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Increase FDIC insurance for living trust account

Posted: Fri Nov 20, 2020 5:35 pm
by aznative
I'm planning to open a savings account at Ally Bank under the name of my living trust. My wife and I are the settlors and my daughter is the sole beneficiary. Under this scenario we would have $500K in FDIC coverage (2 settlors ($250K coverage each) X 1 Beneficiary = $500K). I'm looking to double that coverage to $1M. Based on my understanding, and using the FDIC coverage calculator, I can increase coverage to $1M by opening 3 different accounts:

Acct. #1 - Living Trust ($950,000)
Acct. #2 - My individual account POD my wife ($10)
Acct. #3 - My wife's individual account POD me ($10)

Acct. #2 & 3 would have a very small balance since they are only for the purpose of increasing FDIC coverage.

Does this sound correct?

[OT comment removed by admin LadyGeek]

Re: Increase FDIC insurance for living trust account

Posted: Fri Nov 20, 2020 7:24 pm
by Uniballer
I'm not sure...

Did you try running it by the FDIC Electronic Deposit Insurance Estimator

Re: Increase FDIC insurance for living trust account

Posted: Fri Nov 20, 2020 7:27 pm
by aznative
Yes. I used the FDIC calculator.

Re: Increase FDIC insurance for living trust account

Posted: Fri Nov 20, 2020 7:53 pm
by sport
My understanding is that each category of account is insured separately. That would mean that account #2 and #3 would be insured for $10. However, I could be wrong on this.

Re: Increase FDIC insurance for living trust account

Posted: Fri Nov 20, 2020 8:06 pm
by aznative
sport wrote: Fri Nov 20, 2020 7:53 pm My understanding is that each category of account is insured separately. That would mean that account #2 and #3 would be insured for $10. However, I could be wrong on this.
I believe that coverage extends across accounts per individual. The 2 accounts with $10 still provide an additional $250K in coverage for both me and my wife. That additional coverage can be used to cover the gap on the living trust account.

I tested by setting up 3 accounts using the FDIC calculator (1 living trust and 2 individual POD accounts). The calculator extended coverage from the individual POD accounts to help cover the trust account.

Re: Increase FDIC insurance for living trust account

Posted: Fri Nov 20, 2020 8:43 pm
by rkhusky
aznative wrote: Fri Nov 20, 2020 8:06 pm
sport wrote: Fri Nov 20, 2020 7:53 pm My understanding is that each category of account is insured separately. That would mean that account #2 and #3 would be insured for $10. However, I could be wrong on this.
I believe that coverage extends across accounts per individual. The 2 accounts with $10 still provide an additional $250K in coverage for both me and my wife. That additional coverage can be used to cover the gap on the living trust account.

I tested by setting up 3 accounts using the FDIC calculator (1 living trust and 2 individual POD accounts). The calculator extended coverage from the individual POD accounts to help cover the trust account.
Did the tool ask how much you had in each account?

This was on the FDIC web site:
The standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.
I haven’t seen anything that would suggest that you can have $750k in one account category and a couple dollars in two others. If true, the language above and other discussion on the web is misleading.

This page has some examples:
https://www.fdic.gov/regulations/resour ... glish.html

Re: Increase FDIC insurance for living trust account

Posted: Fri Nov 20, 2020 8:59 pm
by aznative
rkhusky wrote: Fri Nov 20, 2020 8:43 pm
aznative wrote: Fri Nov 20, 2020 8:06 pm
sport wrote: Fri Nov 20, 2020 7:53 pm My understanding is that each category of account is insured separately. That would mean that account #2 and #3 would be insured for $10. However, I could be wrong on this.
I believe that coverage extends across accounts per individual. The 2 accounts with $10 still provide an additional $250K in coverage for both me and my wife. That additional coverage can be used to cover the gap on the living trust account.

