FDIC Insurance Coverage

In today's difficult economic times, many individuals are concerned about whether their bank accounts are subject to Federal Deposit Insurance Corporation (FDIC) insurance coverage. Generally, bank accounts covered by FDIC insurance include checking, savings, certificate of deposit and money market deposit accounts. Under recent legislation, FDIC insurance for bank accounts was increased from $100,000 to $250,000 for the interim period from October 3, 2008 through December 31, 2013.

One technique available to maximize FDIC insurance coverage for a bank account is to own such bank account through a properly drafted revocable living trust (Living Trust). A Living Trust can offer expanded FDIC insurance coverage with respect to a bank account because such coverage is applied on a beneficiary basis, rather than on an ownership basis. Suppose you have a bank account with $750,000. If it is owned by you, individually, the bank account would only be subject to $250,000 of FDIC insurance coverage. On the other hand, if it is owned by a properly drafted Living Trust with three eligible beneficiaries, the bank account would then be subject to $750,000 of FDIC insurance coverage. Thus, increased FDIC insurance protection is another reason (in addition to avoidance of the adverse effects of probate and reduction of estate-tax liabilities) to own your bank accounts through a properly drafted Living Trust.

It is important to note that a properly drafted Living Trust (and not simply any Living Trust) is needed to maximize FDIC insurance coverage for a bank account. Specifically, FDIC insurance protection can be expanded based on the terms and conditions of the Living Trust, including without limitation, to cover the following situations:

including intended beneficiaries of the Living Trust as eligible beneficiaries for FDIC insurance purposes;adding contingent beneficiaries to the Living Trust to be eligible beneficiaries for FDIC insurance purposes; andtreating "specific bequest/specific distribution" beneficiaries as eligible beneficiaries for FDIC insurance purposes.

It may be necessary to amend an existing Living Trust to take advantage of significantly increased FDIC insurance coverage for a bank account.