Prompted by the recent takeover of Silicon Valley Bank, the Federal Deposit Insurance Corporation (“FDIC”) has published guidance regarding the calculation of insured funds at a particular insured depository institution (“IDI”).
This article summarizes some of the key points of the FDIC’s guidance regarding bank accounts held by a revocable living trust.
The FDIC is an independent federal agency that provides deposit insurance to protect depositors in case an insured bank or savings institution fails. The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.
This means that if an individual has multiple accounts at the same bank, they may be insured up to $250,000 per account ownership category, but not more than $250,000 in total for all accounts at that bank.
As to calculating the deposit insurance for accounts held in trust, two types of trusts are considered: informal revocable trust and formal revocable trusts. Informal revocable trusts are accounts that are payable on death (“POD”), in trust for (“ITF”), as trustee for (“ATF”), or Totten trust accounts. Formal revocable trusts are created with the assistance of an attorney, such as your revocable living trust.
In order to be eligible for FDIC insurance, the assets held in a revocable living trust must be properly structured and titled.
- The account must be properly titled, with the name of the trust and the name of the trustee(s) clearly identified on the account.
- Funding Note: The funding of your bank accounts to your trust typically must be done by you by going to the bank, in person, unless your bank is an online only banking institution.
- You can confirm that your bank account has been titled to yourself(ves) as trustee(s) of your trust by looking at your bank statement. (Ex. “Mike Brady and Carol Brady, Trustees of the Brady Bunch Living Trust, dated January 1, 1963”)
- The beneficiaries of the trust must be identified. They need not be specifically named, so long as their identity and interest can be determined (i.e., “my children”; “my issue”). Proper identification is not usually an issue for formal revocable trust accounts as the beneficiaries are identified in the trust agreement.
- The beneficiaries must be eligible. The beneficiaries must be a natural person, a charitable organization, or a non-profit entity to be considered “eligible” for inclusion in the in the calculation of the maximum insurable amount of the aggregate accounts. All other beneficiaries are deemed ineligible (i.e., pets as beneficiaries.)
- Only primary beneficiaries who are alive at the time of the IDI’s
collapse are counted. For example, your trust provides that, upon your death, your trust estate goes to your child, and if your child predeceases you, your share goes to their children. If your child is living at the time of the IDI’s collapse, your child would be a primary beneficiary. If your child has predeceased you when the IDI collapses, then that child’s children (your grandchildren) would be counted for insurance coverage purposes.
When calculating deposit insurance, all revocable trust accounts at a particular IDI, both formal and informal, and the unique primary beneficiaries of those accounts are taken together.
The Brady Bunch
Mike and Carol Brady have a joint revocable living trust. Mike and Carol have 6 children, combined, and their trust provides for distributions to these six children in EQUAL amounts. (Calculations for trust with more than 5 beneficiaries with distributions in unequal amounts get different treatment.)
Mike and Carol own the following accounts at One Bank:
|Account Type||How Account is Titled||Account Balance|
|CD||Mike and Carol Brady, Trustees of the Brady Bunch Living Trust (Greg, Peter, Bobby, Marsha, Jan, Cindy)||
POD to Greg, Peter, Bobby, Marsha, Jan, Cindy, equally
|Total Amount at One Bank:||$2,700,000|
What is the maximum amount of FDIC coverage can Mike and Carol get for their bank accounts held in their joint revocable living trust at their one bank?
(a) When owners of one or more revocable trust accounts name six or more beneficiaries who are entitled to an equal distribution from the account(s), each owner’s shares of the multiple trust accounts are added together and each owner receives up to $250,000 in insurance coverage for each unique beneficiary.
(b) The calculation to determine coverage is the number of owners multiplied by the number of unique eligible beneficiaries multiplied by $250,000 equals the insurable amount.
|Number of Unique Beneficiaries?
Even though there are 2 different account types, there are only 6 unique beneficiaries between these 2 accounts
|How much maximum coverage for each unique beneficiary?||
|How many owners of the account?Mike and Carol Brady||
|Maximum Total FDIC Coverage||$3,000,000|
Mike and Carol Brady’s two accounts at One Bank, totaling $2,700,000, will be 100% covered by FDIC insurance.
This article provides only a summary of some very complicated rules regarding the calculation of FDIC insurance coverage for accounts. If you have any questions, please do not hesitate to call our office to set up a time to speak with one of our estate planning attorneys.
You can find the full FDIC guide by clicking this link: https://www.fdic.gov/deposit/diguidebankers/documents/revocable.pdf
For the FDIC’s Electronic Deposit Insurance Estimator (EDIE), click here: https://edie.fdic.gov/
In addition to understanding the FDIC insurance requirements for revocable living trusts, it is important to periodically review and update your trust to ensure that it continues to meet your wishes and objectives. This may include updating beneficiary designations, reviewing and revising your trust document, and working with a financial advisor or attorney to ensure that your trust is structured in a way that maximizes your estate planning goals.
In conclusion, FDIC insurance is an important consideration for individuals with revocable living trusts. By understanding the FDIC’s requirements for insuring trust assets and periodically reviewing and updating your trust, you can ensure that your assets are protected and your estate planning goals are achieved.