How to Maximize FDIC Insurance Coverage for Revocable and Irrevocable Trust Accounts

FDIC insurance is like a safety net for your bank accounts. It covers up to $250,000 per depositor, per bank, for each account category. That means if your bank goes under, you won’t lose all your cash.

If you’re planning on leaving a legacy for your family, FDIC insurance is a great way to ensure your money is protected. As estate planning lawyers, a common strategy we see is splitting assets across several accounts, like trusts, to take full advantage of this benefit.

Revocable and irrevocable trusts are insured based on the number of beneficiaries you have. A properly structured trust could potentially protect more than a million dollars, and seamlessly pass it on to your beneficiaries when you’re gone.

As an estate planning law firm serving high-net-worth clients in Colorado, we understand the importance of safeguarding your wealth for the future. In this article, we’ll guide you through the ins and outs of FDIC insurance for revocable and irrevocable trust accounts so you can make informed decisions about your estate planning strategy.

What is FDIC Insurance?

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government that protects depositors against the loss of their insured deposits if an FDIC-insured bank or savings association fails.

FDIC insurance is backed by the full faith and credit of the United States government, making it one of the safest ways to protect your money.

The standard FDIC insurance amount is $250,000 per depositor, per insured bank, for each account ownership category. This means that if you have multiple accounts at the same bank, such as a checking account, savings account, and CD, they are all insured up to a combined total of $250,000.

Coverage Limits for Revocable and Irrevocable Trust Accounts

As of April 1, 2024, the FDIC will simplify and harmonize the deposit insurance coverage rules for both revocable and irrevocable trust accounts. This change is designed to make the rules more straightforward and easier to understand for depositors and bankers alike.

Under the new rules, a deposit owner’s trust deposits will be insured up to $250,000 for each trust beneficiary, with a maximum of five beneficiaries recognized for deposit insurance purposes. This means that the maximum deposit insurance coverage for trust accounts will be $1,250,000 per owner, per insured depository institution.

This new rule applies to both revocable and irrevocable trusts, regardless of any contingencies or the allocation of funds among the beneficiaries. By treating both types of trusts the same way, the FDIC aims to reduce confusion and streamline the process of determining deposit insurance coverage.

Calculating FDIC Insurance Coverage

To calculate the FDIC insurance coverage for your revocable or irrevocable trust accounts, follow these steps:

• Determine the number of eligible beneficiaries named in the trust agreement (up to a maximum of five).
• Multiply the number of eligible beneficiaries by $250,000.
• The result is the maximum deposit insurance coverage for the trust account.

For example, let’s say John has a revocable trust account with three beneficiaries: his two daughters and his son. Under the new rules, John’s trust account would be insured for up to $750,000 (3 beneficiaries x $250,000).

​​If you’re unsure about your specific coverage, the FDIC’s EDIE calculator is a user-friendly tool that can help you determine your deposit insurance coverage in just a few clicks. Simply input your account information, and the calculator will provide you with a detailed report of your coverage.

Preparing for New FDIC Insurance Rules for Trust Accounts

Depositors still have time to review their trust accounts and make any necessary adjustments to ensure they maintain the desired level of deposit insurance coverage.

During this time, depositors should:

1. Review their current trust account structures and beneficiary designations.
2. Consult with their estate planning attorneys and financial advisors to determine if any changes are needed to optimize their deposit insurance coverage under the new rules.
3. Communicate with their banks to ensure that all bank accounts align with the trust assets while at the same time taking advantage of the FDIC insurance.

As the April 1, 2024, effective date approaches, take proactive steps to review trust accounts and ensure they are well-positioned to benefit from the new rules. By working closely with our estate planning attorneys, you can navigate this transition with confidence and secure the maximum deposit insurance coverage for your trust accounts.

The Importance of Getting Professional Advice

At Hammond Law Group, we help our clients develop comprehensive estate plans that protect and pass on their true wealth and legacy. Our team stays up-to-date on the latest changes to the law, including FDIC insurance rules, and can help you structure your trust accounts to maximize coverage while minimizing risk.

We understand that every client’s situation is unique, which is why we take a personalized approach to estate planning. Our attorneys will work closely with you to understand your goals, assess your current banking strategy, and develop customized solutions that align with your needs and preferences.

Estate planning is not a one-time event but rather an ongoing process that requires regular review and updating. As your trusted legal partner, we’ll be there to provide ongoing support and guidance as your life circumstances change, ensuring that your estate plan remains up-to-date and effective.

Protect Your Wealth with Confidence With Hammond Law Group

If you’re looking for guidance on how to maximize FDIC insurance in your financial planning, we invite you to contact our office to schedule a consultation. Our estate planning attorneys are ready to help you protect your assets, minimize risk, and achieve greater peace of mind, knowing that your wealth is secure.

Don’t leave your financial future to chance – take action today and discover how Hammond Law Group can help you build a lasting legacy.