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New York & North Carolina

Understanding FDIC Changes for Trust Accounts

Parisi, Coan & Saccocio, PLLC

The Federal Deposit Insurance Corporation (FDIC) recently implemented new rules affecting trust accounts, including revocable and irrevocable trusts. These changes have implications for individuals seeking to safeguard their assets and ensure their beneficiaries are protected in the event of bank failure. Here are the specifics of the new rules, their rationale, and how they may influence trust account holders.

The Changes:

The most significant change introduced by the FDIC is capping insurance coverage for trust accounts at $1.25 million. Previously, there was no limit on the amount insured for trust accounts, allowing individuals to insure large sums through this mechanism. However, under the new rules, the maximum insured amount for trust accounts, regardless of the number of beneficiaries, is now capped at $1.25 million.

Impact on Trust Beneficiaries:

Under the previous regulations, each trust beneficiary could receive up to $250,000 in insurance protection. Consequently, trusts with numerous beneficiaries could potentially be insured for substantial amounts. However, with the new rules, only up to five beneficiaries are eligible for the $250,000 insurance amount, limiting the maximum insured sum to $1.25 million per trust account.

Combining Revocable and Irrevocable Trusts:

Another significant change brought about by the new FDIC rules is merging revocable and irrevocable trusts into a single ownership category: trust accounts. This means that both types of trusts and other deposit accounts that designate beneficiaries upon the owner's death, such as certificates of deposit (CDs), are subject to the same insurance limits.

Implications for Trust Holders:

The new rules may necessitate a reassessment of deposit insurance coverage for individuals with existing trust accounts, especially those with multiple beneficiaries. Trusts previously insured for amounts exceeding $1.25 million may now be underinsured. Trust holders should review their accounts and explore options to mitigate any potential gaps in coverage.

Finding Solutions:

Fortunately, the FDIC provides resources to help individuals determine if they are affected by the new rules. The Electronic Deposit Insurance Estimator allows trust account holders to assess their coverage on a per-bank basis and identify any excess amounts that may exceed the new limits. Individuals are encouraged to engage with their financial institutions to explore alternative account structures or spread their funds across multiple banks to ensure adequate insurance coverage if adjustments are needed.

The new FDIC rules regarding trust accounts signify a significant shift in deposit insurance regulations aimed at enhancing clarity and simplifying the insurance process for consumers and bankers alike. While these changes may require adjustments for some trust holders, proactive review and communication with financial institutions can help ensure that assets remain adequately protected under the revised guidelines. By staying informed and taking appropriate action, individuals can confidently navigate these changes and safeguard their future financial interests.

If you need assistance understanding how these changes affect you, please don't hesitate to contact us online or call us at (914) 228 - 7448 for personalized support.