Maximizing FDIC Coverage Through a Living Trust

In today's difficult economic environment, many are concerned about whether their bank accounts are subject to Federal Deposit Insurance Corporation ("FDIC") insurance coverage. Generally, bank accounts covered by FDIC insurance include checking, savings, certificate of deposit, and money market deposit accounts. Under recent legislation, FDIC insurance for bank accounts was increased from $100,000 to $250,000 for the interim period of October 31, 2008 through December 31, 2009.

NOTE: As of May 20, 2009, President Obama EXTENDED the time period for the increased covered to December 31, 2013.

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DETERMINING COVERAGE
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The level of FDIC coverage is determined based on account ownership at each institution. Consider the following example: Jane Doe has the following accounts at her local bank, all held in her individual name:

1. Savings Account - $125,000
2. Certificate of Deposit - $100,000
3. Money Market - $50,000
4. Negotiable Order of Withdrawal - $50,000

Thus, Jane has a total of $325,000 deposited at her bank. But, Jane's total level of FDIC insurance coverage is capped at $250,000. Therefore, $75,000 of Jane's assets are UNINSURED!

INCREASING INSURANCE COVERAGE

In order to fully insure her assets, Jane Doe could open accounts at multiple banks. But this creates a cumbersome situation for Jane in that she has to manage relationships with multiple banks and monitor multiple statements. A more efficient mechanism would be to simply re-title all or a portion of her existing accounts to an ownership form that yields greater coverage.

One technique available to maximize FDIC insurance coverage for an account owner is to own such bank account through a properly drafted revocable living trust ("Living Trust"). A Living Trust can offer expanded FDIC insurance coverage with respect to a bank account because coverage is applied on a beneficiary basis, rather than an ownership basis.

Consider the following example: Same facts as above, except this time Jane titles each asset in the name of Jane Doe Living Trust. Under the terms of Jane's trust, her two children are beneficiaries. Accounts held in the name of Jane's Living Trust are entitled to $500,000 in FDIC insurance coverage ($250,000 x 2 beneficiaries). Therefore, Jane's investments are FULLY INSURED! Note that the levels of FDIC insurance coverage for a Living Trust are calculated differently when more than 5 beneficiaries are named.

Increased FDIC insurance protection is another reason (in addition to avoidance of the adverse effects of probate and reduction of estate-tax liabilities) to own your bank accounts through a properly drafted Living Trust.

CAVEAT

It is important to note that a properly drafted Living Trust (and not simply any Living Trust) is needed to maximize FDIC insurance coverage for a bank account. Specifically, the FDIC insurance protection can be expanded based on the terms and conditions of the Living Trust, including without limitation, to cover the following situations:

• Including intended beneficiaries of the Living Trust as eligible beneficiaries for FDIC insurance purposes;
• Adding contingent beneficiaries to the Living Trust to be eligible beneficiaries for FDIC insurance purposes; and
• Treating "specific bequest / specific distribution" beneficiaries as eligible beneficiaries for FDIC insurance purposes.

It may be necessary to amend an existing Living Trust to take advantage of significantly increased FDIC insurance protection for a bank account.