FDIC/NCUA Insurance for Revocable Living Trust Accounts at Banks and Credit Unions
Created after the 1929 market crash, the Federal Deposit Insurance Corporation (FDIC) insures bank deposit accounts like checking, savings, and CDs in case of bank failure. The basic insurance amount is currently $250,000 per customer account. If a bank becomes insolvent, the FDIC steps in and pays on insured accounts up to the account limit set forth above.
What FDIC insurance does cover:
- All types of savings, checking, money market and CD deposits.
- Cashiers checks and certified checks.
What FDIC insurance does not cover:
- Investment accounts like stock, bond or mutual funds.
- Annuities
- Life insurance
- Safe deposit boxes.
- Credit unions. BUT NOTE: Credit unions have separate but similar insurance coverage though the National Credit Union Association and thus have NCUA insurance with the same limits as FDIC insured accounts.
- Robberies and thefts. Banks and credit unions have separate “blanket bond” insurance to cover things like robbery, embezzlement, fire or flood.
People who have large amounts of cash in bank or credit union accounts sometimes become concerned if the amount they have on deposit is greater than the $250,000 insurance limit. Utilizing a living trust-based estate plan can substantially increase FDIC or NCUA insurance coverage.
When a revocable living trust is named as either the owner or the pay on death (POD) beneficiary of a checking, savings or CD account at an FDIC or NCUA insured institution, then calculating the amount of insurance coverage is determined by the number of beneficiaries the trust creator(s) named in the trust. If the trust creator(s) named 5 or fewer beneficiaries, then the insurance coverage is determined by multiplying $250,000 times the number of beneficiaries named. So, for example, if Bill and Mary Jones have a joint revocable living trust that names their 3 children as beneficiaries, any FDIC or NCUA insured account that is either owned by that trust or names that trust as the POD beneficiary has 3 x $250,000= $750,000 of FDIC or NCUA coverage.
If the trust names 6 or more beneficiaries, then the insurance amount might be calculated differently. If all the beneficiaries are entitled to an equal share, then the same calculation applies: Multiply the number of beneficiaries by $250,000. However, if the shares are not equal, the insurance is the greater of either (1) the sum each beneficiary’s interest up to $250,000 for each beneficiary, or (2) at least $1,250,000.
Utilizing a revocable living trust for estate planning purposes not only avoids probate but can also have the advantage of maximizing your bank account or credit union account protection in case of financial institution insolvency.
