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4000 - Advisory Opinions
Question regarding deposit insurance coverage of an account in the
name of a revocable trust established by a husband and wife.
FDIC--04--07
October 20, 2004
Christopher L. Hencke, Counsel
You have requested information regarding the insurance coverage of
an account in the name of a revocable trust established by you and your
wife. The balance of the account is $900,000.
The insurance coverage of revocable trust accounts is governed by
12 C.F.R. § 330.10 (copy
enclosed). Under that section of the FDIC's regulations, "[f]unds
owned by an individual and deposited into an account with respect to
which the owner evidences an intention that upon his or her death the
funds shall belong to one or more qualifying beneficiaries shall be
insured in the amount of up to $100,000 in the aggregate as to each
such named qualifying beneficiary, separately from any other accounts
of the owner or the beneficiaries." 12 C.F.R. § 330.10(a). In the
case of a revocable trust established by two owners (such as this
case), "the respective interests of each owner (which shall be
deemed equal unless otherwise stated in the insured depository
institution's deposit account records) held for the benefit of each
qualifying beneficiary shall be separately insured up to $100,000."
12 C.F.R. § 330.10(d). These sections mean that the funds owned by
each owner are insured separately up to $100,000 as to each
"qualifying beneficiary." The term, "qualifying
beneficiaries" means the owner's spouse, children, grandchildren,
parents and siblings. See 12 C.F.R. § 330.10(a).
If any of the beneficiaries are not "qualifying
beneficiaries," then "the funds corresponding to that beneficiary
shall be treated as individually owned (single ownership) accounts of
such owner(s), aggregated with any other single ownership accounts of
such owner(s), and insured up to $100,000 per owner." 12 C.F.R.
§ 330.10(c).
{{10-29-04 p.4984.100}}
The FDIC's rules regarding the insurance coverage of revocable
trust accounts (quoted above) may be summarized as follows:
1. The funds of each owner are insured separately.
2. For each owner, the funds for each
"qualifying beneficiary" are insured up to $100,000.
3. For each owner, the funds for all
non-qualifying beneficiaries are added together and insured up to
$100,000.
As previously mentioned, the balance of the joint revocable trust
account in this case is $900,000. Under the rules above, your interest
in the amount of $450,000 is insured separately from your wife's
interest in the amount of $450,000. Assuming the accuracy of your
description of your trust agreement, your interest (i.e.,
the husband's interest) is insured as
follows:
| Qualifying Beneficiaries |
Percentage |
Amount |
|---|
| Son |
35%
(of
$450,000) |
$157,500.00 |
| Daughter |
35% |
$157,500.00 |
| Husband's
Sister |
2.678% |
$ 12,051.00 |
| Husband's
Brother |
2.678% |
$ 12,051.00 |
| Husband's
Brother |
2.678% |
$ 12,051.00 |
| Non-qualifying Beneficiaries |
Percentage |
Amount |
| Everyone
else |
21.966% |
$ 98,847.00
|
Under the FDIC's rules, the funds contributed by each grantor for
each qualifying beneficiary are insured up to $100,000. This means that
the funds contributed by the husband for the son ($157,500) are insured
in the amount of $100,000 and uninsured in the amount of $57,500.
Likewise, the funds contributed by the husband for the daughter
($157,500) are insured in the amount of $100,000 and uninsured in the
amount of $57,500. The funds contributed by the husband for his three
siblings are fully insured because the amount contributed for each
sibling is less than $100,000.
The funds contributed by each grantor for non-qualifying
beneficiaries are added together and insured up to $100,000 (in
aggregation with any single ownership accounts maintained by the
grantor at the same depository institution). This means that the funds
contributed by the husband for non-qualifying beneficiaries
($98,847.00) are fully insured (assuming that the husband does not own
any single ownership accounts).
In summary, the husband's funds in the amount of $450,000 are
insured in the total amount of $335,000 and uninsured in the total
amount of $115,000.
The calculation of the insurance coverage of your wife's funds is
different because the list of qualifying beneficiaries is different.
Your wife's funds in the amount of $450,000 are insured as follows:
| Qualifying Beneficiaries |
Percentage |
Amount |
|---|
| Son |
35%
(of
$450,000) |
$157,500.00 |
| Daughter |
35% |
$157,500.00 |
| Wife's
Brother |
2.678% |
$ 12,051.00 |
| Wife's
Mother |
2.678% |
$ 12,051.00 |
| Non-qualifying Beneficiaries |
Percentage |
Amount |
| Everyone
else |
24.644% |
$110,898.00
|
Under the FDIC's rules, the funds contributed by your wife for the
son ($157,000) are insured in the amount of $100,000 and uninsured in
the amount of $57,500. Likewise, the funds contributed by the wife for
the daughter ($157,500) are insured in the amount of
{{12-30-04 p.4984.101}}$100,000 and uninsured in the amount of
$57,500. The funds contributed by the wife for her brother and mother
are fully insured because the amount contributed for each of these two
beneficiaries is less than $100,000.
The funds contributed by the wife for non-qualifying beneficiaries
($110,898.00) are insured in the amount of $100,000 and uninsured in
the amount of $10,898.00 (assuming that the wife does not own any
single ownership accounts).
In summary, the wife's funds in the amount of $450,000 are insured
in the total amount of $324,102 and uninsured in the total amount of
$125,898.
Thus, the joint revocable trust account with a balance of $900,000
would be insured in the total amount of $659,102 and uninsured in the
total amount of $240,898. Again, this calculation is based upon the
assumption that you have described your trust accurately. Upon the
death of you or your wife, the insurance coverage of the account would
change (subject to a six-month grace period recognized by the FDIC).
The calculation above (based on a balance of $900,000) may be less
helpful than a calculation of the maximum amount that could be placed
in one bank with no uninsured funds. In this case, no funds
in your trust account(s) would be uninsured if the funds contributed by
each grantor for either the son or the daughter are fully insured. This
is true because the son and the daughter possess the largest beneficial
interests. (If the largest beneficial interests are fully insured, then
the smaller interests also must be fully insured.) Hence, the key is to
determine a balance at which the interest of either the son or the
daughter equals exactly $200,000 ($100,000 for the funds contributed by
the husband and $100,000 for the funds contributed by the wife).
According to your description of your trust, the beneficial interest
of the son (or the daughter) is 35%. This means that the maximum
amount that could be placed at one bank with no uninsured
funds is the amount represented by the following formula: .35X =
$200,000 ($100,000 for the funds contributed by the husband and
$100,000 for the funds contributed by the wife). This amount is
$571,428.57.
Assuming a balance of $571,428.57, the son's beneficial interest
would be 35% or $200,000. This amount would be fully insured because
the amount contributed for the son by each grantor would not exceed
$100,000. Likewise, the daughter's beneficial interest of 35% or
$200,000 would be fully insured because the amount contributed for the
daughter by each grantor would not exceed $100,000. Finally, assuming
that neither of the grantors owns any single ownership accounts, the
remaining funds in the amount of $171,428.57 would be fully insured
because (1) the amount contributed by each grantor for each of his/her
remaining qualifying beneficiaries would not exceed $100,000; and (2)
the amount contributed by each grantor for his/her non-qualifying
beneficiaries also would not exceed $100,000.
I hope that this information is
useful.
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