The Federal Deposit Insurance Corporation, or FDIC, is a Congressionally created agency that insures deposits, supervises financial institutions and manages receiverships in order to maintain stability and public confidence in the nation’s financial institutions. Most people don’t necessarily think about FDIC coverage limits when they choose to deposit their money or open a trust account at a bank. The truth is, the type of account opened, whether it be a single/joint account or revocable trust account, can affect how much of your hard earned money is insured by the FDIC. Choosing the correct account is essential in ensuring that the FDIC properly insures all, not part of your money.
The FDIC will insure up to $250,000 for each unique beneficiary of a revocable trust account, up to five unique beneficiaries.
A revocable trust account is an account owned by one or more people, the settlor(s), that names one or more beneficiaries who will receive the balance of the account upon the death of the owner(s) of the revocable trust account. Such trust accounts include informal revocable trusts like trotten trusts or payable on death trusts and also formal trusts like living or family trusts. Because of the “revocable” nature of the account, the owners may terminate or modify the account at any time and for any reason.
The FDIC will insure the owner(s) of a revocable trust account up to $250,000 for each unique beneficiary, up to five beneficiaries. This means that with each unique beneficiary of the trust account, up to five unique beneficiaries, the insurance coverage increases by $250,000. This formula changes slightly when six or more beneficiaries are named.
Here is an example of how the FDIC insurance coverage works: Mr. X has three revocable trust accounts at Bank B. Each account names two unique beneficiaries, A and C. The balance of all three accounts equals $600,000. Using the formula above, because there are only two unique beneficiaries named to the accounts, the accounts will be insured by the FDIC for a total of $500,000 ($250,000 x 2). This means that the FDIC will not insure the $100,000 balance excess. Conversely, if another beneficiary was named or the account balances totaled less than $500,000, the entire balance would be insured.
The FDIC will only insure up to $250,000 per owner of a non-living trust account (single or joint accounts)
The FDIC will insure up to $250,000 per owner, NOT beneficiary, of a single or joint account. IRAs and other retirement accounts are also eligible for up to $250,000 of insurance coverage per owner. These non-revocable trust accounts are fully insured and fine for those with monetary assets beneath the $250,000 or joint $500,000 threshold. However, if the single or joint account balance surpasses the maximum insurance coverage allowed for the account, then the FDIC will NOT insure the excess.
It is important to take into account FDIC coverage limits when deciding what account to put your money into. If your individual cash assets exceed the $250,000 maximum coverage limit, then you should consider putting your assets into a revocable trust account with named beneficiaries. This option allows for a larger maximum coverage limit dependent on the number of named beneficiaries of the trust. It is also important to consult an attorney, experienced in estate planning, before you move large sums of money to different accounts or create a trust so that he or she can properly advise you on the best course of action to provide the most FDIC coverage for your estate.
Max Alavi focuses on assisting clients establish effective and secure vehicles for passing their assets to their loved ones and protecting their families from the uncertainty and expense associated with probate and testamentary guardianship matters. He is also dedicates a significant portion of his practice to complex probate matters, trust administration and litigation of contested trusts.
Max Alavi, Attorney at Law, APC has 6 locations in Orange County and Los Angeles County, California