The Federal Deposit Insurance Corporation, or FDIC, has recently implemented new requirements for deposit insurance for trust accounts. The changes are intended to simplify insurance coverage rules for trust accounts, but they may result in some depositors exceeding FDIC limits. Established by Congress following the Great Depression, the FDIC provides insurance coverage of up to $250,000 per depositor, per bank, in each account ownership category.
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 can have an insurance limit of $250,000 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. This can lead to coverage reductions for certain investments that were established before these changes took place.
Investors with certificates of deposit that exceed the coverage limit may face challenges if they wish to withdraw their funds early. They may be locked into their investment to avoid paying a penalty for early withdrawal. These changes can impact investors who hold both revocable and irrevocable trusts at the same bank, as the FDIC is now combining these two types of trusts into one category. This consolidation could result in a reduction of FDIC coverage for some investors.
The FDIC is also updating 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. Now, the FDIC only requires that bank records clearly identify beneficiaries to be considered informal trusts. This change eliminates the need for specific account titles and simplifies the process for both investors and financial institutions.
The recent changes to FDIC insurance rules for trust accounts aim to streamline coverage guidelines and provide clarity for depositors. However, these changes may result in coverage reductions for some investors and could impact certain types of investments. It is essential for depositors with substantial savings to review their accounts and ensure that they are compliant with the new FDIC requirements to avoid any potential issues in the future.