FDIC Insurance Coverage for Revocable Trusts

There is some confusion among the general public about whether or not Certificates of Deposit (CODs) can be insured, and if they can, how much insurance can be obtained from a single bank.

There are two separate ownership categories of trust accounts that the FDIC provides deposit insurance coverage for: irrevocable trusts and revocable trusts. If you enter some basic information in the FDIC’s online tool, you can find out if you are covered.

As with any important matter relating to your financial security, it is wise to discuss and verify insurance options directly with the professional who handles your money.

Revocable Trusts

Many are surprised to learn that revocable trusts with multiple beneficiaries can receive more insurance protection. In general, for any deposit in which the owner has set up a “formal” trust (i.e., a Revocable Living Trust) with multiple beneficiaries, an insurance limit of $250,000 is applied to each beneficiary.

Other Requirements

Of course, a deposit held by a trust must meet a few additional requirements before it can be considered insurable. First, it must be identified as either a family or living trust. In the event of the grantor’s death, beneficiaries must be entitled to interest in the revocable trust assets. The FDIC does not recognize contingent beneficiaries, but does account for remainder and life estate beneficiaries.

If fewer than six beneficiaries are designated, the owner’s share of each trust account is totaled together (up to a maximum of $250,000 in insurance protection for each beneficiary). Informal and formal revocable trust accounts possessed by the same owner are added up before coverage is determined.

Careful with ITF and POD

Some bankers advise customers to transfer current deposits into In Trust For (ITF) or Pay on Death (POD) accounts. Unfortunately, doing so may disrupt estate planning. POD and ITF accounts distribute to beneficiaries no matter what instructions are contained in a Revocable Living Trust (RLT), and without regard to taxes or administrative expenses.

An ITF or POD account may be unnecessary if there already is an RLT in place. An RLT avoids the probate process, names a Successor Trustee capable of paying bills and writing checks as needed, and provides instant beneficiary access to accounts upon death or disability.

Consult with a Professional

Before making any decisions about your estate, consult with a professional estate planner.

Cohen & Burnett have been the premier estate planning firm in Washington, D.C. for more than a quarter century. To learn about our legal planning, tax strategy, and estate planning services, please visit our homepage.

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