Trusts Can Enhance FDIC Protection over Savings

Are you concerned about the safety of your bank accounts? If so, your fears are justified: Earlier this year the Federal Deposit Insurance Corp. (“FDIC”), which backs bank deposits, reported the biggest jump in "problem institutions" it has seen since the savings and loan crisis of the late 1980s. The FDIC identified 76 banks in trouble, a 52% increase from just one year ago. In fact, some experts predict as many as 200 bank failures could occur in the next few years.

But there’s also good news: With proper planning you can protect your assets – even if you have considerable assets.

The FDIC insures bank accounts. Each individual is covered for up to $100,000 in account assets. The limit is based on account ownership – if you own three different accounts totaling $200,000, at any one institution, only $100,000 is covered. One way to increase the amount of FDIC insurance at any one bank is to designate different ownership of the accounts at that bank. Say you own the $200,000 in your name alone; in that case, only $100,000 is covered. If you divide the accounts so you own $100,000 and your spouse owns $100,000, the full $200,000 is covered. (While this is an easy way to get greater FDIC coverage for accounts at the same financial institution, it can lead to problems when the spouse whose name is not on an account needs to access the funds in that account.)

Another option is to avoid placing more than $100,000 with any one financial institution. If you and your spouse place $500,000 in assets equally across five different banks, all the funds will be fully insured. To make the process easier, ask us about the Certificate of Deposit Account Registry Service (CDARS), a program which divides your assets across a network of institutions that can help you maintain insurance coverage on funds up to $50 million.

Arguably the best alternative is to place the accounts in the name of a revocable living trust. Handled properly, the amount of FDIC insurance on bank accounts owned by a revocable living trust can then be much greater. Why? In 2004, regulations were changed allowing coverage to be calculated not just on ownership but also based on the number of “qualifying beneficiaries” identified in the trust agreement. If your trust names three qualifying beneficiaries, the account is covered up to $300,000. Under the right circumstances, if you and your spouse set up a joint trust, that coverage could expand to $600,000!   For a free report on FDIC insurance and Trusts, contact our office, or visit our website at www.mortonelderlaw.com.