The Federal Deposit Insurance Corporation (FDIC) insures bank accounts in the event of a bank failure. The amount of insurance has been increased to $250,000 by legislation enacted on Oct. 3, 2008. If you have more than the FDIC limit at a bank that fails, you could lose all or part of the amount that is not covered by the FDIC insurance.
FDIC Insurance for Living Trusts
For each trust owner, living trust accounts are insured up to $250,000 per beneficiary, including individuals, charities and non-profit organizations. The maximum coverage per bank for each trust owner is $1,250,000. If there are two trust owners, such as husband and wife, the coverage can be up to $2,500,000 per bank.
Examples of how FDIC Insurance Is Calculated
If the trust has more than one owner (also called a trustor), FDIC coverage is $250,000 per qualifying beneficiary for each owner. For example, if a husband and wife are the trustors, and the trust will be distributed to their three children after both of them have died, the trust accounts at a single bank will be insured up to $750,000 per trustor, or a total of $1,500,000 for that bank. If there is only one trustor and two beneficiaries, the coverage will be $500,000. If there is only one trustor and the beneficiaries are the trustor's child, and two charities, the coverage will be $750,000. If there are two trustors and only one beneficiary, the coverage is $500,000.
What About Qualifying Beneficiaries?
The concept of qualifying beneficiaries, who were defined as descendants of the trustors, is no longer used by FDIC.
Warning about Multiple Accounts
The FDIC limits are per bank, not per account. If a single trust owner has several accounts at the same bank totaling $500,000, and the trust has no qualifying beneficiaries, only $250,000 of assets will be FDIC insured. However, in addition to having FDIC insurance for a trust account, a depositor also could be covered for joint tenancy accounts and IRA accounts.