Inactive Financial Institution Letters
FDIC Insurance Coverage of Living Trust Accounts
On January 13, 2004, the FDIC adopted new rules for insurance coverage of living trust
accounts. The new rules, which are effective on April 1, 2004, are summarized below.
What is a living trust?
A living trust (or family trust) is a formal revocable trust, usually set up by an attorney, in
which the owner (also known as a grantor or settlor) specifies who will receive the trust assets
when the owner dies. The owner keeps control of the trust assets during his or her lifetime and
can change the trust at any time.
How are living trust
accounts insured under the new FDIC rule?
The owner of a living trust account would be insured up to $100,000 per beneficiary if all of
the following requirements are met:
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. Example: 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
The beneficiary must be the owner's spouse, child, grandchild, parent or
sibling. Stepparents and stepchildren, adopted children and similar
relationships also qualify. In-laws, cousins, nieces and nephews, friends, and
charitable organizations do not qualify.
The beneficiary must become entitled to his or her interest in the trust when
the owner dies -- coverage would be based on the beneficiaries who meet
this requirement at the time the bank fails. Example: A living trust names an
owner's three children as beneficiaries but states that each beneficiary's share will
pass to the beneficiary's children if the beneficiary dies before the owner. Assuming
all three children are alive at the time the bank fails, only the children -- not the
grandchildren -- would be beneficiaries for insurance purposes. (That's because the
grandchildren are not entitled to any trust assets while their parent is alive.)
Coverage up to $300,000 ($100,000 per beneficiary) would be available on the trust's
- The account title at the bank must indicate that the account is held by a living
trust. This rule can be met by using the terms "living trust" or "family
trust" in the account title.
How does the new rule differ from the old rule?
Previously, many living trusts did not qualify for per-beneficiary coverage because they
contained conditions that prevented a qualifying beneficiary from actually receiving his or her
share of the trust assets when the owner died. Under the new rule, the FDIC will ignore these
conditions for insurance purposes. In addition, the former rule required banks to keep the names
of the trust beneficiaries in the bank's account records. Under the new rule, a bank only needs
to indicate in the account title that the account is held by a living trust. Note: The rule for
payable on death - or POD -- accounts has not changed: the names of the beneficiaries of a POD
account still must be identified in the bank's records.
What if a living trust 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. 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.
What 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 ownership
funds and would be added to any other single ownership funds the owner may have at the same
bank, and the total would be insured up to $100,000. 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 ownership funds. If, for example, the owner already had a single ownership account for
$20,000, the nephew's interest ($100,000) would be added to her other single ownership 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.
Example: A husband creates a living trust giving his wife a life estate interest in the
trust assets with the remaining assets going to their two children equally upon his wife's
death. Deposits for this trust could 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. Example:
A father has a POD account naming his son and daughter as beneficiaries and he has a living
trust account naming the same beneficiaries. The funds in both accounts would be added together
and the total insured up to $200,000 ($100,000 per qualifying beneficiary).
How can I get more information about insurance coverage of living trust accounts?
- Call toll-free at 1-877-ASK-FDIC (1-877-275-3342) or 1-800-925-4618 (TTD)
- E-mail using the FDIC Customer Assistance Form at www2.fdic.gov/starsmail/index
- Mail questions to: FDIC-DSC, 550 17th Street, NW, Washington, DC 20429-9990