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How much coverage does FDIC insurance provide for me and two beneficiaries?

Question:

How much coverage does FDIC insurance provide for me and two beneficiaries?

Answer:

If this is your personal account and those are simply the intended beneficiaries in your will, no additional FDIC insurance would extend to those beneficiaries. However, if you have set up a trust, depending on the circumstances, that trust may be eligible for coverage beyond the limit for a personal account.

FDIC insurance coverage for a trust depends very much on the specific terms of the trust. There are too many variables to cover in this article, so you should go through the details carefully with your bank representative. However, this article can give you an overview of the issues to raise.

FDIC insurance basics

FDIC insurance covers up to $250,000 per depositor, per institution. So, for example, you can get more than $250,000 in coverage if you spread your accounts out over multiple banks such that no one account exceeds $250,000.

This coverage pertains to participating FDIC institutions, which you can look up on the FDIC web site. Keep in mind that even if a bank does participate in the FDIC program, not all its financial products will necessarily be covered. FDIC insurance applies to deposit products such as savings accounts, CDs, and checking accounts.

Multiple accounts and owners

The insurance coverage picture gets more complicated if you have multiple accounts, or if an account has multiple owners.

For example, if you have a checking account and a savings account at the same bank, the total value of both counts toward your FDIC insurance limit. If the combined total of the two accounts exceeds $250,000, that excess amount would not be covered.

However, the limit is increased if an account has multiple owners. The simplest example of this is a married couple with a joint account. They are each entitled to $250,000 worth of coverage, so one joint account could be insured up to $500,000 assuming neither member of the couple has additional accounts at that bank.

This leads to a key question for your situation: are the trust beneficiaries considered additional account owners for FDIC insurance purposes? This depends very much on the specific terms of the trust.

Trust circumstances affect FDIC coverage

These two trust characteristics should go a long way in determining FDIC insurance coverage:

  1. Is the trust revocable?
  2. Are the beneficiaries' interests certain or contingent on meeting specified conditions?

As a rule of thumb, the more certain the beneficiaries' interests in a trust are, the more likely it is that each one's share in the trust will be entitled to up to $250,000 worth of FDIC insurance protection.

To resolve this issue for your situation, sit down with your banker and go over the terms of the trust, including whether it is revocable or irrevocable, and whether the beneficiaries' interests are contingent. Be sure to also note whether you have additional accounts at the bank. Based on that information, your banker should be able to walk through how FDIC coverage applies to you.

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