A trust is a fiduciary arrangement allowing a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. FDIC Insurance covers trust accounts, but there are differences in rules between personal accounts and trust accounts. In 2024, the FDIC will change its coverage rules for revocable and irrevocable trusts, which will be put into effect on April 1. Read on to find out how this may affect your trust accounts.
FDIC Coverage for Trust Accounts: Rule Overview
The FDIC adopted new deposit insurance rules for trust accounts to make it easier to understand for people on both sides of the banker's desk. It simplifies insurance coverage for trust accounts by reducing the number of rules, eliminating complexities, and using the same straightforward calculation for both revocable and irrevocable trusts. Below are the main points of the new rule:
- Both irrevocable and revocable trust accounts will now be in a single category called Trust Accounts, including formal and informal revocable and irrevocable trusts.
- Each trust owner will be insured up to $250,000 per eligible primary beneficiary for a maximum of five beneficiaries totaling $1,250,000 in FDIC insurance coverage. If there are two trust co-owners coverage is doubled. If this co-owned trust has four beneficiaries, the insurance limit will be $2,000,000. These examples may not reflect accurate coverage for your trust accounts.
- Primary beneficiaries are defined as living persons or IRS-recognized charities or nonprofit organizations entitled to part of the trust funds when the trust owner has passed away.
- When a trust identifies another trust (not a person) as a beneficiary, coverage is determined by looking through the future recipient trust to identify eligible beneficiaries of that trust account. If an informal revocable trust is payable upon death to a formal trust, the rules will treat the account as if it's in the name of that recipient's formal trust.
- In cases where one trust owner has both revocable and irrevocable trust accounts at the same bank, the combined balance of trust accounts is used to determine FDIC coverage.
More complicated account structures may need more research to calculate accurate coverage, such as two people having a co-owned trust account and one person also having a separate trust account under their name only. Learn more about FDIC coverage for trusts on the FDIC's trust accounts page.
FDIC Coverage for Trust Accounts: Rule Overview
Some rules in place before April 1, 2024, were eliminated under this new rule, including:
- The so-called Springing Trust rule (a revocable trust becomes irrevocable upon the death of the revocable trust owner).
- The current revocable trust rule for six or more beneficiaries with complex trust agreements will no longer be considered. This means that under the new rule, calculating insurance will be much easier, even with a complex trust with six or more beneficiaries.
- The requirement that bank records must specifically show that the account is a Pay on Death (POD) or In Trust For (ITF) because each bank may code these accounts in different ways. However, beneficiaries of informal trusts still have to be identified in bank records.
- Contingent and non-contingent trust interests will no longer be considered when calculating FDIC coverage.
- Grantor-retained interest and trust interest will no longer be considered when calculating FDIC coverage.
If you have questions about your specific trust and the coverage limits you have, reach out to the FDIC directly through their Information and Support Center.
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