FDIC COVERAGE ON BANK ACCOUNTS
A Focused Look At Expanding Coverage
With the recent news of bank failures and the prospect of more on the horizon, we have been receiving many inquiries regarding FDIC insurance coverage on bank accounts. As such, we took this opportunity to study the area and we offer this advice to you. Specifically, this article addresses how your revocable living trust can be used to increase your FDIC insurance coverage. You should also understand, however, that there are additional ways of increasing your FDIC coverage that are not explained in this article.
FDIC insurance coverage for certain trusts can be significantly greater than for individuals. If appropriate, revisions to your revocable living trust(s) can substantially increase FDIC coverage. If an institution where you hold a revocable trust account fails, your coverage will be determined based on the number of “qualifying” beneficiaries or “nonqualifying” beneficiaries entitled to an interest in the trust upon your death. Qualifying beneficiaries include your spouse, children, grandchildren, parents and siblings. 12 CFR §330.10(a). Any other beneficiary is a nonqualifying beneficiary, including charitable organizations. Your combined revocable trust accounts at any one institution will be insured up to $100,000 per qualified beneficiary. 12 CFR §330.10(f)(1). For purposes of determing insurance coverage, qualified beneficiaries that hold a life estate interest are deemed to hold an equal share to that of any remainder beneficiary, unless the trust agreement provides otherwise. 12 CFR §330.10(3). All interests attributable to nonqualifying beneficiaries are cumulatively insured to the extent of $100,000. 12 CFR §330.10(f)(2). The easiest way to demonstrate the application of these rules is by way of examples:
Example 1: Revocable Trust to Spouse Outright
Husband creates a Revocable Trust. Upon his death the assets of the trust are to go to Wife outright and free of trust. This trust is insured to the extent of $100,000, because there is only one qualifying beneficiary.
Example 2: Revocable Trust to Spouse in Trust, Remainder in trust for Children
Husband creates a Revocable Trust. Upon his death, the assets of the revocable trust pass to a newly created trust for the benefit of Wife. Wife will receive all of the income from this trust for her life and discretionary distributions of principal. Upon her death, the assets will pass to her two children. This trust has three qualifying beneficiaries and is thus insured to the extent of $300,000.
Example 3: Revocable Trust to Spouse in Trust, Remainder in Trust for Children and Grandchildren.
Husband creates a Revocable Trust. Upon his death, the assets of the revocable trust pass to a newly created trust for the benefit of Wife. Wife will receive all of the income from this trust for her life and discretionary distributions of principal for her needs. Upon her death the assets will continue in trust for the benefit of their two children and five grandchildren, who can receive discretionary distributions of income and principal for their needs. This trust has eight qualifying beneficiaries and is thus insured to the extent of $800,000.