Revocable Trust Accounts
- What is a revocable trust account?
A revocable trust account is a deposit account that indicates an intention that the funds will belong to one or more named beneficiaries upon the death of the owner (grantor/settlor). There are both informal and formal revocable trusts.
- What is an informal revocable trust (POD Account)?
Informal revocable trusts, often called "payable-on-death" (POD), "Totten trust," or "in trust for" (ITF) accounts are created when the account owner signs an agreement-usually part of the bank's signature card - stating that the funds are payable to one or more beneficiaries upon the owner's death.
Note: In the Q&A's below, informal revocable trust accounts are referenced as POD accounts.
- How are POD accounts insured?
POD accounts are insured up to $100,000 per owner for each beneficiary if all of the following requirements are met:
- The account title must include commonly accepted terms such as "payable-on-death", "in trust for," or "as trustee for" to indicate the existence of a trust relationship. These terms may be abbreviated (e.g., "POD," "ITF" or "ATF").
- The beneficiaries must be identified by name in the deposit account records of the insured bank. If the beneficiaries of an account are listed on the bank's account signature card, the requirements would be satisfied.
- The beneficiaries must be "qualifying."
- Who are considered qualifying beneficiaries?
Qualifying beneficiaries are the owner's parent, brother, sister, spouse, child, or grandchild. "Child" includes a biological child, adopted child, and stepchild of the owner. "Grandchild" includes a biological child, adopted child, and stepchild of any of the owner's children. "Parent" includes a biological parent, adoptive parents, and stepparents of the owner. "Brother" includes a full brother, half brother, brother through adoption, and stepbrother. "Sister" includes a full sister, half sister, sister through adoption, and stepsister. Note: Spouse only means a person of the opposite sex who is a husband or wife, as defined under the federal Defense of Marriage Act (1 U.S.C. § 7).
| Example - POD Accounts with One Owner |
Account Title |
Account Balance |
Amount Insured |
Amount Uninsured |
John Smith POD to son |
$100,000 |
$100,000 |
$0 |
Explanation:
This trust account is insured up to $100,000 since there is one qualifying beneficiary who will receive the deposit when the owner dies.
- Can a POD account have more than $100,000 in insurance coverage?
If a POD account has more than one owner (e.g., husband and wife) or is held for multiple beneficiaries, the insured balance of the account can exceed $100,000. The FDIC will assume that the owners' shares are equal unless the deposit account records state otherwise. Similarly, if there are multiple beneficiaries, the FDIC will assume the beneficiaries' interests are equal unless otherwise stated in the deposit account records.
| Example - POD Accounts with Multiple Owners and Beneficiaries |
Account Title |
Account Balance |
Amount Insured |
Amount Uninsured |
Husband and Wife POD 3 Children |
$600,000 |
$600,000 |
$0 |
Husband POD Wife |
100,000 |
100,000 |
0 |
Wife POD Husband |
100,000 |
100,000 |
0 |
Husband POD Brother and Father |
200,000 |
200,000 |
0 |
Husband and Wife POD Grandchild |
300,000 |
200,000 |
100,000 |
Total |
$1,300,000 |
$1,200,000 |
$100,000 |
Explanation:
All but one account is fully insured. Although all the beneficiaries named on each account are qualifying beneficiaries to the husband and wife, the account naming the one grandchild is only insured up to $200,000 because each owner is only entitled to $100,000 insurance coverage for each qualifying beneficiary.
- What is the insurance coverage for a POD account where the beneficiary is not the parent, sibling, spouse, child, or grandchild of the owner?
If a beneficiary of a POD account is not the parent, sibling, spouse, child, or grandchild of the owner, the funds attributable to the nonqualifying beneficiary are insured as the owner's single account funds. For example, if A establishes a POD account for the benefit of his friend (a nonqualifying beneficiary), all of the funds in the account are added to any other single account funds owned by A and the sum is insured to a maximum of $100,000.
