Understanding Deposit Insurance Coverage with Multiple Beneficiaries

Deposit insurance can be simple if your balance is under $250,000. Once you go above $250,000 at one bank, it can become complicated to ensure your entire balance remains covered by the FDIC. One of the most useful documents is a guide that the FDIC developed for bankers. It's called the FDIC Comprehensive Seminar On Deposit Insurance Coverage For Bankers. This is a January 2012 version. I first noted an older version of this guide in my 2011 post on Maximizing Your FDIC Coverage with Beneficiaries. I'm not aware of any FDIC rule changes since then. The changes appear to be have been made for presentation reasons. If you haven't reviewed the FDIC rules in several years, you should be aware that there were important changes that took effect in 2008 such as the increase of the standard maximum deposit insurance amount from $100,000 to $250,000.

One complicated aspect of FDIC insurance for balances over $250,000 deals with revocable trust accounts. Trust accounts indicate an intention that the funds will belong to one or more named beneficiaries upon the last owner’s death. Revocable means that the owner retains the right to change beneficiaries and allocations or to terminate the trust. Revocable trust accounts include informal trusts in which accounts designate beneficiaries with terms like POD or ITF. They also include formal trusts like living trusts and family trusts.

In my 2011 post, I described how revocable trust accounts with 5 beneficiaries can be used to easily cover up to $1.25 million at one bank. If the owner names more than 5 beneficiaries, it becomes more complicated. If you want to understand those details, refer to this FDIC document, FDIC Seminar On Revocable Trust Accounts For Bankers. Like the other guide, this is training designed for bankers, but it's useful for consumers.

As I described in my 2011 post, when an owner has 5 or fewer beneficiaries, the maximum deposit insurance coverage is equal to $250,000 times the number of unique eligible beneficiaries. And this doesn't change even if the beneficiaries have different allocations. A good example of this is shown on page 22 of the guide.

When the owner has over 5 beneficiaries and the allocations to the beneficiaries are not equal, the maximum deposit insurance coverage is more complicated. Here's an excerpt of page 23 which provides a useful summary of the rule:

Coverage Calculations for Six or More Beneficiaries with Unequal Allocations

If the owner is attempting to insure more than $1,250,000 and has named six or more unique eligible beneficiaries under one or more revocable trust deposits, but has unequal percentages or dollar amount allocations to the beneficiaries, then no specific allocation to any beneficiary can exceed $250,000

If any beneficiary’s allocation does exceed $250,000, then the default total insurable amount (with no uninsured funds) is a maximum deposit of $1,250,000

The guide has several examples. If you want to evaluate the insurance coverage with your own examples, you can use the FDIC EDIE calculator. However, EDIE cannot calculate the insurance coverage of revocable trust accounts with more than 5 beneficiaries who have unequal interests.

It's important to remember that it's up to you to ensure all of your money is FDIC insured. It doesn’t matter to the FDIC if your bank made a mistake. So make sure you fully understand the FDIC rules as described by the FDIC. The FDIC has a consumer assistance number of 1-877-275-3342 if you need more help.

The NCUA has very similar rules for credit union deposit insurance. You can review those rules in this NCUA insurance reference, and you can check your deposits using the NCUA’s Insurance calculator. If you need more help, you can contact the NCUA Consumer Assistance Center between at 1-800-755-1030.

Hat tip to the reader who notified me of these latest FDIC documents.