FDIC Insurance Protects Living Trust Bank Account
If you have a bank account held in the name of your living trust, the amount of FDIC insurance coverage provided in the event of a bank failure depends on how your trust is structured and on the way your trust assets are titled. Your revocable living trust is funded properly when all the assets you desire to have in the name of your trust are properly titled in the name of your trust. While assets, such as real estate, stocks, bonds and savings accounts, are generally transferred into the name of your living trust, IRAs, liabilities (such as any debts you owe) and general insurance policies (such as hazard and auto insurance) are not.
Taking time to review your purchases and investments made during the year will ensure that your assets are established in the name of your living trust. When you transfer your assets held at a financial institution into your trust, it is imperative that you complete and deliver the necessary forms to the bank requesting that they transfer your property to your trust. This will ensure that your bank accounts are protected in the event of a bank failure under the FDIC living trust rules. You should be aware that, although a revocable living trust is a popular estate planning tool, some people working at your local bank might not know how to handle them. Make sure you talk to someone who knows how to register your accounts.
If the Federal Deposit Insurance Corporation (FDIC) ever takes over a failed financial institution, you may wonder how much FDIC insurance coverage is provided for a bank account held in the name of your living trust. The answer can be a bit complicated, but in general, it all depends on how your trust is structured and how your bank accounts (checking, savings, certificates of deposit, etc.) are titled. According to the FDIC living trust rules, FDIC insurance coverage for living trust accounts would be available to the owner (the grantor, settlor, or trustor of the trust) of a living trust bank account for up to $100,000 per beneficiary (those who are identified by the owner to receive an interest in the trust assets when the last owner dies).
This $100,000 per-beneficiary insurance limit applies to all revocable trust accounts held by one owner at the same bank if all of the following requirements are met:
1. The bank account must be properly titled in the name of the revocable living trust.
2. A qualifying beneficiary must be the owner’s spouse, child or grandchild (biological, adopted or step), parent or sibling (including step-parent or step-sibling). In-laws and charitable organizations are not considered a qualifying beneficiary.
3. The interest in the trust must pass to the beneficiaries when the trust owner dies.
The amount of the FDIC insurance coverage available would be determined by the number of qualifying beneficiaries who meet all of the preceding requirements at the time of a bank failure. For example, if a revocable living trust owner names his four children as beneficiaries, all bank account assets held in the name of the trust would be insured for up to $100,000 per beneficiary. In another case, where the living trust owner (grantor, settlor, or trustor of the trust) is alive, the trust owner and all three beneficiaries are eligible for $300,000 of FDIC insurance coverage. If the trust is co-owned between a husband and wife and their three children are named beneficiaries, the coverage for insurance purposes would be $600,000. If their bank fails and neither spouse is living, all three children would be beneficiaries for purposes of the $100,000 per-beneficiary insurance limit. Assuming that $375,000 in bank CD’s are held in the name of the trust, the amount of FDIC insurance available at the time of a bank failure would be $300,000 or $100,000 per beneficiary assuming equal interest in the trust by all three beneficiaries.
In another example, assume that trust owner names his three children as beneficiaries and his three grandchildren as contingent beneficiaries. If the trust states that the contingent beneficiaries will receive trust assets after the primary beneficiaries, then FDIC insurance coverage will be available in the amount of $300,000, since the qualifying beneficiaries for insurance purposes would be the three living children.
It is important to understand how your trust is structured and how your assets are titled since the terms of your trust can affect the amount of FDIC insurance coverage provided in the event of a bank failure under the FDIC living trust rules.
Update:
In the fall of 2008, the FDIC rules changed and as a result deposits held in the name of your revocable living trust would receive up to $250,000 in FDIC insurance coverage for each beneficiary. For example, if a revocable living trust owner and his wife name their four children as beneficiaries, all bank account assets held in the name of the trust would be insured for up to $250,000 per beneficiary up to $2 million.
On January 1, 2014, the original FDIC rules will return and deposits held in the name of your revocable living trust will receive up to $100,000 in FDIC insurance coverage for each beneficiary.
Source: FDIC: Changes in FDIC Deposit Insurance Coverage
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