I tested by setting up 3 accounts using the FDIC calculator (1 living trust and 2 individual POD accounts). The calculator extended coverage from the individual POD accounts to help cover the trust account.
Did the tool ask how much you had in each account?

This was on the FDIC web site:
The standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.
I haven’t seen anything that would suggest that you can have $750k in one account category and a couple dollars in two others. If true, the language above and other discussion on the web is misleading.
Hmmm. Think of it this way. I believe in the eyes of the FDIC that a trust account is really equivalent to a POD/ITF account. Let's assume for a moment that the trust does not exist. Consider the following scenario with 4 POD accounts instead, each having a different balance:

1. Dad POD Daughter $450,000
2. Mom POD Daughter $450,000
3. Dad POD Mom $10
4. Mom POD Dad $10

Mom and Dad each get $500K in FDIC coverage. It doesn't matter how much is in each account. They are all still in the same category. Try it using the FDIC calculator. I could be wrong, but I believe that the FDIC views revocable trust accounts similar to POD/ITF accounts. In my case examples 1 and 2 above just happen to be in a trust account.

Re: Increase FDIC insurance for living trust account

Posted: Fri Nov 20, 2020 9:10 pm
by rkhusky
In the FDIC link above, the limits for each account type are computed separately. If you believe otherwise, I would find a definite explanation from an official source.

Re: Increase FDIC insurance for living trust account

Posted: Fri Nov 20, 2020 9:28 pm
by rkhusky
aznative wrote: Fri Nov 20, 2020 8:59 pm Hmmm. Think of it this way. I believe in the eyes of the FDIC that a trust account is really equivalent to a POD/ITF account. Let's assume for a moment that the trust does not exist. Consider the following scenario with 4 POD accounts instead, each having a different balance:

1. Dad POD Daughter $450,000
2. Mom POD Daughter $450,000
3. Dad POD Mom $10
4. Mom POD Dad $10

Mom and Dad each get $500K in FDIC coverage. It doesn't matter how much is in each account. They are all still in the same category. Try it using the FDIC calculator. I could be wrong, but I believe that the FDIC views revocable trust accounts similar to POD/ITF accounts. In my case examples 1 and 2 above just happen to be in a trust account.
FDIC link has the following language:
In general, the owner of a revocable trust account is insured up to $250,000 for each unique beneficiary
Your Account 1 has only 1 beneficiary and therefore is insured up to $250K. The same with Accounts 2,3,4.

It appears that you could get the desired $500K coverage with
1. Dad Pod Mom & Daughter (Daughter allocated $450K/Mom allocated $10)

Re: Increase FDIC insurance for living trust account

Posted: Fri Nov 20, 2020 9:39 pm
by aznative
rkhusky wrote: Fri Nov 20, 2020 9:28 pm
aznative wrote: Fri Nov 20, 2020 8:59 pm Hmmm. Think of it this way. I believe in the eyes of the FDIC that a trust account is really equivalent to a POD/ITF account. Let's assume for a moment that the trust does not exist. Consider the following scenario with 4 POD accounts instead, each having a different balance:

1. Dad POD Daughter $450,000
2. Mom POD Daughter $450,000
3. Dad POD Mom $10
4. Mom POD Dad $10

Mom and Dad each get $500K in FDIC coverage. It doesn't matter how much is in each account. They are all still in the same category. Try it using the FDIC calculator. I could be wrong, but I believe that the FDIC views revocable trust accounts similar to POD/ITF accounts. In my case examples 1 and 2 above just happen to be in a trust account.
FDIC link has the following language:
In general, the owner of a revocable trust account is insured up to $250,000 for each unique beneficiary
Your Account 1 has only 1 beneficiary and therefore is insured up to $250K. The same with Accounts 2,3,4.
I don't think so. Try it using the FDIC calculator. I think you will see the answer is different.

Re: Increase FDIC insurance for living trust account

Posted: Fri Nov 20, 2020 9:51 pm
by Katietsu
I think this is what is happening:

The living trust and the POD accounts are all in the same “category”.

