When you visit a savings institution in the United States, you’ll often see a “Member FDIC” seal on the door. The Federal Deposit Insurance Corporation (FDIC) was established in 1933 as a response to the Great Depression’s bank runs. The FDIC provides each person with up to $250,000 of insurance for funds in that bank in case of bank failure. However, applying this limit to trusts has been complicated until recently, as trust beneficiaries’ names had to appear in the bank’s records, and insurance wasn’t available for beneficiaries with removable or conditional interests.
The FDIC has recently changed its regulations, allowing trusts to qualify for $250,000 of insurance for each “qualified” beneficiary, such as the trust creator, their spouse, and children. For instance, if you set up a revocable living trust with you, your spouse, and three children as beneficiaries, your trust’s account at an FDIC-member bank would be insured up to $1,250,000. Note that non-qualified beneficiaries like domestic partners or friends wouldn’t be considered for FDIC purposes, but the trust account wouldn’t qualify for less insurance than an individual would.
This is another reason to consider using a revocable living trust to hold your assets since the maximum limit on an individual account would be $250,000 without the trust. Though FDIC insurance might not seem important until a bank defaults, it can be the difference between being inconvenienced and being wiped out. According to FDIC statistics, there have been FDIC-covered American savings institution failures every year since 1934, with the highest number being 534 in 1989, and at least two dozen failures since 2000.
It’s still wise to diversify banking assets, even if the account is fully covered by FDIC insurance, as access to funds may be suspended, and no interest would be payable between default and the payout of FDIC insurance. The McGee Law Firm can customize a revocable living trust to suit your needs, allowing you to benefit from expanded FDIC insurance.
Compliments of the McGee Law Firm, Attorney Brandon McGee
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