The Federal Deposit Insurance Corporation (FDIC) has modified its deposit protection for some accounts effective April 1, 2024.
The basic insurance limit of $250,000 per account still applies and most account types are unaffected.
The changes affect trust accounts and effectively reduce the quantity of insurance for some trust bank accounts.
The FDIC said the changes are primarily intended to streamline coverage rules and make them easier to grasp for each bankers and customers.
The maximum insured amount for a trust is currently $1.25 million per trust owner and insured depository institution.
The general rule that a trust account receives coverage of $250,000 per beneficiary stays unchanged. A trust account with one owner (the trustee) and three beneficiaries is insured for $750,000.
However, under the brand new rule, coverage is capped at $1.25 million if the trust has greater than five beneficiaries. (That’s $250,000 for every of the primary five beneficiaries and no coverage for the extra beneficiaries.)
The old rule also divided trusts into revocable and irrevocable trusts, and every owner had a separate limit for every style of trust.
Now there’s a trust account category that features each revocable and irrevocable trusts, and a trust owner has a $1.25 million insurance limit on all trusts.
In addition, investors must be aware that certain sorts of accounts are designated by the FDIC as informal, revocable trusts and are considered trusts for the needs of applying the limit.
Types of accounts which might be considered revocable trusts include Payable on Death (POD) accounts, Transfer on Death (TOD) accounts, Totten trusts, and accounts with designations corresponding to “in trust for” or “as trustee for.”
For example, if a depositor has a proper trust account (whether revocable or irrevocable) and a separate account with a POD provision, the balances of each accounts are combined to find out whether the $1.25 million per owner insurance limit is met.
Bank account holders can use the FDIC’s Electronic Deposit Insurance Estimator to find out whether all of their deposits are insured. (EDIE) on its website.
The $1.25 million insurance limit also applies per financial institution. Individuals whose accounts at one institution exceed the limit will probably want to transfer a number of accounts to a different institution to extend their FDIC coverage.
