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4000 - Advisory Opinions


Question regarding deposit insurance coverage of an account in the name of a revocable trust established by a husband and wife.

FDIC--04--07

October 20, 2004

Christopher L. Hencke, Counsel

You have requested information regarding the insurance coverage of an account in the name of a revocable trust established by you and your wife. The balance of the account is $900,000.

The insurance coverage of revocable trust accounts is governed by 12 C.F.R. § 330.10 (copy enclosed). Under that section of the FDIC's regulations, "[f]unds owned by an individual and deposited into an account with respect to which the owner evidences an intention that upon his or her death the funds shall belong to one or more qualifying beneficiaries shall be insured in the amount of up to $100,000 in the aggregate as to each such named qualifying beneficiary, separately from any other accounts of the owner or the beneficiaries." 12 C.F.R. § 330.10(a). In the case of a revocable trust established by two owners (such as this case), "the respective interests of each owner (which shall be deemed equal unless otherwise stated in the insured depository institution's deposit account records) held for the benefit of each qualifying beneficiary shall be separately insured up to $100,000." 12 C.F.R. § 330.10(d). These sections mean that the funds owned by each owner are insured separately up to $100,000 as to each "qualifying beneficiary." The term, "qualifying beneficiaries" means the owner's spouse, children, grandchildren, parents and siblings. See 12 C.F.R. § 330.10(a).

If any of the beneficiaries are not "qualifying beneficiaries," then "the funds corresponding to that beneficiary shall be treated as individually owned (single ownership) accounts of such owner(s), aggregated with any other single ownership accounts of such owner(s), and insured up to $100,000 per owner." 12 C.F.R. § 330.10(c).

The FDIC's rules regarding the insurance coverage of revocable trust accounts (quoted above) may be summarized as follows:

1.  The funds of each owner are insured separately.

2.  For each owner, the funds for each "qualifying beneficiary" are insured up to $100,000.

3.  For each owner, the funds for all non-qualifying beneficiaries are added together and insured up to $100,000.

As previously mentioned, the balance of the joint revocable trust account in this case is $900,000. Under the rules above, your interest in the amount of $450,000 is insured separately from your wife's interest in the amount of $450,000. Assuming the accuracy of your description of your trust agreement, your interest (i.e., the husband's interest) is insured as follows:

Qualifying Beneficiaries Percentage Amount
Son 35% (of $450,000) $157,500.00
Daughter 35% $157,500.00
Husband's Sister 2.678% $ 12,051.00
Husband's Brother 2.678% $ 12,051.00
Husband's Brother 2.678% $ 12,051.00
Non-qualifying Beneficiaries Percentage Amount
Everyone else 21.966% $ 98,847.00

Under the FDIC's rules, the funds contributed by each grantor for each qualifying beneficiary are insured up to $100,000. This means that the funds contributed by the husband for the son ($157,500) are insured in the amount of $100,000 and uninsured in the amount of $57,500. Likewise, the funds contributed by the husband for the daughter ($157,500) are insured in the amount of $100,000 and uninsured in the amount of $57,500. The funds contributed by the husband for his three siblings are fully insured because the amount contributed for each sibling is less than $100,000.

The funds contributed by each grantor for non-qualifying beneficiaries are added together and insured up to $100,000 (in aggregation with any single ownership accounts maintained by the grantor at the same depository institution). This means that the funds contributed by the husband for non-qualifying beneficiaries ($98,847.00) are fully insured (assuming that the husband does not own any single ownership accounts).

In summary, the husband's funds in the amount of $450,000 are insured in the total amount of $335,000 and uninsured in the total amount of $115,000.

The calculation of the insurance coverage of your wife's funds is different because the list of qualifying beneficiaries is different. Your wife's funds in the amount of $450,000 are insured as follows:

Qualifying Beneficiaries Percentage Amount
Son 35% (of $450,000) $157,500.00
Daughter 35% $157,500.00
Wife's Brother 2.678% $ 12,051.00
Wife's Mother 2.678% $ 12,051.00
Non-qualifying Beneficiaries Percentage Amount
Everyone else 24.644% $110,898.00

Under the FDIC's rules, the funds contributed by your wife for the son ($157,000) are insured in the amount of $100,000 and uninsured in the amount of $57,500. Likewise, the funds contributed by the wife for the daughter ($157,500) are insured in the amount of $100,000 and uninsured in the amount of $57,500. The funds contributed by the wife for her brother and mother are fully insured because the amount contributed for each of these two beneficiaries is less than $100,000.

The funds contributed by the wife for non-qualifying beneficiaries ($110,898.00) are insured in the amount of $100,000 and uninsured in the amount of $10,898.00 (assuming that the wife does not own any single ownership accounts).

In summary, the wife's funds in the amount of $450,000 are insured in the total amount of $324,102 and uninsured in the total amount of $125,898.

Thus, the joint revocable trust account with a balance of $900,000 would be insured in the total amount of $659,102 and uninsured in the total amount of $240,898. Again, this calculation is based upon the assumption that you have described your trust accurately. Upon the death of you or your wife, the insurance coverage of the account would change (subject to a six-month grace period recognized by the FDIC).

The calculation above (based on a balance of $900,000) may be less helpful than a calculation of the maximum amount that could be placed in one bank with no uninsured funds. In this case, no funds in your trust account(s) would be uninsured if the funds contributed by each grantor for either the son or the daughter are fully insured. This is true because the son and the daughter possess the largest beneficial interests. (If the largest beneficial interests are fully insured, then the smaller interests also must be fully insured.) Hence, the key is to determine a balance at which the interest of either the son or the daughter equals exactly $200,000 ($100,000 for the funds contributed by the husband and $100,000 for the funds contributed by the wife).

According to your description of your trust, the beneficial interest of the son (or the daughter) is 35%. This means that the maximum amount that could be placed at one bank with no uninsured funds is the amount represented by the following formula: .35X = $200,000 ($100,000 for the funds contributed by the husband and $100,000 for the funds contributed by the wife). This amount is $571,428.57.

Assuming a balance of $571,428.57, the son's beneficial interest would be 35% or $200,000. This amount would be fully insured because the amount contributed for the son by each grantor would not exceed $100,000. Likewise, the daughter's beneficial interest of 35% or $200,000 would be fully insured because the amount contributed for the daughter by each grantor would not exceed $100,000. Finally, assuming that neither of the grantors owns any single ownership accounts, the remaining funds in the amount of $171,428.57 would be fully insured because (1) the amount contributed by each grantor for each of his/her remaining qualifying beneficiaries would not exceed $100,000; and (2) the amount contributed by each grantor for his/her non-qualifying beneficiaries also would not exceed $100,000.

I hope that this information is useful.


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