FDIC Insurance on Trust Accounts

A common question recently addressed to The Savings Investor concerns maintaining over $100,000 insurance at any one bank. While there have only been a handful of bank failures since 2002, the ongoing mortgage lending industry debacle has made this an important consideration. The easy answer is never maintain more than a penny over $100,000 in order to keep funds fully FDIC-insured. However, with the use of joint accounts or trust accounts the FDIC-insurance can be spread to various account owners or beneficiaries. Information regarding FDIC-insurance is available from the FDIC’s informative web site.

Revocable Trust Account Information from FDIC.gov

These are deposits held in either payable-on-death (POD) accounts or living trust accounts.

Payable-on-death (POD) accounts – also known as testamentary or Totten Trust accounts – are the most common form of revocable trust deposits. These informal revocable trusts are created when the account owner signs an agreement – usually part of the bank’s signature card – stating that the deposits will be payable to one or more named beneficiaries upon the owner’s death.

Living trusts – or family trusts – are formal revocable trusts created for estate planning purposes. The owner of a living trust controls the deposits in the trust during his or her lifetime.

Note: Determining coverage for living trust accounts can be complicated and requires more detailed information about the FDIC’s insurance rules than can be provided in this publication. If you have a living trust account, contact the FDIC at 1-877-275-3342 for more information.

Deposit insurance coverage for revocable trust accounts is based on each owner’s trust relationship with each qualifying beneficiary. While the trust owner is the insured party, coverage is provided for the interests of each beneficiary in the account. The FDIC insures the interests of each beneficiary up to $100,000 for each owner if all of the following requirements are met:

The beneficiary is the owner’s spouse, child, grandchild, parent, or sibling. Adopted and stepchildren, grandchildren, parents, and siblings also qualify. In-laws, grandparents, great-grandchildren, cousins, nieces and nephews, friends, organizations (including charities), and trusts do not qualify. The account title must indicate the existence of the trust relationship by including a term such as payable on death, in trust for, trust, living trust, family trust, or an acronym such as POD or ITF. For POD accounts, each beneficiary must be identified by name in the bank’s account records. If any of these requirements are not met, the entire amount in the account, or any portion of the account that does not qualify, would be added to the owner’s other single accounts, if any, at the same bank and insured up to $100,000. If the revocable trust account has more than one owner, the FDIC would insure each owner’s share as his or her single account.

Note: The following example applies to POD accounts only. Coverage may be different for some living trusts.

Example: Bill has a $100,000 POD account with his wife Sue as beneficiary. Sue has a $100,000 POD account with Bill as beneficiary. In addition, Bill and Sue jointly have a $600,000 POD account with their three children as equal beneficiaries.

These three accounts totaling $800,000 are fully insured because each owner is entitled to $100,000 of coverage for the interests of each qualifying beneficiary in the accounts. Bill has $400,000 of insurance coverage ($100,000 for the interests of each qualifying beneficiary – his wife in the first account and his three children in the third account). Sue also has $400,000 of insurance coverage ($100,000 for the interests of each qualifying beneficiary – her husband in the second account and her three children in the third account).

When calculating coverage for revocable trust accounts, be careful to avoid these common mistakes:

Do not assume that coverage is calculated as $100,000 times the number of people –owner(s) and beneficiary(ies) – named on a trust account. Coverage is provided for the interest of each qualifying beneficiary named by each owner. Additional coverage is not provided to the owners for naming themselves as owners. For example, a father’s POD account naming two sons as equal beneficiaries is insured to $200,000 only — $100,000 for the interest of each qualifying beneficiary.

Do not assume that the FDIC insures POD and living trust accounts separately. In applying the $100,000 per-beneficiary insurance limit, the FDIC combines an owner’s POD accounts with the living trust accounts that name the same beneficiaries at the same bank.

For More Information from the FDIC
Call toll-free at:
1-877-ASK-FDIC (1-877-275-3342)
from 8 am until 8 pm (Eastern Time)
Monday through Friday

Hearing Impaired Line:
1-800-925-4618