FDIC Insurance Coverage of Trust Accounts
FDIC Insurance Coverage of Trust Accounts
(Updated March 16, 2023)
Recent failures of Silicon Valley Bank and Signature Bank have raised questions about FDIC coverage of bank deposits for individuals and the trusts they have put in place for their family. Most people know that each depositor is insured up to $250,000 at each insured bank. However, the issue now, with the disruption in the banking sector, is what constitutes a separate depositor.
You can qualify for coverage over $250,000 if you have funds in different "account ownership categories." An account you hold in your own name is a separate account category from any joint accounts you hold. For joint accounts, each co-owner receives a $250,000 limit. For example, if you had one account at a bank in your personal name and you and your spouse have a joint account at that same bank, your personal account will qualify for its own $250,000 coverage and the joint account will qualify for up to $500,000 coverage ($250,000 per co-owner).
An account titled under your revocable living trust is considered a separate account ownership category and qualifies for its own FDIC insurance coverage. Trust deposits are insured up to the standard amount ($250,000) multiplied by the number of trust beneficiaries (not to exceed five) multiplied by the number of trust settlors. Trust settlors are the individuals who created the trust. Married individuals in California often establish joint revocable trusts to hold their community property. As a result, an account in the name of a revocable living trust created by a married couple may receive a maximum coverage of up to $2,500,000.
Natural persons and charitable organizations qualify as a trust "beneficiary" for purposes of determining FDIC coverage.1 The term "natural persons" refer to individuals. If you name your children as outright beneficiaries of your revocable trust upon death, then each child would qualify as a trust beneficiary and allow an additional $250,000 coverage.
Most families designate that continuing trusts for the benefit of their children will receive assets upon their death instead of outright distributions to children. Trusts created in the future do not qualify as a natural person and the current Federal Regulations are silent on the treatment of future trusts created under a revocable trust agreement.2 FDIC published guidance and new Federal Regulations (effective on April 1, 2024) clarify that the future trusts are not treated as beneficiaries for purposes of calculating FDIC insurance coverage. Instead, the FDIC will look through to the beneficiaries of future trusts and those beneficiaries will qualify for additional insurance coverage if the beneficiary is (i) a natural person or charity; and (ii) the beneficiary’s interest is not contingent upon the death of another beneficiary.3
Payable on Death Accounts
If you have an account where you designated the beneficiaries who will receive the account upon your death, the FDIC categorizes these accounts as revocable trust accounts. These accounts are sometimes called payable-on-death accounts or Totten trust accounts. If you designated individuals to receive the account upon your death, then each individual you name (up to a maximum of 5 individuals) would qualify as a beneficiary and qualify for an additional $250,000 coverage.
Accounts titled under irrevocable trusts fall within a separate account ownership category and qualify for their own FDIC insurance coverage. You have created an irrevocable trust when you transfer ownership of assets to a trustee and you are no longer the beneficiary of the transferred assets. Irrevocable trust deposits are insured up to the standard amount. If you have multiple beneficiaries under the irrevocable trust and the trustee has no discretion over distributions among the beneficiaries, then each beneficiary would qualify for a standard coverage ($250,000 multiplied by number of beneficiaries).4 If the trustee has discretion to make distributions to one beneficiary and not to another under the irrevocable trust agreement, then the irrevocable trust qualifies for a single standard coverage of $250,000.
Account holders should consider whether to add trusts or beneficiaries as a means to increase FDIC protection for accounts with more than $250,000 at a single insured bank. If you have questions about the FDIC coverage of your trust deposits, please contact Anthony Dutra, Constance Liu or your attorney in the Family Wealth Planning Practice.
1 12 CFR § 330.10(c)
2 This Alert previously stated: “These continuing trusts do not qualify as a natural person. If you do not have any natural persons or charities as beneficiaries of your revocable trust, then the trust would not qualify for its own FDIC coverage. The amounts in the revocable trust falls under the coverage of the individuals who created the trust.”
3 See FDIC Financial Institution Employee’s Guide to Deposit Insurance at 74 and 12 CFR 330.10(c)(3) (effective April 24, 2024). A pdf copy of the new Regulations is available here.
4 12 CFR §§ 330.1(m) and 330.13. Federal Regulations effective April 1, 2024, eliminate the different rules for irrevocable trusts. Determining the number of irrevocable trust beneficiaries in calculating FDIC insurance coverage will be made in the same way as revocable trusts, and all trust accounts will be subject to the coverage limit for no more than five beneficiaries ($1,250,000) for a trust established by one individual.