trust accounts, and states that “the funds owned by an individual and deposited into one or more accounts with respect to which the owner evidences an intention that upon his or her death the funds shall belong to one or more beneficiaries shall be separately insured (from other types of accounts the owner has at the same insured credit union) in an amount equal to the total number of different beneficiaries named in the account(s) multiplied by the SMSIA.” (Emphasis added).
Irrevocable trusts: Irrevocable trusts are trusts that typically cannot be revoked/modified by the grantor. As with revocable trusts, these types of trusts are insured separately from other accounts. This includes being separately insured from revocable trusts. The rule for determining coverage works similar to the rule for revocable trusts (described above), with each beneficiary insured up to $250,000 (and multiplied by the number of settlors). Additionally, in order to be eligible for share insurance coverage, the beneficiary of the trust or the settlor must be a member of the credit union.
Sole Proprietorship Accounts: Sole proprietorship accounts and DBA (“doing business as”) accounts are insured as individual accounts rather than business accounts. This is because there is no legal distinction between the business and the owner with this type of business structure. A sole proprietorship account would be combined with the member’s other individual accounts at the credit union.
Joint Owner Non-Member Accounts: NCUA Legal Opinion Letter 97-0540 discusses insurance of accounts and provides an example that indicates an account with a joint owner that is a non-member would need to be a “qualifying joint account” in order for the non-member to receive share insurance on their interest. So, what is a qualifying joint account? Section 745.8(c) indicates that to be considered a qualifying joint account, each account owner must have “personally signed a membership or account signature card” and they also must have “a right of withdrawal on the same basis as the other co-owners.” However, section 745.8(c)(2) provides alternative methods to become a qualifying joint account, such as showing that each co-owner was issued a debit card (i.e., a “mechanism for accessing the account”) and showing evidence that the joint account has been used by each co-owner.
Your credit union may come across other share insurance scenarios, and a good resource to use is NCUA’s Legal Opinion Letters as these illustrate and analyze different situations. You can also reach out to NAFCU’s compliance team with any share insurance questions.