FDIC Changes Deposit Insurance For Trust Accounts

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The Federal Deposit Insurance Corporation (FDIC) changed its deposit insurance coverage for some accounts effective April 1, 2024.

The basic insurance limit of $250,000 per account still holds and most types of accounts aren’t affected.

The changes affect accounts of trusts and effectively reduce the insured amount for some trust bank accounts.

The FDIC said the changes are intended primarily to streamline the coverage rules and make them easier for both bankers and customers to understand.

The maximum insured amount for a trust is now $1.25 million per trust owner per insured depository institution.

The general rule that a trust account receives $250,000 of coverage per beneficiary is unchanged. A trust account with one owner (the trustee) and three beneficiaries is insured for $750,000.

But under the new rule, if the trust has more than five beneficiaries, the coverage is capped at $1.25 million. (That’s $250,000 for each of the first five beneficiaries and no coverage for the additional beneficiaries.)

The old rule also separated trusts into revocable and irrevocable trusts, and each owner had a separate limit for each type of trust.

Now, there is one trust account category that includes both revocable and irrevocable trusts, and a trust owner has one $1.25 million insurance limit for all the trusts.

In addition, depositors should know that certain types of accounts are labeled informal revocable trusts by the FDIC and considered trusts when applying the limit.

Account types that are considered revocable trusts include payable on death (POD) accounts, transfer on death (TOD) accounts, Totten trusts, and accounts with labels such as “in trust for” or “as trustee for.”

For example, if a depositor has a formal trust, whether revocable or irrevocable, and has a separate account with a POD provision, the balances of the two are combined to determine if the $1.25 million per owner insurance limit is reached.

Owners of bank accounts can determine if all of their balances are insured by using the FDIC’s Electronic Deposit Insurance Estimator (EDIE) on its website.

The $1.25 million insurance limit also is per financial institution. So, people whose accounts exceed the limit at one institution might want to move one or more account to a different institutions to increase their FDIC coverage.

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