Monday, December 1, 2008

FDIC (and other) Federal Insurance Coverage For Bank Deposit Accounts

If your experience has been like mine, you have received inquiries recently about "how safe" deposit accounts are.  The FDIC rules for banks, the NCUA rules for Credit Unions and the FSLIC rules for Federal Savings and Loans, are essentially identical. 

Generally, a depositor is covered up to $100,000 per institution for regular deposits and an additional $250,000 for IRA's, Keoghs, TSA's and self-directed 401(k) accounts.  Joint accounts are covered up to $100,000 for each joint account holder.  Co-owners must have signed the signature card, must be individuals, and must have equal rights to withdraw funds from the account.  If account-holders have more than one account at a bank, they are aggregated, not to exceed to the limits above.

Coverage for Trust accounts is not measured by the account holder.  Instead, Trust accounts are covered up to $100,000 per beneficiary, even if they do not have a current right to receive or withdraw from the account.  "Trust Accounts" include Revocable Living Trusts, "T.O.D." and "P.O.D." accounts (irrevocable trusts have different rules).   Beneficiaries must be "qualified" (spouse, child, grandchild--including step child--, siblings and parents).  They must be the beneficiary who will receive upon the death of the grantor/owner (i.e., if a trust says to 2 children and grandchildren are named as contingent beneficiaries, the grandchildren are not counted).  But if the trust says to spouse for life, then to my children, the spouse and children count.

Examples:  Joint Trust with Husband and Wife as grantors and 2 children.  The account could be covered up to $400,000 ($100,000 for each owner under the ownership rules above and $100,000 for each child).  The same would be true for a joint account with husband and wife naming 2 children as P.O.D. beneficiaries.

A/B Trust where each spouse has their own trust naming surviving spouse as life income beneficiary and 2 children as residuary beneficiaries.  The Grantor/owner is covered for $100,000 under owner rules above.  The Spouse and 2 children are covered under beneficiary rules.  Each trust gets $300,000 coverage for a total of $600,000.

These rules do not make complete sense to me, and my own advice to clients is to think about the reality of the situation.  What guarantee is there that the FDIC will have the money to pay out these amounts?  Does it make sense, in spite of these coverage limits, to "diversify" anyway?

This Newsletter is intended to be informational, only and does not constitute legal advice.  If you have questions, concerns or comments, please contact me at:, or by Telephone at 989-652-9923.

Andy Richards


About Issues For Advisors

About 3 years ago, I started publishing a Quarterly E-Newsletter targeted directly at professional colleagues and valued referral sources. The intent of the newsletter was to be a resource for professional advisors, including Accountants, Insurance Professionals, Financial Planners, Brokers, Bankers and Planned Giving professionals. The "Issues For Advisors," newsletters have 2 primary goals: (1) To provide timely, useful information about issues that are either of current significance, have caused a recent problem, or are of a recurring nature to our mutual clients, and (2) To keep the content brief (no more than a single page). It recently occurred to me that there is no "archive" where advisors can go to retrieve, or re-read prior Issues. Rather than "burying" them somewhere in the Smith Bovill website, I created an on-line Resource specifically dedicated to the Professional Advisors enumerated above. In addition to the "Issues For Advisors" Archive, Links to other resources (including, of course, the MICHIGAN ESTATE PLANNING BLOG and THE SMITH BOVILL LAW FIRM SITE), will be featured here.

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