The Federal Deposit Insurance Corporation (FDIC) recently implemented new requirements for deposit insurance for trust accounts, which may have an impact on depositors with over $250,000 in deposits. While the changes are intended to simplify insurance coverage rules for trust accounts, they may inadvertently push some depositors over FDIC limits.
Under the new rules, trust deposits are now limited to $1.25 million in FDIC coverage per trust owner per insured depository institution. Each beneficiary of the trust may have a $250,000 insurance limit for up to five beneficiaries. However, if there are more than five beneficiaries, the FDIC coverage limit for the trust account remains $1.25 million.
For depositors who exceed the $1.25 million limit under the old system, there may be coverage reductions for certain investments that were established before these changes took effect. This could lead to complications for investors with certificates of deposit that exceed the coverage limit, as they may be unable to close or change their investment without incurring penalties for early withdrawal.
The FDIC is now combining two types of trusts – revocable and irrevocable – into one category. This means that investors with $250,000 in a revocable trust and $250,000 in an irrevocable trust at the same bank may see their FDIC coverage reduced from $500,000 to $250,000. This change has the potential to cause a loss of coverage for some depositors.
The FDIC is also revising requirements for informal revocable trusts, also known as payable on death accounts. Previously, these accounts had to be titled with a specific phrase to access trust coverage limits. However, the FDIC no longer requires this specific titling, instead relying on bank records to identify beneficiaries for informal trusts. This change aims to streamline the process for depositors and banks alike.
The new FDIC requirements for trust accounts have the potential to impact depositors with over $250,000 in deposits. It is important for such depositors to be aware of these changes and to review their accounts to ensure they are compliant with the new rules. Working closely with their banks, depositors can navigate these changes and make any necessary adjustments to their trust accounts to maintain FDIC coverage.
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