Lyon County State Bank
Financial Tips
Estate Planning and Banking
Lyon County State Bank
Among the many reasons people put significant sums in FDIC-insured deposits is to keep that money safe — for themselves and for their heirs. While the FDIC doesn’t recommend particular financial products or strategies for achieving your estate-planning goals, we can describe different types of deposit accounts that can be used to pass funds on to heirs and explain how to make sure your money is fully insured if your bank fails.
Revocable Trust Accounts
Some of the most popular deposits for estate-planning purposes are “revocable trust accounts.” These trusts are called “revocable” because, unlike other types of trust accounts, the depositor has the right to change the terms of the inheritance or cancel the trust agreement entirely. You most likely know these accounts by other names. Here are the two main types:
For various reasons, living trusts may not be for everyone. Having a living trust prepared can be expensive, and sometimes the potential benefits may not outweigh the costs, especially depending on your state’s inheritance laws and your financial situation. In contrast, “the simplicity of the payable-on-death account makes it the most common type of revocable trust account,” said FDIC Supervisory Counsel Joe DiNuzzo. “A POD account has no trust agreement — the only documentation is in the bank records on which the owner designates the beneficiaries.”
Also, the Federal Trade Commission (FTC) has warned that some people and businesses have exaggerated or misrepresented the benefits of living trusts, often in advertisements or seminars, to sell trusts or other products to people who don’t need them For additional guidance, see “Living Trust Offers: How to Make Sure They’re Trust-worthy.”
Under FDIC rules, a depositor’s combined interests in all revocable trust accounts at the same bank are insured up to $250,000 for each unique beneficiary named. That means a revocable trust account is insured for up to $250,000 if there is one beneficiary, $500,000 if there are two, and so on up to five different beneficiaries. So if you name five different eligible beneficiaries, your revocable trust account(s) at the same bank will be insured to $1.25 million (five times $250,000), regardless of how much money each beneficiary is to receive. And if two depositors own the account(s), the insured amounts would be doubled, up to $2.5 million.
However, Becker noted that if the depositor is attempting to insure more than $1.25 million and there are six or more different beneficiaries that are to receive different shares, the deposit insurance rules change and understanding the coverage can be more complex. In those situations, he recommends calling toll-free 1-877-ASK-FDIC (1-877-275-3342) to speak with an FDIC deposit insurance specialist.
Also under the rules, almost any named beneficiary — including relatives, friends, charities and nonprofit organizations — will qualify the owner to receive $250,000 deposit insurance coverage for each different beneficiary.
Other Accounts, Other Coverage
Other bank accounts that also can help transfer funds to heirs are:
What happens to the insurance coverage of a joint account if one of the owners dies? The FDIC will continue to insure the joint account as if the deceased co-owner were still alive — for up to six months from the date of death. That means coverage of up to $500,000 if there were two owners. The grace period is intended to give the survivor time, if necessary, to ensure that all of the funds are fully insured by restructuring the accounts or moving some funds to another insured bank.
Also remember that the FDIC can help you understand your deposit insurance coverage. For more information, visit www.fdic.gov/deposit/deposits or call 1-877-ASK-FDIC (1-877-275-3342) and ask to speak to a deposit insurance specialist.
Article courtesy of FDIC
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