Your Revocable Trust May Increase Your FDIC Insurance Coverage Beyond $250,000

BY LIBBY BANKS, PLLC, THE LAW OFFICE OF LIBBY BANKS

The banking industry is under fire again, with many people worried about bank failures, wondering about their own bank’s health, and their own vulnerability to losses. The FDIC insures deposits – but only up to $250,000 per deposit at each bank. If your account at a bank is over $250,000, or if you have CDs and multiple accounts exceeding $250,000, every dollar over $250,000 is uninsured and subject to loss in the event of a bank failure.

But wait! Your revocable living trust might help by increasing your Federal Deposit Insurance coverage on your bank accounts.

As I’ve mentioned many times, the revocable living trust is the foundation for most estate plans prepared in my office. The trust reduces expenses and provides for a smoother administration of your estate. It not only avoids the time and expense of a probate action at your death, but it also avoids court proceedings if you are incapacitated.

I’ve also talked about the importance of “funding” your trust – retitling your home, brokerage accounts, and bank accounts to the trust. We recommend that our clients who have a revocable trust change their bank accounts to the name of the trust to avoid probate. Now there is another reason, since the revocable trust account may be insured for more than just the $250,000 offered for an ordinary bank account.

So how much more insurance does the FDIC provide for a revocable trust account?

The FDIC recognizes accounts in your revocable trust as held in a formal trust relationship, and not just in your individual capacity. The trust as owner of these accounts is insured for up to $250,000, not just for the trust, but for each beneficiary of the trust. This additional insurance is provided if the beneficiaries are individuals or qualified charitable or non-profit organizations. The beneficiaries identified in the trust are all covered. If your trust includes general beneficiary language giving your trust assets “to my descendants,” that is sufficient as long as the number and names of the descendants can be determined. Then, for each of your descendants – your children – and each of any other beneficiaries, the FDIC will give you $250,000 of insurance coverage.

One example the FDIC gives in its online brochure is for a depositor with a revocable trust account, and whose trust includes five unique beneficiaries. The FDIC coverage of $250,000 per account is increased to $1,250,000 for that depositor -- $250,000 for each of his five individual beneficiaries. That’s quite a difference in coverage!

This increased coverage provides many advantages. For one, because of the increased FDIC coverage using the trust, you can consolidate your bank accounts to one bank instead of opening accounts in several banks to be sure your cash, savings, and money market accounts are all insured to the maximum amount. Using one bank as your central repository for most accounts not only makes management easier during your lifetime, but, even more importantly, it makes it easier for your successor trustee when they step in. In addition, the chances of an account being forgotten or unidentified is less likely with fewer accounts as well.

The revocable living trust is a great plan for most estates. The trust is easy to use. My clients notice very little difference in how they handle their finances once they have the Trust in place and their assets titled in their names as trustees. For bank accounts, you still can deposit checks made to your name, withdraw money, and write checks. You won’t notice any difference from an account in your name, or a joint account with your spouse. With the additional FDIC insurance coverage, the revocable trust provides peace of mind.

If you have questions about whether a trust is right for you, or if you have a trust you think might need updating, I offer a free initial consultation to discuss your specific situation and talk about the trust and how it might work for you. To book your appointment, call my office at 602-375-6752. Please visit our website for more information on trusts and other estate planning: https:// libbybanks.com.

For more information on FDIC insurance coverage (including different rules for unequal distribution among beneficiaries of your trust), you can access the FDIC brochure online at https://tinyurl.com/FDICtrust.