“Are Your Bank Accounts Safe?” by attorney Victor A. Lembo (Audio)
FDIC Insurance Can Cover You with the Right Planning
Are you concerned about the safety of your bank accounts? We all want to ensure our money is protected, especially considering fluctuating markets, increased expenses, and challenging family dynamics. The Federal Deposit Insurance Corporation (“FDIC”) is an independent agency which insures deposits in the United States against bank failure. It was created in 1933 to provide public confidence and maintain stability in financial systems through specific banking practices. The FDIC constantly issues reports regarding banks to ensure compliance, and recent trends reflect a decline in problem or failed institutions.
With proper planning you can protect your assets, even if you have considerable assets. The FDIC insures bank accounts. Each individual is covered for up to $250,000 in account assets, per depositor, per insured bank, for each account category. One way to increase the amount of FDIC insurance at any one bank is to designate different ownership of the accounts at that bank. For example, if you own $300,000 in your name alone, only $250,000 is covered. If you divide the accounts so you own $150,000 and your spouse owns $150,000, the full $300,000 is covered. While this is an easy way to get greater FDIC coverage for accounts at the same financial institution, it may lead to problems if the spouse whose name is not on an account needs to access the funds in that account. In addition, you may choose to have ownership of accounts under different categories. For example, spouses may have a revocable trust, single or joint accounts, and retirement accounts. As these are various ownership categories, FDIC will allow increased coverage for various categories.
Another option is to avoid placing more than $250,000 with any one financial institution. If you and your spouse have joint ownership of an account in excess of $500,000, consider placing assets at separate banks to be fully insured. To make the process easier, you may consider the Certificate of Deposit Account Registry Service (“CDARS”), a program which divides your assets across a network of institutions to help maintain insurance coverage on funds up to $50 million. It allows depositors to work with one institution that participates in CDARS, but avoid having funds above FDIC limits.
Arguably the best alternative is to place the accounts in the name of a revocable living trust. Handled properly, the amount of FDIC insurance on bank accounts owned by a revocable living trust can be much greater. Why? Regulations were changed allowing coverage to be calculated not just on ownership, but also based on the number of “unique beneficiaries” as identified in the trust agreement. For example, if your trust names three unique beneficiaries, the account is covered up to $750,000. The trust must also meet specific criteria, such as correct titling of the trust account and entitlement of the beneficiary to take at the owner’s death. Under the right circumstances, if you and your spouse set up a joint trust, the coverage could exceed one million dollars!
The key to maximizing coverage is determined by the number of unique beneficiaries. If the revocable trust designates five or fewer beneficiaries, the owner’s trust deposits are insured up to $250,000 for each, regardless of the dollar amount or percentage allocated to each unique beneficiary. If the revocable trust designates six or more beneficiaries, then the coverage depends on whether all beneficiaries have an equal interest in the trust. If all beneficiaries are assigned equal amounts, the trust owner receives $250,000 for each unique beneficiary. If there are not equal interests, then the owner’s revocable trust deposits are insured for the greater of either the sum of each beneficiary’s actual interests up to $250,000 for each unique beneficiary, or a minimum coverage of $1,250,000.
Keep in mind that the FDIC falls under federal, not state, laws and regulations, and FDIC insurance coverage rules can become much more complicated under certain circumstances. Also, the regulations for calculating the amount of FDIC insurance coverage for an irrevocable trust are different than for a revocable living trust.
Sinclair Prosser Gasior can help ensure your assets are covered in the event of a bank failure, as well as assistance to take advantage of changes in the law regarding your estate plan. We look forward to helping you determine the best way to protect your assets and plan for your family’s future.
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