When some beneficiaries qualify for separate insurance coverage but others do not, the funds are first divided between the co-owners (if there is more than one owner), and then again divided between the beneficiaries for each co-owner. Funds attributable to the nonqualifying beneficiary (ies) are then added to any other single account funds of the owner (s). For example, assume that B establishes a testamentary account in trust for (ITF) her daughter and nephew. Deposit insurance coverage is calculated by first allocating one-half of the funds to the daughter and one-half of the funds to the nephew. The funds allocated to the daughter (a qualifying beneficiary) are then insured separately from B's single accounts or joint accounts. However, the funds allocated to the nephew (a nonqualifying beneficiary) are added to any other single account funds owned by B and the sum is insured up to a maximum of $100,000.
- Does deposit insurance coverage decrease upon the death of one of the co-owners of a POD account?
Each co-owner of a POD is entitled to insurance coverage for each beneficiary only during the co-owner's lifetime. Upon the death of any one of the co-owners, insurance coverage decreases. However, the FDIC will insure the surviving owner's accounts as if the deceased owner was still alive for six months. During this "grace period," the insurance coverage of the deposit owner's accounts will not change unless the accounts are restructured by those authorized to do so. The FDIC applies the grace period only if its application would increase, rather than decrease, deposit insurance coverage. When both co-owners of a POD account die, the funds in the account are insured as the single account funds of the beneficiary.
- How does the death of a beneficiary of a POD account (informal revocable trust) affect insurance coverage?
There is no grace period if a beneficiary (or all beneficiaries) of a POD account passes away. Insurance coverage for the funds in the account would immediately be reduced. For example: A mother has deposited $200,000 in a POD account at an insured bank with her children named as the beneficiaries (the children have equal beneficiary interests) in the account records of the bank. While the owner and all beneficiaries are alive, the account is insured up to $200,000. Upon the death of one beneficiary, the mother's deposit insurance coverage in the POD account is immediately reduced to $100,000 and $100,000 is uninsured. There is no grace period to allow the owner to restructure the account.
- What is the deposit insurance coverage of a POD account if any of the requirements are not met?
f any one of the POD requirements is not met, the account would not be insured under the revocable trust category. The account, or the portion of the account that does not qualify, would be added to the owner's other single accounts, if any, at the same insured bank and insured up to $100,000. If a POD account has more than one owner, the FDIC would insure each owner's share as his or her single account. If some beneficiaries named on a POD account do not meet the relationship requirements and all other requirements are met, the interests of the qualifying beneficiaries would be insured under the revocable trust category. The interests of the nonqualifying beneficiaries would be added to the owner's other single accounts, if any, at the same bank and insured up to $100,000.
- Are POD accounts supported by a written trust agreement?
POD accounts are informal and generally do not have a separate trust agreement, other than the bank's signature card. However, if an insured bank should fail, the owner of a POD account may be required to provide proof of the owner's relationship to the beneficiaries. It is important to recognize that a POD cannot name a formal trust agreement as beneficiary, (i.e. John Smith POD The Smith Family Trust) and still be covered under the revocable trust category. Naming a trust causes the funds to be insured as the single account category funds of the owner(s).
- What is a formal revocable trust (Living or Family Trust Account)?
Formal revocable trusts - known as "living" or "family" trusts - are written trusts created for estate planning purposes. The owner (also known as a trustor, grantor or settlor) controls the funds in the trust during his or her lifetime and reserves the right to revoke the trust.
- How are funds deposited pursuant to a revocable living trust document insured?
Funds deposited pursuant to a revocable living trust may be insured up to $100,000 for each qualifying beneficiary if the revocable living trust document and the deposit account records satisfy the following requirements:
- The trust must provide that the funds will belong to the named beneficiary upon the grantor's death.
- The account title must disclose the existence of the trust.
- The named beneficiary (ies) must be qualifying (see question "Who are qualifying beneficiaries).
- What happens if a revocable trust fails to satisfy any of the above requirements?
