Recent bank failures have increased concerns about the availability of Federal Deposit Insurance Corporation (FDIC) coverage for bank accounts held in trust. The rules regarding insurance of trust accounts are complex, and new rules will take effect on April 1, 2024.

Currently, the extent of FDIC coverage depends on several factors, including whether the trust is revocable or irrevocable, the number of beneficiaries and whether they’re primary or contingent, and the relative amounts the beneficiaries will receive.

The new rules will simplify the calculation. Each grantor’s trust deposits at an insured institution will be insured up to $250,000 x the number of primary beneficiaries (other than the grantors), up to a maximum of five beneficiaries.

Suppose, for example, that Harry and Sally have a $5 million joint trust account at an FDIC-insured bank, naming their five children as primary beneficiaries and their eight grandchildren as contingent beneficiaries. Under the new rules, each grantor will enjoy up to $1.25 million in coverage ($250,000 x five primary beneficiaries) for a total of $2.5 million, leaving $2.5 million uninsured. Harry and Sally could insure the total amount by splitting it between two trust accounts at different institutions.

Note that a full discussion of the current and new rules is beyond the scope of this article, but it’s important for trust depositors to review their insurance coverage under both sets of rules to determine their level of protection. After the new rules take effect, coverage may increase, decrease or stay the same, depending on the circumstances.

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