Banking Crisis of Sept 2008 Triggers New FDIC Rules

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FDIC Insurance Finance Living Trusts

In a recent post we talked about the limits of insurance coverage available for bank deposits in the event your bank, thrift, savings and loan or credit union were to fail.  The government “rescue” or “Bail-out” plan passed in early October increased the insurance limits from $100,000 to $250,000.

Our earlier blog was specifically focused on the amount of insurance available to folks who have their accounts titled in the name of a Revocable Living Trust.  You may recall in that blog, that the amount of insurance was calculated somewhat differently.

The insurance coverage for Living Trust owned accounts was calculated first by multiplying the number of Creators, or “Settlors” of the Trust times $100,000.  Then multiplying that number by the number of “Qualifying Beneficiaries”, to come up with your total insurance.

E.g.  If the Trust has a husband and a wife as the (2) creators or “Settlors” of the Trust, the first calculation is 2 x $100,000 = $200,000.  If the husband and wife have 3 children named as Successor Beneficiaries of the Trust, then the second part of the calculation is $200,000 x 3 (qualifying beneficiaries) = $600,000 TOTAL AMOUNT OF INSURANCE COVERAGE.  With the higher insurance limits passed in early October, these calculations will change as follows:

Under the new law the calculation will use the higher insurance limit of $250,000, and would therefore look something like this:

First calculation:  2 x $250,000 = $500,000

Second Calculation:  $500,000 x 3 (children as qualifying beneficiaries) = $1,500,000 TOTAL AMOUNT OF INSURANCE COVERAGE.

In addition, you may recall that there were two additional conditions imposed in order to qualify for the full amount of insurance as calculated above.

  1. The beneficiaries of your trust had to be “Qualified beneficiaries” , meaning the spouse, child, grandchild, parent or sibling of a Settlor.
  2. The beneficiaries' names must be listed on your account paperwork kept at the bank.

The new law eliminates the use and definition of “Qualifying Beneficiary.” So now, if you have a friend, relative such as Aunts, Uncles or Cousins, or even a charity, named as a beneficiary of your trust, that the full additional $250,000 worth of insurance coverage for each such name listed will be available.