The rules for trusts are even more complicated with FDIC insurance. Here are the current rules, as of September 20, 2011, from the FDIC website. I hope this helps you.
Revocable Trust Accounts
This section explains FDIC insurance coverage for revocable trust accounts, and is not intended as estate planning advice or guidance. Depositors should contact a legal or financial advisor for assistance with estate planning.
A revocable trust account is a deposit account owned by one or more people that identifies one or more beneficiaries who will receive the deposits upon the death of the owner(s). A revocable trust can be revoked, terminated or changed at any time, at the discretion of the owner(s). In this section, the term “owner” means the grantor, settlor, or trustor of the revocable trust.
When calculating deposit insurance coverage, the designation of trustees, co-trustees and successor trustees is not relevant. They are administrators and are not considered in calculating deposit insurance coverage.
This ownership category includes both informal and formal revocable trusts:
- Informal revocable trusts – often called payable on death, totten trust, in trust for or as trustee for accounts – are created when the account owner signs an agreement – usually part of the bank’s signature card – directing the bank to transfer the funds in the account to one or more named beneficiaries upon the owner’s death
- Formal revocable trusts – known as living or family trusts – are written trusts created for estate planning purposes. The owner controls the deposits and other assets in the trust during his or her lifetime. The agreement establishes that the deposits are to be paid to one or more identified beneficiaries upon the owner’s death. The trust generally becomes irrevocable upon the owner’s death
In general, the owner of a revocable trust account is insured up to $250,000 for each unique beneficiary, if all of the following requirements are met:
- The account title at the bank must indicatethat the account is held pursuant to a trust relationship. This rule can be met by using the terms payable on death (or POD), in trust for (or ITF), as trustee for (or ATF), living trust, family trust, or any similar language, including simply having the word “trust” in the account title. Account title includes information contained in the bank’s electronic deposit account records.
- The beneficiaries must be named in either the deposit account records of the bank (for informal revocable trusts) or identified in the formal revocable trust document. For a formal trust agreement, it is acceptable for the trust to use language such as “my issue” or other commonly used legal terms to describe the designated beneficiaries, provided the specific names and number of eligible beneficiaries can be determined.
- To qualify as an eligible beneficiary, the beneficiary must be a living person, a charity or a non-profit organization. If a charity or non-profit organization is named as beneficiary, it must qualify as such under Internal Revenue Service (IRS) regulations.
An account must meet all of the above requirements to be insured under the revocable trust ownership category. Typically, if any of the above requirements are not met, the entire amount in the account, or the portion of the account that does not qualify, is added to the owner’s other single accounts, if any, at the same bank and insured up to $250,000. If the trust has multiple co-owners, each owner’s share of the non-qualifying amount would be treated as his or her single ownership account.
Insurance coverage for revocable trust accounts is calculated differently depending on the number of beneficiaries named by the owner, the beneficiaries’ interests and the amount of the deposit.
Two calculation methods are used to determine insurance coverage of revocable trust accounts: one method is used only when a revocable trust owner has five or fewer unique beneficiaries; the other method is used only when an owner has six or more unique beneficiaries.
If a trust has more than one owner, each owner’s insurance coverage is calculated separately.
When a revocable trust owner names five or fewer beneficiaries, the owner’s trust deposits are insured up to $250,000 for each unique beneficiary.
This rule applies to the combined interests of all beneficiaries the owner has named in all formal and informal revocable trust accounts at the same bank. When there are five or fewer beneficiaries, maximum deposit insurance coverage for each trust owner is determined by multiplying $250,000 times the number of unique beneficiaries, regardless of the dollar amount or percentage allotted to each unique beneficiary.
John Jones has three revocable trust accounts at the same insured bank. For each of these accounts, John has named the same two unique beneficiaries. Maximum insurance coverage for these accounts is calculated as $250,000 times two beneficiaries, which equals $500,000. John Jones is fully insured.
When a revocable trust owner names five or fewer beneficiaries, the owner’s share of each trust account is added together and the owner receives up to $250,000 in insurance coverage for each unique beneficiary.
- Paul’s share: $350,000 (50% of Account 1)
- Lisa’s share: $800,000 (50% of Account 1 and 100% of Account 2)
Because Paul named two unique beneficiaries, his maximum insurance coverage is $500,000 ($250,000 times two beneficiaries). Since his share of account 1, $350,000, is less than $500,000, he is fully insured.
Because Lisa has named three unique beneficiaries between accounts 1 and 2, her maximum insurance coverage is $750,000 ($250,000 times three beneficiaries). Since her share of both accounts, $800,000, exceeds $750,000, she is uninsured for $50,000.
Equal Beneficial Interests
When a revocable trust owner names six or more unique beneficiaries, and all the beneficiaries have an equal interest in the trust (i.e., every beneficiary receives the exact same amount), the insurance calculation is the same as for revocable trusts that name five or fewer beneficiaries. The trust owner receives insurance coverage up to $250,000 for each unique beneficiary. As shown below, with one owner and six beneficiaries, where all the beneficiaries have an equal beneficial interest, the owner’s maximum insurance coverage is up to $1,500,000.
Unequal Beneficial Interests
When a revocable trust owner names six or more beneficiaries and the beneficiaries do not have equal beneficial interests (i.e., they receive different amounts), the owner’s revocable trust deposits are insured for the greater of either: (1) the sum of each beneficiary’s actual interest in the revocable trust deposits up to $250,000 for each unique beneficiary, or (2) $1,250,000.
Determining insurance coverage can be complex when a revocable trust has six or more unique beneficiaries whose interests are unequal. In such cases, the FDIC recommends that depositors or their financial or legal advisors contact the FDIC for assistance.
An owner who identifies a beneficiary as having a life estate interest in a formal revocable trust is entitled to insurance coverage up to $250,000 for that beneficiary. A life estate beneficiary is a beneficiary who has the right to receive income from the trust or to use trust deposits assets during the beneficiary’s lifetime, where other beneficiaries receive the remaining trust deposits assets after the life estate beneficiary dies. For example: A husband is the sole owner of a living trust that gives his wife a life estate interest in the trust deposits, with the remainder going to their two children upon his wife’s death. Maximum insurance coverage for this account is calculated as follows: $250,000 times three different beneficiaries equals $750,000.