If you are a depositor with over $250,000 in deposits at a bank, it is crucial to ensure that all of your funds are fully insured by the federal government. The Federal Deposit Insurance Corporation (FDIC) has recently implemented new regulations regarding deposit insurance for trust accounts, effective as of April 1. While the main goal of these adjustments is to simplify the insurance coverage rules for trust accounts, they may inadvertently push some depositors above FDIC limits.
Under the FDIC regulations, each depositor is generally covered for up to $250,000 per bank in every account ownership category. If you have $250,000 or less deposited in a bank, the recent changes will not impact you. However, for trust deposits, the new rules establish a limit of $1.25 million in FDIC coverage per trust owner per insured depository institution. Within this framework, each beneficiary of the trust is entitled to a $250,000 insurance limit for up to five beneficiaries. If there are more than five beneficiaries, the FDIC coverage limit for the trust account remains capped at $1.25 million.
It is essential for depositors who exceed the $1.25 million limit under the previous system to be aware of these changes. Going beyond the coverage threshold may result in reductions for certain investments that were made prior to the regulatory adjustments. For instance, investors with certificates of deposit that exceed the coverage limit may find themselves unable to withdraw or modify their investment without incurring penalties for an early withdrawal.
One significant modification under the new FDIC regulations involves the amalgamation of two types of trusts – revocable and irrevocable – into a single category. As a consequence, depositors with $250,000 in both a revocable trust and an irrevocable trust at the same bank may face a reduction in their FDIC coverage from $500,000 to $250,000. This revision has the potential to lead to a loss of coverage for certain account holders.
The FDIC has also revised the requirements for informal revocable trusts, commonly known as payable on death accounts. Formerly, these accounts had to be identified with a specific title such as “payable on death” to qualify for trust coverage limits. However, the FDIC has eliminated this prerequisite, now only necessitating that bank records include a list of beneficiaries to be recognized as informal trusts. As Ken Tumin aptly noted, the presence of beneficiaries in the bank’s records is now sufficient, without the need for a specific title like “POD.”
It is imperative for depositors with sizable funds in trust accounts to fully comprehend the recent FDIC changes and their potential ramifications. By staying informed and proactive in managing their deposits, investors can ensure that their assets are adequately protected under the federal insurance guidelines. Failure to comply with the new regulations could result in unnecessary risks and complications, underscoring the importance of maintaining awareness and compliance with FDIC requirements.