Dad needs coverage for $950,000/2+$10=$475,010
Dad has 2 beneficiaries-daughter and Mom. Dad gets $250k per beneficiary. So Dad is covered.

Repeat same argument for Mom.

I do not have a living trust. But I did use a similar set up at Ally for a brief time period with POD accounts. A smaller account had extra beneficiaries added to increase the coverage of the larger account that had just a single beneficiary.

Edited because original post was not accurate with regard to coverage when beneficiaries exceed 5. Coverage for 6 or more can get complicated depending on allocations but will be at least $1.25 million.

Re: Increase FDIC insurance for living trust account

Posted: Fri Nov 20, 2020 9:55 pm
by Alan S.
You actually have only one ownership category here because the small accounts are not treated as individual accounts. They are POD accounts which are part of the revocable trust category.

This actually helps generate FDIC coverage because the different beneficiaries on the small accounts generate the higher limits needed for complete coverage. This would not have happened if the small accounts were not PODs since that would place them in a different ownership category.

Re: Increase FDIC insurance for living trust account

Posted: Fri Nov 20, 2020 10:00 pm
by aznative
Katietsu wrote: Fri Nov 20, 2020 9:51 pm I think this is what is happening:

The living trust and the POD accounts are all in the same “category”.

Dad needs coverage for $950,000/2+$10=$475,010
Dad has 2 beneficiaries-daughter and Mom. Dad gets $250k per beneficiary. So Dad is covered.

Repeat same argument for Mom.

I do not have a living trust. But I did use a similar set up at Ally for a brief time period with POD accounts. One account with $10,000 listed 8 beneficiaries. A larger account with $300,000 had a single different beneficiary. Result was actually $1.25 million in coverage for POD accounts, regardless of the distribution of the account balances. ($1.25 million is the max for POD when beneficiary number is 5 or more.)
Thank you! Brilliant!! I believe you are correct my friend.

Re: Increase FDIC insurance for living trust account

Posted: Fri Nov 20, 2020 10:01 pm
by aznative
Alan S. wrote: Fri Nov 20, 2020 9:55 pm You actually have only one ownership category here because the small accounts are not treated as individual accounts. They are POD accounts which are part of the revocable trust category.

This actually helps generate FDIC coverage because the different beneficiaries on the small accounts generate the higher limits needed for complete coverage. This would not have happened if the small accounts were not PODs since that would place them in a different ownership category.
Yes. Thank you.

Re: Increase FDIC insurance for living trust account

Posted: Sat Nov 21, 2020 8:16 am
by rkhusky
aznative wrote: Fri Nov 20, 2020 9:39 pm I don't think so. Try it using the FDIC calculator. I think you will see the answer is different.
After re-reading Example 5 in the FDIC link, I think you are right.
When a revocable trust owner names five or fewer beneficiaries, the owner's share of each trust account is added together and the owner receives up to $250,000 in insurance coverage for each unique beneficiary.

Re: Increase FDIC insurance for living trust account

Posted: Sat Nov 21, 2020 9:58 am
by aznative
rkhusky wrote: Sat Nov 21, 2020 8:16 am
aznative wrote: Fri Nov 20, 2020 9:39 pm I don't think so. Try it using the FDIC calculator. I think you will see the answer is different.
After re-reading Example 5 in the FDIC link, I think you are right.
When a revocable trust owner names five or fewer beneficiaries, the owner's share of each trust account is added together and the owner receives up to $250,000 in insurance coverage for each unique beneficiary.
Yes. It's all a bit confusing but I have come to the conclusion that what I'm trying to accomplish in my original post should work correctly. Revocable Trust accounts and POD accounts are effectively in the same "category" for coverage and you can increase overall coverage by adding beneficiaries. This can be accomplished by opening additional accounts even with small balances.

Thanks to everyone for their input. Hopefully others find this information useful if they are trying to boost FDIC coverage for a revocable trust at a single institution.