The ABC’s of FDIC – Insurance for Living Trusts

The ABC’s of FDIC – Insurance for Living Trusts

The FDIC –short for the Federal Deposit Insurance Corporation – is an independent agency of the United States government. The FDIC protects depositors against the loss of their insured deposits if an FDIC-insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the United States government.  REMEMBER,  no matter how secure looking your bank building appears, the safety of your accounts depends on which of the bank’s products you decide to use and whether the bank is FDIC insured. Go to the FDIC website where you can enter the name of your bank and determine if it is FDIC insured.

What Is Insured?
You are probably familiar with the traditional types of bank accounts – checking, savings, trust, certificates of deposit (CDs), and IRA retirement accounts – that are insured by the FDIC. Banks also may offer what is called a money market deposit account, which earns interest at a rate set by the bank and usually limits the customer to a certain number of transactions within a stated time period. All of these types of accounts generally are currently insured by the FDIC up to the legal limit and sometimes even more for special kinds of accounts or ownership categories.

Effective October 3, 2008, the basic limit on federal deposit insurance coverage was temporarily increased from $100,000 to $250,000 per depositor through December 31, 2009. In mid 2009, President Obama signed a bill that postponed the expiration date of the increased FDIC insurance limits on most bank deposit accounts. Under the new law, the standard FDIC insurance limit of $250,000 dollars per depositor will continue until December 31, 2013.  This new law also applies to accounts at federally insured credit unions under the National Credit Union Share Insurance Fund.

Keep in mind that this new law does not change or extend the coverage applicable to IRAs and other certain retirement accounts. Those accounts will continue to be covered beyond December 31, 2013 for up to $250,000 dollars per owner as they have been before any of the limits changed in 2008.

Also, non-interest bearing accounts such as traditional checking accounts, currently have unlimited FDIC insurance coverage based on the legislative changes made in 2008 in response to the financial crisis. This unlimited coverage is still set to expire at the end of this year. The bill discussed above does not change or extend the unlimited coverage for those accounts.

This chart summarizes the current status of FDIC insured accounts:


FDIC Deposit Insurance Coverage Limits (Through December 31, 2013)
Single Accounts (owned by one person) $250,000 per owner
Joint Accounts (two or more persons) $250,000 per co-owner
Certain Retirement Accounts (includes IRAs) $250,000 per owner
Revocable Trust Accounts $250,000 per owner per beneficiary up to 5 beneficiaries (more coverage is available with 6 or more beneficiaries subject to specific limitations and requirements)
Corporation, Partnership and Unincorporated Association Accounts $250,000 per corporation, partnership or unincorporated association
Irrevocable Trust Accounts $250,000 for the non-contingent, ascertainable interest of each beneficiary
Employee Benefit Plan Accounts $250,000 for the non-contingent, ascertainable interest of each plan participant
Government Accounts $250,000 per official custodian

Here is what the FDIC has to say about determining the extent of FDIC insurance coverage for living trusts.


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.


We hope this article will assist you in making deposit decisions at your local bank, credit union or savings and loan. The FDIC website is a great source for additional information on your accounts.

If you want to learn more on insurance for Living Trusts contact us at:

2070 Pioneer Court
San Mateo, CA 94403
Tel 650-572-7933
Fax 650-572-0834

McDowall Cotter provides comprehensive legal services in three areas of practice: civil litigation; business; and wealth preservation. To learn more visit us at We are a San Mateo based law firm and for more than 50 years, McDowall Cotter’s chief objective has been to deliver exemplary legal services that are personalized, effective and efficient.