The failure of several banks in the last year caused many to question whether their money was protected if their bank went under. FDIC insurance is available up to a certain limit and not just for individual accounts. Almost all funded trusts have bank accounts that are insured by the FDIC. However, the amount of insurance coverage provided by the FDIC differs for individual and trust accounts. Notably, new FDIC regulations go into effect on April 1, 2024, that will change the FDIC insurance limits for trust accounts.
Current FDIC Limits on Trust Accounts
Currently, the FDIC treats revocable trusts and irrevocable trusts differently. As the law stands now, a revocable trust is insured up to $250,000 per beneficiary for up to five beneficiaries, so long as (1) the title of the bank account states that the account is for a trust; (2) each beneficiary is named in the correct place on the account; and (3) all beneficiaries are living persons, charities or non-profit organizations.
For example, a revocable trust account with only one beneficiary is insured by the FDIC up to $250,000. If the trust has more than five beneficiaries, the FDIC will insure up to $1,250,000.
As for irrevocable trust accounts, the FDIC currently insures those with contingent beneficiaries only up to $250,000 in total, regardless of how many deposits were made. Alternatively, irrevocable trusts without contingent beneficiaries have an insurance limit of $250,000 for one or more deposits for each beneficiary. Since most irrevocable trusts contain both current AND contingent beneficiaries, these accounts are typically only insured up to $250,000 in the aggregate.
New FDIC Limits on Trust Accounts
As of April 1, 2024, the FDIC will cease treating revocable and irrevocable trusts differently for purposes of determining insurance limits. Under the new rules, the funds in all trust accounts will be insured up to $250,000 per beneficiary per FDIC insured bank, up to five maximum beneficiaries, or $1,250,000. Additionally, all grantors are covered up to $250,000.
Therefore, prior to the new rules going into effect on April 1, 2024, it is important to review how much is held in your FDIC insured trust bank accounts to determine how the insurance limit may be impacted by these changes.
If you have any questions or concerns regarding how the change in these rules affect your trust account, please contact one of our trust and estate planning attorneys.