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FDIC Changes Coverage Calculations for Trust Accounts
As of April 1, 2024, the Federal Deposit Insurance Corporation (FDIC) has changed the amount covered by deposit insurance for trust accounts. This coverage applies to the money deposited into an account held by a trust at an insured banking institution.
One of the goals of the FDIC was to streamline the rules relating to insurance coverage for trust accounts. Additionally, it wanted to create a straightforward calculation applicable to both revocable and irrevocable trusts.
An important change being made is the elimination of special treatment for irrevocable trust accounts. There will now be only one category to encompass all types of trusts. Additionally, the titling requirement for informal revocable trusts has been eliminated in these new rules.
Prior to this change, irrevocable trusts were governed by complicated rules to determine their coverage. An irrevocable trust with contingent interests was only covered up to $250,000 regardless of how many beneficiaries the trust had. Now not only has the irrevocable distinction been eliminated, but the distinction between contingent and non-contingent interests has been eliminated as well.
A trust account will be covered for up to $250,000 per eligible primary beneficiary. If the trust account has more than one grantor, coverage will be allotted for each grantor. The maximum amount of coverage per grantor, is $1,250,000, for 5 beneficiaries. Those with a greater number of primary beneficiaries will not receive additional coverage.
When calculating your coverage, it is important to note that an eligible beneficiary includes a living person as well as an IRS-recognized charitable organization. However, the calculation does not include any contingent beneficiaries.
Additionally, if you have an irrevocable trust account as well as a revocable trust account at the same institution, they would be combined for the purposes of calculating coverage. However, if you have trust accounts held at different banking institutions, you can take advantage of the full coverage amount at each institution.
If you have a revocable trust that may become irrevocable at some point, calculations have been simplified for these accounts as well. The springing trust rules have all been eliminated now that irrevocable and revocable trust coverage is calculated together. Coverage for a trust that would invoke the springing trust rules are now calculated the same as any other trust.
The changes made by the FDIC have eliminated many of the pitfalls in calculating coverage and simplified the process for account holders. It is important that those using trust accounts in their estate plan are aware of how much coverage they are now entitled to in light of these changes, and plan accordingly if their coverage amounts have been decreased.
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