FDIC Insurance for Trusts
You may have heard that a new rule became effective April 1, 2024, for FDIC insurance of trusts. The official language of the new rule can be confusing, but here are the basics:
- FDIC insurance is calculated using ownership categories such as single accounts, joint accounts, business accounts, etc.
- Two of the ownership categories, revocable trust accounts and irrevocable trust accounts, currently have complexities that make it harder to calculate the insured total and cause confusion.
- Trust Accounts are now a single category for FDIC insurance calculation, whether the trust is revocable or irrevocable.
- The rule for calculating the insured total for the new Trust Accounts category is the same as the existing formula for a revocable trust account with 5 or fewer beneficiaries:
- Deposits are insured up to a maximum of $1.25 million per owner/grantor per FDIC member institution ($250,000 apiece for up to a maximum of five eligible primary beneficiaries).
- You may still name as many beneficiaries and contingent beneficiaries as you like. However, the maximum FDIC insured amount per owner/grantor is $1.25 million.
|
Number of Trust Account Owners |
Number of Beneficiaries |
Insurance Limit |
|
1 |
1 |
$250,000 |
|
1 |
2 |
$500,000 |
|
1 |
3 |
$750,000 |
|
1 |
4 |
$1,000,000 |
|
1 |
5 |
$1,250,000 |
- The following are not factors in calculating FDIC insurance under this new rule:
- Allocation of funds among beneficiaries (the percentage of deposits that each will receive upon death of the owner/grantor)
- Beneficiaries in excess of five
- Contingent beneficiaries (when the contingency is the death of another beneficiary)
- Grantor-retained interest
- Payable-upon-death (POD) accounts are a form of revocable trust and therefore fall under this new Trust Accounts category for FDIC insurance. Beneficiaries must be named in bank records.
The bottom line? A revocable trust account owner who is fully insured under the current revocable trust account rules for five or fewer beneficiaries remain fully insured under the new trust account rules.
Before April 1, 2024, the owner of a revocable trust account with $2 million balance naming seven eligible primary beneficiaries was insured at 1 x 7 x $250,000 for a total of $1.75 million in FDIC insurance. This owner experienced a decrease in FDIC insurance for that account under the new rule, because under the new rule maxes out coverage at $1.25 million.
However, FDIC coverage increased for a depositor who has an irrevocable trust account with multiple beneficiaries. Under past rules, coverage was often limited to $250,000 due to contingencies in the form of terms, rules, and permissible uses of the funds. Under the April 1, 2024, rule those types of contingencies do not limit FDIC insurance. One owner/grantor of an irrevocable trust account with three eligible primary beneficiaries is now covered up to $750,000 in deposits.
The FDIC updated its convenient online calculator to reflect this rule on April 1, 2024.
