“New FDIC Interim Rules for Revocable Trust Accounts” by Emily J. Bell

The FDIC rules regarding revocable trust accounts recently changed based on the new interim rule made effective September 26, 2008, and the passage of the Emergency Economic Stabilization Act of 2008 (“EESA”), effective October 3, 2008. The FDIC will now insure up to $250,000 per beneficiary for a revocable trust account if the account owner has $1,250,000 or less in revocable trust accounts at one FDIC-insured institution. Revocable trust accounts are those accounts that are either “payable-ondeath” (“POD”) to certain beneficiaries or established in connection with formal revocable trusts.
Prior to the effective dates of the new interim rule and EESA, the FDIC would only insure accounts up to $100,000 per “qualifying beneficiary,” which included only the account owner’s spouse, children, grandchildren, parents and siblings. This rule excluded a number of possible beneficiaries, including in-laws and friends. The interim rule, however, does not discriminate based on the relationship of the beneficiary to the account holder. Rather, any beneficiary will count in term of insurability and actual ownership interests of each beneficiary is irrelevant.
For those revocable trust account owners with more than $1,250,000 and more than five named beneficiaries, a slightly different rule applies. These owners are insured for the greater of (i) $1,250,000, or (ii) the aggregate amount of all the beneficiaries’ interests in the trusts, up to $250,000 per beneficiary. This coverage is based on the actual ownership interests of each beneficiary.
These new rules are best illustrated by the following examples:
John Client has a revocable trust account at #1 Bank with a balance of $750,000. His revocable trust agreement names three beneficiaries. Therefore, the maximum FDIC insurance coverage is $250,000 per beneficiary, or $750,000 (3 beneficiaries x $250,000). If, however, John only names two beneficiaries in his trust, then the account would be insured for $500,000.
Jane Client has a revocable trust account at #1 Bank with a balance of $1,500,000. Her revocable trust agreement provides a life estate to her husband worth $200,000, $30,000 to her sister and $2,000 to each of her five children. The total beneficial interests equal $240,000. Jane is insured for the greater of $1,250,000 or $250,000; therefore, she would be insured up to $1,250,000.
On January 1, 2010, the coverage amount decreases from $250,000 to $100,000 per beneficiary, and the maximum coverage decreases from $1,250,000 to $500,000.