The Federal Deposit Insurance Corporation (FDIC) recently implemented important changes to the deposit insurance coverage rules for trust accounts, including payable-on-death (POD) and in-trust-for (ITF) accounts. These new rules, which went into effect on April 1, 2024, aim to simplify the coverage calculation and provide more clarity for depositors.
The key changes are:
Simplified Coverage Calculation:
The new rules combine the previous revocable and irrevocable trust categories into a single “Trust Accounts” category. This allows the same straightforward insurance calculation to be used for both revocable and irrevocable trusts.
The coverage is now based on the number of unique eligible beneficiaries named by each trust owner, up to a maximum of $1,250,000 per owner when five or more beneficiaries are named.
Elimination of Complex Rules:
The new rules eliminate several complex provisions from the previous trust account regulations, such as the “springing trust” rule and the requirement to specifically designate POD/ITF accounts in bank records. This makes it easier for depositors and banks to determine coverage.
Examples:
– Bill has a $250,000 POD account with his wife Sue as the beneficiary. Sue also has a $250,000 POD account with Bill as the beneficiary. In addition, Bill and Sue jointly have a $1,500,000 POD account with their three children as beneficiaries. Under the new rules, all three accounts, totaling $2,000,000, are fully insured because each owner is entitled to $250,000 of coverage per beneficiary.
– Lisa has a $250,000 POD account with her son John as the sole beneficiary. The maximum deposit insurance coverage for this account is $250,000, not $500,000, because the coverage is based on the number of owners (1) multiplied by the number of unique beneficiaries multiplied by $250,000.
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The FDIC has resources on their website to help depositors understand the new trust account rules, including this useful summary: Deposit Insurance At A Glance. Furthermore, owners of bank accounts can determine if all their balances are insured by using the FDIC’s Electronic Deposit Insurance Estimator (EDIE) on its website. Finally, bear in mind the $1.25 million insurance limit is per financial institution; therefore, if your account(s) exceed the limit at one institution you can consider moving one or more accounts to different institutions to increase your FDIC coverage.
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