FDIC Insurance and Revocable Trust Accounts

When you open an account at a U.S. bank in the name of a revocable trust and deposit funds in a depository account (e.g. checking, savings, CD), you may not realize that the funds in this account are insured beyond what you expect. 

A revocable trust is a trust over which the grantor retains control and can be revoked, terminated or changed at any time at the discretion of the owner(s). The grantor can decide to change the terms of the trust or to dissolve it altogether. With an irrevocable trust, the grantor surrenders the right to control the trust.

This revocable trust ownership category includes both informal and formal revocable trusts:

• Informal revocable trusts – often called payable on death of the grantor, totten trust, in trust for or as trustee for accounts – are created when the account owner signs an agreement – usually part of the bank’s signature card – directing the bank to transfer the funds in the account to one or more named beneficiaries upon the owner’s death.
• Formal revocable trusts – known as living or family trusts – are written trusts created for estate planning purposes. The owner controls the deposits and other assets in the trust during his or her lifetime. The agreement establishes that the deposits are to be paid to one or more identified beneficiaries upon the owner’s death. The trust generally becomes irrevocable upon the owner’s death.

In general, the owner of a revocable trust account is insured up to $250,000 for each unique beneficiary, when all of the following requirements are met:

1. The account title at the bank must indicate that the account is held pursuant to a trust relationship. This rule can be met by using the terms payable on death (or POD), in trust for (or ITF), as trustee for (or ATF), living trust, family trust, or any similar language, including simply having the word “trust” in the account title. Account title includes information contained in the bank’s electronic deposit account records.
2. The beneficiaries must be named in either the deposit account records of the bank (for informal revocable trusts) or identified in the formal revocable trust document. For a formal trust agreement, it is acceptable for the trust to use language such as “my issue” or other commonly used legal terms to describe the designated beneficiaries, provided the specific names and number of eligible beneficiaries can be determined.
3. To qualify as an eligible beneficiary, the beneficiary must be a living person, a charity or a non-profit organization. If a charity or non-profit organization is named as beneficiary, it must qualify as such under Internal Revenue Service (IRS) regulations.

An account must meet all of the above requirements to be insured under the revocable trust ownership category. Typically, if any of the above requirements are not met, the entire amount in the account, or the portion of the account that does not qualify, is added to the owner’s other single accounts, if any, at the same bank and insured up to $250,000. If the trust has multiple co-owners, each owner's share of the non-qualifying amount would be treated as his or her single ownership account.

Insurance coverage for revocable trust accounts is calculated differently depending on the number of beneficiaries named by the owner, the beneficiaries’ interests and the amount of the deposit.

Two calculation methods are used to determine insurance coverage of revocable trust accounts: one method is used only when a revocable trust owner has five or fewer unique beneficiaries; the other method is used only when an owner has six or more unique beneficiaries.

If a trust has more than one owner, each owner’s insurance coverage is calculated separately.

When a revocable trust owner names five or fewer beneficiaries, the owner’s trust deposits are insured up to $250,000 for each unique beneficiary. 

This rule applies to the combined interests of all beneficiaries the owner has named in all formal and informal revocable trust accounts at the same bank. When there are five or fewer beneficiaries, maximum deposit insurance coverage for each trust owner is determined by multiplying $250,000 times the number of unique beneficiaries, regardless of the dollar amount or percentage allotted to each unique beneficiary.

When a revocable trust owner names six or more unique beneficiaries, and all the beneficiaries have an equal interest in the trust (i.e., every beneficiary receives the exact same amount), the insurance calculation is the same as for revocable trusts that name five or fewer beneficiaries. The trust owner receives insurance coverage up to $250,000 for each unique beneficiary.

When a revocable trust owner names six or more beneficiaries and the beneficiaries do not have equal beneficial interests (i.e., they receive different amounts), the owner’s revocable trust deposits are insured for the greater of either: (1) the sum of each beneficiary’s actual interest in the revocable trust deposits up to $250,000 for each unique beneficiary, or (2) $1,250,000.