Recent legislation has changed the amount insured by the FDIC, but only until December 21, 2009. For many clients, the low rate of return on a savings account or CD is an acceptable trade-off for the safety of FDIC-insured bank accounts. However, such protections can be lost if careful attention is not paid to FDIC regulations.
On October 3rd, the Emergency Economic Stabilization Act of 2008 temporarily raised FDIC insurance amounts from $100,000 to $250,000, beginning with the passage of the act and ending December 31, 2009. The FDIC now insures an individual’s deposits of up to $250,000 in a single bank, whether the assets are held in a single account for $250,000, or in multiple accounts totaling up to $250,000. Jointly-owned accounts are FDIC-insured for up to $500,000. But for those individuals who have more than $250,000 in assets (or couples with more than $500,000 in assets) that they want to fully protect without dealing with multiple banks, there are a number of ways to increase the amount of insurance Accountsavailable in an FDIC-insured institution. One excellent mechanism is through the use of accounts owned by revocable living trusts.
There are separate FDIC rules that apply to both “informal” revocable trusts—which include “in trust for” (ITF) and “payable on death” (POD) accounts—as well as accounts owned in “formal” revocable trusts, which are governed by a revocable living trust (RLT) agreement. For “informal” trust accounts, the amount of FDIC insurance is determined by the number of “beneficiaries” listed in the various ITF or POD accounts held by the account owner at a particular bank. Beneficiary coverage for an RLT is based on the existence of any beneficiary named in the revocable trust, as long as the beneficiary is a natural person, or a charity or other nonprofit organization.
For example, if Bill Sample has a $750,000 CD designated ITF for his son, daughter, and granddaughter, the entire $750,000 is fully insured, because Bill is insured up to $250,000 for each beneficiary’s interest. Under the same example, if Bill’s wife was also an account owner, it could be insured for up to $1,500,000—all at a single bank!
The rules for accounts owned by formal revocable trusts were simplified by an interim rule on September 26, 2008. A trust account owner with up to five different beneficiaries named in all of his or her revocable trust accounts at one FDIC-insured institution will be insured up to $250,000 per beneficiary. Revocable trust account owners with more than $1,250,000 and more than five different beneficiaries named in the trust(s) appear at this writing to be insured for the greater of either: $1,250,000, or the aggregate amount of all the beneficiaries’ interests in the trust(s), limited to $250,000 per beneficiary. Of course, as with all new laws, continued refinements and interpretations are likely to be made in the months ahead as the law is put into effect. For more information, visit www.fdic.gov. iBi