Living/Family Trust Accounts
Living or family trust accounts are insured up to $250,000 per owner for each named beneficiary if all of the following requirements are met:

1.       The account title at the bank must indicate that the account is held pursuant to a trust relationship. This rule can be met by using the term “living trust,” “family trust,” or similar language in the account title.

2.       The beneficiaries must be “eligible” as defined below.

Note: The deposit insurance coverage calculation for a formal revocable trust also requires that all owners and beneficiaries are living and the beneficiaries are identified in the trust document.  While the owners of a trust may benefit from the trust during their lifetimes, they are not considered beneficiaries for the purpose of calculating deposit insurance coverage. Beneficiaries are those identified by the owner to receive an interest in the trust assets when the last owner dies. Unlike POD accounts, the beneficiaries do not have to be identified by name in the deposit account records of the bank.

Who are the owners of the trust?

The owners (the person or couple establishing the trust) are commonly referred to in the formal revocable trust document as trustors, grantors or settlors. For the purpose of calculating deposit insurance coverage only, the trustees, co-trustees, and successor trustees are not relevant. They are administrators and have no impact on deposit insurance coverage unless they are also the owners of the trust.

Who are the beneficiaries of the trust? The beneficiaries are the people or entities entitled to an interest in the trust when the last owner dies. Contingent or alternative trust beneficiaries are not considered to have an interest in the trust deposits and other assets as long as the primary or initial beneficiaries are still living, with the exception of revocable living trusts with a life estate interest.

Do the beneficiaries meet the eligibility requirement? To qualify for revocable trust coverage, a trust beneficiary must be an individual, a charity or another nonprofit organization.

What is the dollar amount or percentage interest each owner has allocated to each primary beneficiary? This question does not apply to formal revocable trust deposits with five or less eligible beneficiaries. Coverage is calculated at $250,000 times the number of eligible beneficiaries up to $1.25 million. If the depositor has six or more beneficiaries and wants to insure more than $1.25 million, then the insurance coverage will be the greater of either $1.25 million or the aggregate amount of all eligible beneficiaries’ proportional interests in the revocable trust(s), limited to $250,000 per beneficiary.
Are all the owners and beneficiaries living? The amount of deposit insurance coverage can change if there is a death of an owner or a beneficiary. Upon the death of an owner, the FDIC provides a grace period up to six months during which the account is insured as if the owner were still living. However, the six month grace period does not apply to the death of a beneficiary named in a living trust account.

If a living trust has multiple beneficiaries, the FDIC will assume the beneficiaries’ interests are equal unless otherwise stated in the trust.

For example:  A mother has a living trust leaving all trust deposits equally to her three children. A deposit account held by the trust at an insured bank could be insured up to $750,000. Since there are three beneficiaries who would inherit the trust deposits equally when the owner dies, the owner has created a trust relationship of $250,000 with each of her three children for a total of $750,000.

Living trust coverage is based on the interests of beneficiaries who would become entitled to receive trust assets when the trust owner dies (or if the trust is jointly owned, when the last owner dies). This means that, when determining coverage, the FDIC will ignore any trust beneficiary who would have an interest in the trust assets only after another living beneficiary dies.

For example:  A father has a living trust that leaves all of the trust assets to his son. If the son predeceases the father, the trust assets are distributed equally to the son’s five children (father’s grandchildren). If the bank should fail while the son is still alive, the father’s living trust account is insured up to $250,000, because there is one beneficiary who is entitled to receive the trust assets when the father dies. However, if the son predeceases his father, the five grandchildren are then the beneficiaries and the father’s living trust account would be insured up to $1.25 million ($250,000 for each of the living five beneficiaries).

Some living trusts give a beneficiary the right to receive income from the trust or to use trust assets during the beneficiary’s lifetime (known as a life estate interest), and then other beneficiaries receive the remaining trust assets after the first beneficiary dies. In such a case, the FDIC will recognize all beneficiaries in determining insurance coverage.

For example:  A husband has a living trust giving his wife a life estate interest in the trust deposits, with the remainder going to their two children equally upon his wife’s death. The husband’s living trust would be insured up to $750,000. In this example, the FDIC’s insurance rules recognize the wife and two children as beneficiaries. Since there is one trust owner who has three beneficiaries, the husband’s trust account at an insured bank would be insured up to $750,000.

If a living trust has multiple owners, coverage would be up to $250,000 per beneficiary for each owner, provided the beneficiary would be entitled to receive the trust assets when the last owner dies.

For example:  A husband and wife are co-owners of a living trust. The trust states that upon the death of one spouse the assets will pass to the surviving spouse, and upon the death of the last owner the assets will pass to their three children equally. This trust’s deposit account would be insured up to $1.5 million. Since each owner names three beneficiaries, the owners (husband and wife) will be insured up to $750,000 each.

The $250,000 per beneficiary insurance limit applies to all formal and informal revocable trust accounts that an owner has at the same bank.

For example:  A father has a POD account naming his son and daughter as equal beneficiaries and he also has a living trust account naming the same beneficiaries. In this case, the deposits in both the POD account and living trust account would be added together and the total insured up to $500,000 ($250,000 per owner per beneficiary).

Note: Irrevocable trusts that are created upon the death of a revocable trust account owner will continue to be insured under the revocable trust rules.