The Federal Deposit Insurance Corporation (FDIC) insures bank accounts against a bank failure. The FDIC limits are per bank - not per account. Generally, accounts are insured for $100,000 per depositor for each bank; but, as a part of the Emergency Economic Stabilization Act of 2008, the amount of insurance was temporarily increased to $250,000 until December 31, 2009. On May 20, 2009, the Helping Families Save Their Homes Act extended the temporary increase through December 31, 2013. On January 1, 2014, the coverage is scheduled to return to $100,000.
There are some special rules for accounts held through living trusts. Living trust accounts are insured up to $250,000 ($100,000 after December 31, 2013) per grantor for each named beneficiary, provided the account title at the bank indicates that the account is in the name of a trust and the beneficiaries are individuals or charities. The beneficiaries are those persons entitled to an interest in the trust when the grantor dies, including a beneficiary receiving a life estate interest. But, contingent or alternate trust beneficiaries are not considered to have an interest in the trust as long as the initial or primary beneficiaries are living. Only the interests of the beneficiaries are insured; those of the grantor(s) of the living trust are not insured.
New Rules for Living Trusts
Five or Fewer Beneficiaries or $1,250,000 or Less in Insurable Deposits. Under the new rules, a living trust with fewer than five (5) different beneficiaries named in the trust agreement or with insurable deposits of $1,250,000 or less will be insured up to $250,000 per beneficiary. The maximum coverage is calculated by multiplying the number of beneficiaries by $250,000 - regardless of the beneficiaries' proportionate interests in the trust.
More Than Five Beneficiaries and More Than $1,250,000 in Assets. For living trusts with more than $1,250,000 of insurable deposits and more than five (5) different beneficiaries named in the trust agreement, the insurance coverage is the greater of $1,250,000 or the sum of all of the beneficiaries' proportional interests in the trust, limited to $250,000 per beneficiary. The new rules also value a life estate beneficiary's interest in a living trust account at $250,000, and provide that, upon the grantor's death (when the living trust becomes irrevocable), the revocable trust rules will continue to govern the account.
On January 1, 2014, the $250,000 and $1,250,000 amounts referred to above are scheduled to drop back to $100,000 and $500,000, respectively.
Examples (Through December 31, 2013)
• A mother has a living trust from which her three (3) children will inherit equally upon her death. She is insured for $750,000 (3 x $250,000 per beneficiary).
• A husband's living trust creates a life estate for his wife upon his death, with the remainder going to his two (2) children upon his wife's death. Since a life estate interest is valued at $250,000, the husband is insured for $750,000 (3 x $250,000 per beneficiary).
• A husband and wife are co-grantors of a living trust. Upon the death of the surviving grantor, the assets in the trust will pass to their three (3) children. They are insured for $750,000 per grantor, or a total of $1,500,000.
• A grantor has a living trust with five (5) beneficiaries and deposits of $1,250,000. Four (4) of the beneficiaries will each receive 5% of the trust assets upon the grantor's death, and the other beneficiary will receive the remaining 80% of the trust assets. The total insurance coverage is $1,250,000 (despite the disproportionate shares).
• A grantor has a living trust with eight (8) beneficiaries and deposits of $1,500,000. The first four (4) beneficiaries are the grantor's children who will each receive 20% of the trust upon their father's death. The other four (4) beneficiaries are charities which will each receive 5% of the trust property upon the grantor's death. The insurance coverage is $250,000 per child (i.e., $1,500,000 x 20% = $300,000, but limited to $250,000), and $75,000 per charity (i.e., $1,500,000 x 5%), for total coverage of $1,300,000 ($1,000,000 for the four (4) children and $300,000 for the four (4) charities).
• A grantor has a living trust account with $1,500,000 of deposits. The living trust has six (6) beneficiaries - the first five (5) will each receive 1% of the trust property upon the grantor's death and the sixth will receive 95% of the trust property. The grantor is insured for $1,250,000 under the "greater of" rule described above (even though the sixth beneficiary is receiving more than $250,000).
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