One More Reason for Funding Your Trust

We hope you read this headline and realize you have no need of another reason to “fund” your trust because it is already done. If so, congratulations! You are making the most of the protections provided and the reasons for having a trust. If you have not completed the funding process, then this may be the prompt you need to move forward: Funding your trust allows you to maximize FDIC insurance coverage. Exciting stuff, right? While we recognize this concept may have limited excitement value, it does have very real financial value.

Many are aware the FDIC insures bank deposits up to $250,000 per individual; however, insurance is available and deposits can be structured to maximize protections within multiple ownership categories. It is also notable that insurance is provided on a per-institution basis, so a compelling deposit structure can be repeated at several institutions.

In addition to individual account protections, each co-owner of a joint account is insured up to $250,000 for the aggregate amount of the joint accounts held at a given bank. Thus, Husband and Wife can each have individual accounts holding $250,000, and a joint account holding $500,000, at the same bank and all of these deposits will be fully protected.

By “funding” their revocable living trust (“RLT”) with a bank account (creating/changing the account’s title into the name of the trust), Husband and Wife can hold on deposit an additional $2.5M of insured funds at one institution. When an RLT names five or fewer beneficiaries, the deposit is fully insured up to $250,000 per beneficiary, meaning both Husband and Wife can open an account in the name of their respective RLT with up to $1.250M.

In cases where there are six or more RLT beneficiaries, the protections vary depending on whether beneficiaries have equal interests. If equal interests are held, the deposited funds are insured up to a maximum of $250,000 x the number of beneficiaries. Where there are unequal interests in the account funds, a dollar interest must be allocated to each beneficiary and the funds are insured up to the greater of $250,000 per each beneficiary’s share of the funds or $1.25M in the aggregate.

By properly using multiple ownership categories (individual, joint, and an RLT with four kids named as beneficiaries), Husband and Wife can hold $3.5M of FDIC insured funds at a single bank. If they open the same types of accounts at Bank B and Bank C, it can add up to $10.5M in FDIC insured deposits.

There are several other useful ownership categories with FDIC insurance coverage, including irrevocable trust accounts, trust accounts with a bank trustee, certain retirement accounts, and organization/business accounts. If you would like help funding your trust and taking advantage of FDIC insurance for your deposited funds, call Kling Law Offices for a free consultation. We believe everyone’s trust should be fully funded, and this strategy is one more way to give you the peace of mind you deserve.