If the revocable living trust fails to satisfy any of the above requirements, funds deposited pursuant to the revocable living trust will be insured as the single account funds of the owner. If the trust is jointly owned, the funds would be split between the owners, but still insured as their single account funds.
- What is the difference between a successor trustee and a beneficiary?
A trustee is an administrator appointed by the trust owner to execute the terms of the trust. A beneficiary is an individual who will be entitled to the trust assets upon the death of the trust owner. A beneficiary may also be a trustee. Please note that for the purpose of calculating deposit insurance coverage only, the trustees, co-trustees or successor trustees are not relevant.
- What happens to deposit insurance coverage when one of the joint grantors of a revocable living trust dies?
As always, we must look to the provisions of the trust before we can determine coverage. In general, if an owner of a revocable living trust dies, deposit insurance coverage will be reduced. Take the example of a revocable trust account with two owners -- a husband and wife -- that name the couple's three living children as equal beneficiaries. When both owners are alive, this account would be insured up to $600,000, since each owner insured up to $100,000 for each qualifying beneficiary. When one owner dies, the provisions of the trust state that the funds are divided between two trusts: an irrevocable trust and a revocable trust. For details on the insurance coverage of an irrevocable trust, see the next section. The revocable trust will be insured based on specific provisions of the trust as discussed in an earlier question. (Note: The FDIC insures a deceased person's accounts as if they were still alive for another six months. During this grace period, the insurance coverage of the owner's accounts will not change unless the accounts are restructured by those authorized to do so. Also, the FDIC will not apply this grace period if it would result in less coverage).
- How does the death of a beneficiary of a living trust (formal revocable trust) affect the insurance coverage?
Like informal revocable trusts, the six-month grace period does not apply to the death of a beneficiary named in a formal revocable trust account. Unlike informal revocable trusts, the terms of the formal revocable trust may provide for a successor beneficiary or some other redistribution of the trust funds. Depending on these terms, the insurance coverage may or may not change. For more information, contact the FDIC using one of the resources listed under the For More Information from the FDIC section of the "Your Insured Deposits" brochure.
- When opening a living trust account, should the account title include the names of the account owners only or should it also include the names of the trustees?
In accordance with FDIC regulations, the account title at the bank must indicate that the account is held pursuant to a formal trust. This rule can be met by using the terms "living trust," "family trust," "revocable trust", "trust" in the account title. As an example, an account titled Charles King Revocable Trust would meet this requirement. It is not necessary that the owner's name be identified in the title -- for example, the account could be titled the King Family Trust . For deposit insurance purposes, there is no requirement that the deposit account records of the depository institution indicate the names of the beneficiaries of the living trust and their beneficiary interest in the trust. This information, however, must be contained in the formal revocable trust in order to determine the amount of deposit insurance coverage. Also, it is not necessary for deposit insurance purposes to include the names of the trustees in the account title since the trustees do not affect the amount of insurance coverage.
- Living trust example with one owner and three beneficiaries
A father has a living trust leaving all trust assets equally to his three children. This trust's account would be insured up to $300,000 since there are three qualifying beneficiaries who would become owners of the trust assets when the owner dies. Unless the trust states otherwise, the FDIC will assume that the beneficiaries have an equal interest in the living trust account.
- What is the deposit insurance coverage for a living trust that has more than one owner?
If a living trust has more than one owner, coverage would be up to $100,000 per qualifying beneficiary for each owner, provided the beneficiary would be entitled to receive the trust assets when the last owner dies. For example: A husband and wife are co-owners of a living trust. The trust states that upon the death of one spouse the funds will pass to the surviving spouse, and upon the death of the last owner the funds will pass to their three children equally. This trust's deposit account would be insured up to $600,000, since each owner names three qualifying beneficiaries.
- How is a formal revocable trust insured if a beneficiary is not the owner's spouse, child, grandchild, parent or sibling?
