FDIC Rules on Trust Accounts

Federal Deposit Insurance Corporations (FDIC) Rules on Trust Accounts

You have just created a revocable inter-vivos trust (traditionally referred to as a “living trust”).  Your attorney has advised you to transfer your assets to this trust along with all of your bank accounts.  The title to these trust bank accounts will read something like “Rich Livingstone, Trustee of the Livingstone 2004 Trust.”  You may even have other accounts at the same bank in that name as well.  Insurance provided by the Federal Deposit Insurance Corporation (FDIC) only insures $100,000 per insured.  You ask, “how much insurance do I really have available?”

In a new set of regulations effective January 21, 2004, the FDIC has answered this question.  Coverage is now available under the new regulations for a single ownership account, and is calculated separately from the coverage for joint accounts.  Both are calculated separately from the coverages for living trusts.  As an example, here’s how it works.  Mr. Livingstone has one account in his name and another account in the name of his trust.  The trust provides that on the death of Mr. Livingstone, the proceeds are to be distributed to his children, of which he has three.  Under the new rules, Mr. Livingstone’s account is insured for $100,000.  The amount of insurance coverage for the trust account is based on the number of “qualifying beneficiaries,” such as spouses, children, grandchildren, parents, and siblings.  Since the children are the ultimate beneficiaries of the trust, and there are three of them, there will be an additional $300,000 of coverage available, $100,000 for each of them.  This is in addition to the $100,000 of insurance on the individual account.

It is always prudent, however, to utilize multiple institutions so as to keep all of your eggs out of one basket.  However, the event you are unable to or decide not to, there is now much more flexibility and insurance coverage available to protect your accounts than before.