Turmoil in the banking system set off by the failure of Silicon Valley Bank has many people feeling a bit worried about the money they have deposited at their financial institution. It’s understandable if you’re feeling a little on edge about your money, especially if you have significant funds on deposit. For many people who have completed their estate planning, their money may be in bank accounts owned by their revocable living trust. You might be wondering: are these trust-owned accounts protected by FDIC insurance?
The good news is that revocable living trust accounts are insured by the FDIC, just like any other deposit account. However, there are some important things to keep in mind to ensure that your bank-held assets are fully protected.
First, it’s important to understand the basics of FDIC insurance. The Federal Deposit Insurance Corporation (FDIC) is an independent U.S. government agency that provides insurance to depositors in case their bank fails. The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category (an “ownership category” would be a checking account, savings account, CD’s, business account, etc). This means that if you have multiple accounts with the same bank, you may be eligible for more than $250,000 in coverage.
When it comes to revocable living trust accounts, the FDIC considers the account to be owned by the trust beneficiaries, rather than the person who created the trust (known as the grantor). This means that if you have a revocable living trust account with $500,000 in it, and there are two beneficiaries named in the trust, each beneficiary would be insured up to $250,000 for that account. However the maximum of insurance coverage is for five beneficiaries, or $1.25 million.
There are a few important requirements to keep in mind to make sure that your revocable living trust accounts are fully insured. First, the account must be in the name of the trust, and the word “trust” must be in the name.
Second, the beneficiaries named in the trust must be eligible for FDIC insurance. This means that the beneficiaries must be a natural person (human being), a charitable organization, or a non-profit entity. So, your beneficiary couldn’t be a for-profit entity or a pet trust, for example. Additionally, keep in mind that alternate or contingent beneficiaries – meaning, any individuals who would receive the trust monies if a primary beneficiary were to die before the account owner – is not counted as a beneficiary for FDIC deposit insurance purposes.
Finally, it’s important to ensure that your bank has accurate records of your trust account ownership. The FDIC requires that banks maintain accurate and complete records of all deposit accounts. If your bank’s records are incomplete or inaccurate, it could affect your coverage.
For most people with bank accounts owned by their revocable living trust, their accounts are insured by the FDIC – possibly to an amount even greater than if that account were owned by you individually. Still, it’s important to ensure that your trust meets the eligibility requirements and that your bank has accurate records of your account ownership. If you have any additional questions or concerns about your trust-owned bank accounts, please contact Beaupre Law.