Change in Revocable Trust Rules–September, 2008

Many senior citizens consider creating revocable trusts to protect their assets on behalf of their children and grandchildren.  Some changes that took place last September (2008) affect the rules governing such trusts.  The FDIC’s Board of Directors adopted these changes. They attempted to simplify the rules for determining the coverage available.

Revocable trust accounts are known as living trust accounts, sometimes called payable-on-death accounts. The FDIC (Federal Deposit Insurance Corporation) said,The interim rules, which are effective immediately, eliminate the concept of qualifying beneficiaries, so that coverage is based on the naming of virtually any beneficiary.”

Simply put, when a revocable trust names beneficiaries, and when banking accounts are opened in the name of the trust, FDIC insurance coverage is based on the number of beneficiaries named in the trust. The insurance limit is still $100,000 per named beneficiary. But this is what has changed: if more than five beneficiaries are named in the trust and if the bank account balance is greater than $500,000, the coverage is the greater of either $500,000 or the sum of all the named beneficiaries’ proportional interest in the trusts, again with limits of $100,000 per beneficiary.

“We believe the interim rule will not only result in faster deposit insurance determinations after bank closings, but will help improve public confidence in the banking system,” said FDIC Chairman Sheila C. Bair. “We strongly encourage owners of revocable trust accounts to make certain that the names of their beneficiaries are included in the bank’s records.”

The FDIC web site carries this disclaimer:

“Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation’s banking system. The FDIC insures deposits at the nation’s 8,451 banks and savings associations and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars – insured financial institutions fund its operations.”  Please see the FDIC site for further information.