Mar 12

How Much Coverage Do I Get for my FDIC Insured Trust Account?

Revocable and Irrevocable Trusts

As concerns for our economy grow, some individuals are looking at FDIC coverage for their accounts. According to the FDIC, only 1 bank failed in 2019 and 4 failed in 2018. https://www.fdic.gov/bank/historical/bank/ For an account held subject to a revocable trust, the coverage is per beneficiary. The owner, or the creator of the trust, does not count in the calculation. In determining coverage for “beneficiaries,” it is tempting to look to the Florida Trust Code for the definition of Beneficiary:

The 2019 Florida Statutes


Title XLII
 – ESTATES AND TRUSTS
Chapter 736 – 
FLORIDA TRUST CODE
View Entire Chapter

736.0103 Definitions. – Unless the context otherwise requires, in this code:

(4) ”Beneficiary” means a person who has a present or future beneficial interest in a trust, vested or contingent, or who holds a power of appointment over trust property in a capacity other than that of trustee. An interest as a permissible appointee of a power of appointment, held by a person in a capacity other than that of trustee, is not a beneficial interest for purposes of this subsection. Upon an irrevocable exercise of a power of appointment, the interest of a person in whose favor the appointment is made shall be considered a present or future beneficial interest in a trust in the same manner as if the interest had been included in the trust instrument.

http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0700-0799/0736/Sections/0736.0103.html.

The FDIC looks to the trust document to identify beneficiaries. The state law definition should help determine when the document is not clear. Beneficiaries don’t have to be labeled “beneficiaries”, or even identified by name, but the trust needs to reflect who will receive a distribution. Here’s what the FDIC says on its web site: https://www.fdic.gov/deposit/diguidebankers/revocable.html#maximum_di_coverage

4. Identifying Beneficiaries

For deposit insurance purposes, beneficiaries are those persons or entities who shall become entitled to the trust funds upon the death of the last trust owner.

In identifying the beneficiaries of a formal revocable trust, search for those sections or paragraphs that provide instructions for the distribution of the trust funds following the death of the last owner. It is not necessary that the beneficiaries be individually identified in the trust agreement by name, but the designation must be specific enough to clearly identify the intended beneficiary, e.g., “to my children and grandchildren.” In addition, designations such as “my issue” or “descendants per stirpes” are acceptable.

However, a designation such as “my family” is not specific enough and would not be acceptable. Please note that a section outlining the designation of trustees or successor trustees in the event of the incapacitation of the grantor does not indicate who would be the beneficiaries upon the death of the grantor.

Some grantors may designate a special needs trust as the beneficiary of their trust. In calculating deposit insurance coverage, the FDIC will look through the special needs trust to the ultimate beneficiary of that trust and deem that individual to be an eligible beneficiary.

Under the terms of some living trust agreements, the death of a trust owner results in the creation of two or more trusts. If a trust agreement provides that the trust funds shall pass into one or more new trusts upon the death of one or both owners, the future trusts are not treated as beneficiaries of the revocable trust before the death of any owner. Rather, the future trusts are viewed simply as mechanisms for distributing the trust funds, and the beneficiaries are the persons and/or entities who shall receive the trust funds through the future trusts.

Some grantors may also indicate in their trust agreement that the beneficiaries are identified in the grantor’s last will and testament. Such a designation is acceptable provided that the beneficiaries in the last will and testament are identifiable as eligible beneficiaries. If the beneficiaries of a trust agreement are identified in the grantor’s will, the FDIC may need a copy of the will to determine deposit insurance coverage, if the IDI fails.

The FDIC web site gives examples and a flow chart to help with the determination of FDIC coverage for a trust account: https://www.fdic.gov/deposit/covered/trust.html. Remember that the FDIC insurance coverage limits are per depositor, per institution. As a result, some individuals in the past have established accounts at multiple financial institutions.

Revocable and Irrevocable Trust Accounts

FDIC deposit insurance covers trust accounts under two separate ownership categories: Revocable Trust and Irrevocable Trust.

Revocable Trusts

A revocable trust account is a deposit account owned by one or more people that designates one or more beneficiaries who will receive the deposits upon the death of the owner(s). A revocable trust can be revoked, terminated or changed at any time, at the discretion of the owner(s). The term “owner” means the grantor, settlor, or trustor of the revocable trust.

Irrevocable Trusts

An irrevocable trust account is a deposit account titled in the name of an irrevocable trust, for which the owner (grantor/settlor/trustor) contributes deposits or other property to the trust, but gives up all power to cancel or change the trust. Irrevocable trusts are also established following the death of an owner of a revocable trust, or by statute or judicial order. When a revocable trust has more than one owner, each owner’s coverage is calculated separately.

Does the trust meet ALL 3 of these criteria?

The account title at the bank indicates that the account is a trust using language such as:

1.

Formal Revocable Trusts use such terms as:

  • Living trust
  • Family trust

Informal Revocable Trusts use such terms as:

  • Payable on death (POD)
  • Totten trust
  • As trustee for (ATF)
  • In trust for (ITF)

Or similar language, including the word “trust” in the account title.

Important Considerations

There is no six-month grace period for the death of a beneficiary for revocable trust deposits.
If there is no substitute beneficiary designated when a primary beneficiary dies, the amount of deposit insurance coverage may decrease for this deposit.

2.

At the time a bank fails, the beneficiary must be entitled to his or her interest in the revocable trust assets upon the grantor’s death. The FDIC recognizes life estate and remainder beneficiaries, but not contingent beneficiaries.

3.

How many beneficiaries does the trust/account owner designate?

When a revocable trust owner designates five or fewer beneficiaries, the owner’s trust deposits are insured up to $250,000 for each unique beneficiary.

This rule applies to the combined interests of all beneficiaries the owner has designated in all formal and informal revocable trust accounts at the same bank. When there are five or fewer beneficiaries, maximum deposit insurance coverage for each trust owner is determined by multiplying $250,000 times the number of unique beneficiaries, regardless of the dollar amount or percentage allotted to each unique beneficiary.