Expanding FDIC Coverage Through Trusts- Video Transcription

Hello. My name is Kyle Krasa and I’m an estate planning attorney in Pacific Grove, California. I’m certified by the state bar of California, as a legal specialist in estate planning trust and probate law. The purpose of this video is to give you general information about an important aspect of estate planning law so that you can be prepared when working with your own attorney. Watching this video does not establish an attorney client relationship. The law is far more complex and nuanced than can be explained in a few short minutes. As a result, before acting on any of the information contained in this video, you should consult a competent attorney who is licensed to practice law in your community. With that understanding, I hope you enjoy my video and you find it informative. Thank you.

It’s common knowledge that the FDIC, the Federal Deposit Insurance Corporation, covers certain deposits at certain financial institutions up to $250,000. So that means that if there’s a run on the bank up to $250,000 per depositor is insured and backed up by the federal government. Now, this is $250,000 per bank per FDIC member bank. So if you had $300,000 in one bank and it was just one account owned by one individual with no beneficiaries on it, then only 250,000 of that $300,000 would be covered. The other $50,000 would be vulnerable. So in that situation, the owner might decide to take at least $50,000 and put it in a different FDIC member bank. It’s important to understand that the FDIC coverage only applies to certain deposits, checking accounts, savings, accounts, money markets, CDs. It does not apply to stocks and bonds and other kinds of investments. And it’s also important to make sure that the financial institution where you’re holding your accounts is an FDIC member to make sure that it’s covered there.

The reality though, is that if there are multiple owners and multiple beneficiaries, that $250,000 per depositor per bank can actually be greatly expanded. And there are different ways to do that. Jointly held accounts, payment on death accounts work, but also accounts held through a revocable living trust also can expand FDIC coverage depending on how the trust is structured. So we’re going to focus today’s video on how revocable living trust can expand the FDIC insurance coverage.

So let’s say that there’s a trust and the trust has two owners. Let’s say they’re two spouses. And those two spouses are the owners of a trust or the creators of the trust, the trust makers. And let’s say that after those owners pass away, the trust establishes three beneficiaries to receive the assets upon the owner’s death. So we have three beneficiaries. Now, it doesn’t matter what the relationship of these beneficiaries is to the owners. So they could be the three children of the owners. They could also be grandchildren. It could be other relatives. It could be friends. It doesn’t matter. But let’s just assume they’ve got a trust. We’ve got two owners, two spouses, and these two owners have their trust says upon the death of both of them, we have three different beneficiaries. So how do we calculate the FDIC coverage in this situation?

Well, let’s start with a spouse number one. Spouse number one gets $250,000 worth of coverage multiplied by how many beneficiaries there are. So times one, two and three. So spouse one actually gets $750,000 worth of coverage. And guess what? The same thing happens here for spouse number two, also $250,000 times one, two and three, $750,000 worth of coverage there.
The total covered for this trust account is $1,500,000.

So as you can see, just by holding title to the checking accounts, and savings accounts, and money market accounts, and CDs, whatever they are, the FDIC insured deposits, just by holding those deposits in a trust that’s structured this way with two owners and three beneficiaries, instead of having $250,000 worth of coverage at each FDIC member bank, we have one and a half million dollars worth of coverage. So instead of these owners having to open up a $250,000 accounts at six different banks, they can hold it all in one bank.

Now, when the trust has five or fewer beneficiaries, then it does not matter what the percentages are for these beneficiaries. So in other words, certainly if each beneficiary is entitled to one third, we can still multiply the $250,000 for each owner by each beneficiary and get $750,000 per owner. And then that times the two owners to get our one and a half million dollars total. Also if they’re five or fewer beneficiaries, if these beneficiaries do not have an equal share. So if this person gets 60% when both owners die, this person gets 30% and this last person gets 10%. If there are five or fewer beneficiaries, we don’t care that these beneficiaries are unequal. We can still multiply the $250,000 per beneficiary. You are not going to kind of adjust for the for the unequal interests here.

If the trust had six or more beneficiaries though. So six or more, let’s add three more beneficiaries here, one, two and three. Then we do care if there are unequal, if there are unequal percentages, then the math in multiplying, the 250 is going to factor in those unequal percentages. And the calculation is a little more complex than the scope of this video, but it will affect the coverage a little bit.

So five or fewer. It doesn’t matter whether the beneficiaries have an equal interest or not. Six or more – it does matter if the beneficiaries do not have an equal interest. At any rate though, at any rate, the trust will greatly expand the FDIC insurance coverage.

Now, one thing that’s important to understand is that a trust won’t always expand the coverage. It depends on how the trust is written. So for example, let’s say the trust has one owner, one Trustmaker. And upon that owner’s death, there’s only one beneficiary. In that case, the owner multiplies the 250 by the number of beneficiaries, which has one and there’s only $250,000 in coverage there. So it depends on how the trust is structured. What we want to see is at a minimum, multiple beneficiaries. So in other words, if the trust had three beneficiaries, but only one owner, then we get 250 times three and we’d have $750,000 worth of coverage, right.

So what we’re looking for is either multiple owners or multiple beneficiaries. That’s how we can expand the coverage. If there’s only one owner and one beneficiary, we’re not going to be able to expand the FDIC coverage. So that’s just important to note there, to keep in mind.

So now how do you figure out whether, you know, how much coverage you have in your particular situation? And rather than ask your banker – the bankers, you know, will try to be helpful and some have knowledge in this area – but it is very nuanced and you do have to understand the details of estate plans and so on. So really the best source to do that is a website. And it’s called EDIE: EDIE.FDIC.gov. So it’s a government website. And on this website, there are two very important tools.

The first tool is a frequently asked questions section where it really gets into great detail and really explains the trust issue – five or fewer beneficiary, six or more beneficiaries, and even talks about if, if the trust provides a life estate and then a remainder interest to other beneficiaries, how that can actually increase coverage, where you can include the life estate beneficiary, plus the remainder beneficiaries in that situation, but also covers other things like payment on death accounts and joint accounts. Those are other ways to expand the FDIC coverage.

The second tool that’s available on this website is a tool called, “EDIE the Estimator,” and “EDIE” stands for the “Electronic Deposit Insurance Estimator.” And it is an online calculator where you can input your information and describe how it’s titled. Is it in a living trust and who are the beneficiaries and who are the owners, or is it a payment death account, or is it a joint account you put in all that information and then you click a button and it’ll immediately tell you how much of a deposit is insured and how much is vulnerable. So that’s a very valuable tool.

So I hope this video gave you a good idea of how, particularly how a living trust can expand the FDIC insurance coverage. And if you go on the EDIE website and take a look at the frequently asked questions or play around with EDIE the Estimator calculator, you can see how other types of ownerships and beneficiary designations can expand the FDIC coverage.

I hope you enjoyed watching my video. As I mentioned at the beginning, this is not intended to be a substitute for proper legal counsel. Before acting on any of the information contained in this video, you should consult a competent attorney who is licensed to practice law in your community. Thank you.