In April, the Federal Deposit Insurance Corporation (FDIC) implemented a final rule to simplify deposit insurance regulations for trust accounts. These changes aim to make the rules easier to understand for both depositors and bankers. Here are the key highlights:
Trust Accounts:
The previous categories of revocable and irrevocable trust accounts have been merged into a new “trust accounts” category.
- A simple, consistent formula now calculates deposit insurance coverage for all trust accounts.
- Each beneficiary within a trust is insured up to $250,000, with a maximum of five beneficiaries.
- Regardless of whether a trust is revocable or irrevocable, the total coverage for trust deposits is capped at $1,250,000 per owner, per insured depository institution.
Business Accounts and Joint Accounts:
While the recent rule primarily focuses on trust accounts, it’s essential to understand that business accounts and joint accounts are subject to the same coverage limits.
- Business accounts held by a corporation, partnership, or other legal entity follow the same rules as individual accounts.
- Joint accounts (such as those held by spouses) are insured separately from individual accounts, with each co-owner receiving coverage up to $250,000.
Totten Trust Accounts (Transfer on Death Accounts):
Totten trust accounts, also known as Transfer on Death (TOD) accounts, allow an account owner to designate a beneficiary who will inherit the account upon the owner’s death.
- These accounts are insured similarly to other trust accounts, with each beneficiary receiving coverage up to $250,000.
- The total coverage for TOD accounts remains at $1,250,000 per owner, per insured depository institution.
Personal Financial Planning Considerations:
Review Existing Accounts –
- Evaluate your existing trust accounts, business accounts, and joint accounts.
- Ensure that your account structures align with your financial goals and estate planning needs.
Account Location –
- Diversify your assets across different account types to maximize FDIC coverage.
- Consider spreading funds across multiple insured institutions if necessary.
Consult a personal financial planner –
- Seek professional advice to optimize your financial planning.
- Discuss how these new rules impact your specific situation and adjust your strategies accordingly.
Tax laws directly impact an individual’s personal financial plan. At Paraklete® Financial we work with CPA’s as part of our client’s collaborative team of advisers. The collaborative team is essential to the personal financial planning process. For more information, please visit us at https://www.parakletefinancial.com
The views expressed are those of the author as of the date noted, are subject to change based on market and other various conditions. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax, or legal advice. Keep in mind that current and historical facts may not be indicative of future results. The information contained in our presentations have been compiled from third party sources and is believed to be reliable; however, accuracy is not guaranteed.
