Affluent Americans who hold large deposits in trust accounts may need to ensure that their funds are adequately protected by government-backed insurance, following new rules implemented by the Federal Deposit Insurance Corporation (FDIC) last month. The new rule caps the amount insured in a trust account at $1.25 million, whereas previously there was no limit. Trust accounts are legal arrangements that ensure an individual’s assets are distributed to specific beneficiaries. The goal of the new rule is to make it easier for consumers and bankers to understand deposit insurance rules and for FDIC agents to determine insured accounts more quickly in the event of a bank failure. However, this change could mean that some customers may have less of their deposits insured than they initially thought, prompting the need to restructure deposits or open new accounts at other banks for full coverage.
Despite the changes, the FDIC still insures up to $250,000 per depositor and per account category at each bank. For example, if a depositor has $250,000 in an individual savings account and $50,000 in an individual checking account at the same bank, only $250,000 of the total $300,000 is insured. If the additional $50,000 is moved to another bank or placed in a different ownership category, it would be fully insured. Trust accounts previously allowed for more than $250,000 to be insured, as each beneficiary of the trust could receive $250,000 in insurance protection. However, under the new rules, only up to five beneficiaries are insured for a total of $1.25 million, regardless of the number of beneficiaries.
The merging of irrevocable and revocable trusts into one ownership category, along with inclusion of other accounts like CDs with named beneficiaries upon the owner’s death, streamlines the FDIC’s insurance coverage rules. This means that trust accounts that previously had high insurance coverage may now see a reduction in coverage. The FDIC estimated that around 27,000 trust account depositors and over 36,000 trust accounts could be affected by this change. While some irrevocable trusts may see an increase in coverage, most depositors are not expected to see a change to their coverage. To determine if your accounts exceed the new insurance limits, you can use the FDIC’s Electronic Deposit Insurance Estimator on a per-bank basis. If you find that some of your funds are now uninsured, you can work with your bank to ensure that your deposits are protected either by restructuring accounts or opening accounts at different banks.
In light of these changes, it is important for affluent Americans with large deposits to take a closer look at their accounts to ensure that their funds are adequately insured. While the new rules aim to simplify deposit insurance rules and expedite claim processing in the event of a bank failure, they may result in some customers having less insured deposits than they originally assumed. By using the FDIC’s online tool and working with their financial institutions, customers can determine the impact of the new rules on their deposits and take necessary steps to protect their funds. As financial regulations evolve, it is important for depositors to stay informed and proactive in managing their accounts to safeguard their assets.
