FDIC Coverage and Revocable Trusts

Katarinna McBride (Partner, Beerman Swerdlove, Chicago, IL) has recently published her article entitled Estate Planning for FDIC Coverage, 96 Ill. B.J. 590 (2008).

Here are some excerpts from her article:

FDIC coverage for revocable trust accounts is provided to the owner of the revocable trust, but it is calculated based on the number of beneficiaries of the trust and sometimes on how the trust interests are allocated to those beneficiaries. Pursuant to the interim regulations, effective on October 3, 2008 (expiring on December 31, 2009), the owner of the revocable trust account has FDIC coverage of up to $250,000 per beneficiary, provided there are five or fewer beneficiaries.

Revocable trust account owners with six or more beneficiaries are covered for the greater of either (1) each beneficiary’s actual interest in the revocable trust deposits, with no beneficiary’s interest to be insured for more than $250,000, or (2) $1,250,000. Additional FDIC coverage is not supplied to the trust owner (the settlor). * * *

While the interim regulations are helpful, many complex questions remain. What if the revocable trust has an open class of beneficiaries, such as “children” or “grandchildren”? Do account owners have to adjust the deposit record every time a beneficiary is added to the class to obtain FDIC coverage? Also, is the amount of FDIC coverage determined at the creation of the account, at the death of the owner, or at the failure of the institution?  * * *

FDIC coverage for revocable trust accounts is greater than ever anticipated. Hold the exuberance because the FDIC coverage for revocable trust accounts is scheduled to return to $100,000 per beneficiary on January 1, 2010.