The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by Congress to maintain stability and public confidence in the nation’s financial system. The FDIC insures up to $250,000 per depositor in eligible accounts. Not all bank accounts are eligible for FDIC insurance. The insurance typically applies to deposit accounts such as savings, checking, money market and CDs. If the money is kept in another type of account such as an investment account, those funds will not be insured even though the accounts are located at an FDIC-insured bank.
Many clients fund a living trust with assets held in various types of bank accounts. That leads to the question of whether these bank accounts funding a trust are also insured by the FDIC and does the $250,000 limit apply to the trust as a whole or to each individual beneficiary?
Both revocable and irrevocable trusts may be covered by FDIC insurance, but the extent of the coverage depends on the type and quantity of beneficiaries. The total FDIC insurance that applies to a revocable trust is based on the number of non-contingent beneficiaries. Contingent beneficiaries are a maybe – meaning certain conditions must be satisfied to become eligible to acquire their shares in the trust. For FDIC insurance purposes, the insurance only kicks in when the banks fail. At that time, only the beneficiaries that have satisfied all conditions such that they qualify as non-contingent are counted.
When the revocable trust has five or fewer non-contingent beneficiaries each one qualifies for the $250,000 coverage. This means that you multiply the number of non-contingent beneficiaries by $250,000 and that gives you the amount of FDIC insurance covering the trust.
When there are six or more non-contingent beneficiaries the coverage limit is the greater of either:
-the sum of each beneficiary’s interest up to $250,000 each; or
- $1,250,000 in coverage.
For an irrevocable trust to be eligible for FDIC insurance, it must meet the following four conditions:
1. The trust must be valid under Maryland state law.
2. The bank records must indicate that the account is a trust.
3. Each beneficiary and his or her interest must be listed in the bank’s records.
4. All beneficiary’s must be non-contingent.
If all four conditions are met, the FDIC will insure each beneficiary’s interest up to $250,000.
Keep in mind that interests are combined at any one institution. This applies to individuals as well as trust beneficiaries. If either an individual or a beneficiary of a trust has more than one account at the same institution, the total value of those accounts combined applies towards the $250,000 FDIC insurance limit.
At Stouffer Legal, we help you create a living trust, but also advise you in funding those trusts. Part of the process is reviewing the FDIC insurance limits to ensure your assets are protected. For more information, contact our knowledgeable estate planning attorneys for a consultation. You can schedule an appointment by calling us at (443) 470-3599 or emailing us at office@stoufferlegal.com.