The trust interest of a non-qualifying beneficiary is insured as the owner's single account funds and would be added to any other single account funds the owner may have at the same bank, and the total would be insured up to $100,000. For example: A living trust states that the trust assets will belong equally to the owner's husband and nephew upon her death. If the trust's account has a balance of $200,000, her husband's share -- $100,000 -- would be insured as her revocable trust funds and her nephew's share -- $100,000 -- would be insured as her single account funds. If, for example, the owner already had a single account for $20,000, the nephew's interest ($100,000) would be added to her other single account funds and the total would be insured for $100,000, leaving $20,000 uninsured.
- How is a beneficiary's life estate interest insured?
Living trusts often give a beneficiary the right to receive income from the trust or to use trust assets during the beneficiary's lifetime (known as a life estate interest). When the beneficiary with the life estate interests dies, the remaining assets pass to other beneficiaries. Unless otherwise indicated in the trust, the FDIC will assume that a beneficiary with a life estate interest owns an equal share of the trust with the other beneficiaries. For example: A husband creates a living trust giving his wife a life estate interest in the trust with the remaining assets going to their two children equally upon his wife's death. Deposits for this trust would be insured up to $300,000 ($100,000 for each qualifying beneficiary - the wife and two children).
- Are living trust accounts and "payable on death" accounts separately insured?
The $100,000 per-beneficiary insurance limit applies to ALL revocable trust accounts - payable on death (POD) and living trust accounts - that an owner has at the same bank. For example: A father has a POD account with a balance of $200,000 naming his son and daughter as beneficiaries and he has a living trust account with a balance of $150,000 naming the same beneficiaries. The funds in both accounts would be added together and $175,000 would be attributable to each child. Therefore the two accounts together would be insured for $200,000 ($100,000 per qualifying beneficiary) and uninsured for $150,000.
- When an insured bank fails, what evidence will the FDIC require to determine the amount of insurance coverage for a living trust account?
If an insured bank fails, the FDIC would look to the account title to determine whether an account is held by a living trust. The FDIC would then ask the owner to provide a copy of the trust document, which the FDIC would review to identify the beneficiaries and determine their interests in the account. The owner may be required to complete an affidavit attesting to the relationship of the beneficiaries to the trust owner.
- What information is required to determine deposit insurance coverage for revocable living trust accounts?
To determine deposit insurance coverage for a revocable living trust account, the FDIC would need to obtain specific information about the trust, including the following:
- Who are the owners of the trust? The owners are commonly referenced in the formal revocable trust document as trustors/grantors or settlors. Please note that for the purpose of calculating deposit insurance coverage only, the trustees, co-trustees or successor trustees are not relevant. They are administrators and have no impact on deposit insurance coverage.
- Who are the beneficiaries of the trust? The beneficiaries must be entitled to their interest in the trust when the last owner dies. Deposit insurance coverage Deposit insurance coverage is based on the interests of the beneficiaries who meet this requirement at the time the bank fails.
- Do the beneficiaries meet the kinship requirement - that is, are they qualifying? To qualify for revocable trust coverage, a trust beneficiary must be the owner's spouse, child, grandchild, parent or sibling. Stepparents and stepchildren, adopted children and similar relationships also qualify. However, ex-spouses, in-laws, cousins, nieces and nephews, friends, charitable organizations do not qualify. Also, if the trust itself is named as the beneficiary, the qualifying beneficiary requirement is not met.
- What dollar amount or percentage interest has the owner allocated to each beneficiary? The amount of coverage is based on the actual interests of each qualifying beneficiary. Unless the trust states otherwise, the FDIC will assume that the beneficiaries have an equal interest in the living trust account. If the interests or the dollar amount that each beneficiary receives is unequal, it will affect the amount of deposit insurance coverage.
- Are all the beneficiaries and owners alive? This is important because deposit insurance can change if there is a death of an owner or a beneficiary. The insurance coverage is immediately reduced upon the death a beneficiary. Upon the death of a grantor, the FDIC provides a grace period up to six months during which the account is insured as if the owner were still alive.
- Does the account title at the bank indicate that the account is held by a trust? This requirement can easily be met by using the words "living trust," or "family trust," or similar terms in the account title.
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