FDIC Insurance & Revocable Living Trusts

“How a living trust multiplies your FDIC insurance and is an easy way to protect your life savings”

Over the last week we’ve been watching the downfall of Silicon Valley Bank, waiting and wondering how everything will play out.

Yes, there is sadness for all those whose hard-earned savings has been put in danger, but there’s also a question running around in the back of most of our heads: Is my life savings in danger, too? 

When depositing money in a bank many people blindly assume that money is safe. This is in large part due to the FDIC insurance which provides some protection against the kinds of losses that sent the U.S. into a painful, multi-year depression in 1929. As we’ve all been reminded this week, the FDIC does add protection from bank failures, but it’s not unlimited. This government protection is limited to $250,000 per account owner, per insured bank, per account type or category. 

So, what does this mean for the average person who has worked hard, planned well, and put some money away? 

If you have more than $250,000 in any one type of account at any one bank, per account owner, you have money that’s not covered by FDIC insurance. 

By using a revocable living trust, you multiply your FDIC protection. Homeowners and those who have at least a few hundred thousand dollars have increasingly been using revocable living trusts as the foundation of their estate plans. The reasons for the use of a trust are varied, but anyone who owns real estate and wants to make things as easy as possible for their loved ones when they die or become incapacitated should have been advised by a good estate planning attorney to use a living trust to protect their loved ones and pass their assets when their time comes. 

If you’ve followed this advice, there is good news for you in the latest banking crisis. You have additional FDIC insurance as a result of your living trust than you would have if you had used a Last Will and Testament as the foundation of your estate plan. 

With a living trust, the FDIC provides $250,000 in insurance, not just for every account owner but also for every primary beneficiary of your trust. For a husband and wife who have two children they’ve named as trust beneficiaries when they die, this means instead of having the $500,000 in insurance that they’d have with an account owned jointly by the two of them, they have $1 million in insurance ($250,000 times two for each of the two trust creators, plus $250,000 times two for each of the two primary beneficiaries). 

In order to be covered by this multiplied FDIC protection, the account must be owned by your trust. 

As a trusted advisor to our clients, we don’t recommend you keep a large amount of money in a bank. However, you should check with your financial advisor to see what’s best for you. If you don’t have an independent, fiduciary advisor it’s time to make that change as well. With the stormy economic climate, getting competent, holistic financial and tax guidance are vital to ensuring that your estate plan works the way you intended. Clients and friends of Hammond Law Group receive a complimentary financial review, call our office to request your meeting with one of our fiduciary advisors today.  Check out these other quick reads…

The FDIC and bank account protection

How to fund your trust to protect your bank accounts