Q: We have an irrevocable trust with a bank that has been taken over by the FDIC. The trust is worth approximately $935,000, with approximately $600,000 in a money market account due to the bank having to liquidate some bank funds. There are four beneficiaries to this trust. Are each of us insured to the maximum of $250,000, or would it only be a total of $250,000 on the entire money market account?
A: Trusts represent a tricky area of FDIC insurance, because in some cases the trust is viewed as one single owner, and thus entitled to a total of $250,000 in FDIC insurance, whereas in other cases the individual beneficiaries are considered the owners and are each entitled to the $250,000 insurance maximum.
In all cases, the money in question must be in eligible deposit products, such as savings accounts, money market accounts or CDs. Assuming that is the case, there are three important conditions for making insurance coverage limits extend to the individual beneficiaries, rather being than limited to $250,000 for the overall trust:
- The account must be recorded as a trust on the bank's records.
- The beneficiaries must be specifically identified on the bank's records or in the trust document.
- The beneficiaries cannot be contingent. If the beneficiaries have to satisfy some condition in the trust to be eligible for the money, they do not count as separate account "owners" for the purposes of calculating FDIC insurance.
One final note: if the beneficiaries are deemed to be separate owners of the trust account and thus each eligible for $250,000 in FDIC insurance, each beneficiary's share of the trust will count toward that beneficiary's maximum insurance at the bank. So, if a beneficiary also has an individual account at the same bank, it is important to make sure the value of that account plus the beneficiary's share of the trust does not exceed $250,000.
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