Affluent Americans may need to reevaluate how much of their bank deposits are protected by government-backed insurance, as new rules implemented last month have capped the amount the Federal Deposit Insurance Corporation (FDIC) will insure in a trust account at $1.25 million. Previously, there was no limit on trust accounts, which are legal arrangements ensuring assets are distributed to specific beneficiaries. The new rule aims to make deposit insurance rules clearer for consumers and bankers and help FDIC agents determine insured accounts more quickly after a bank failure.
For some bank customers, the new rule could result in a lower amount of insured deposits if their financial institution fails. Those affected may need to restructure their deposits or open new accounts at another bank to ensure their funds are protected. While the FDIC still insures up to $250,000 per depositor and per account category at each bank, the new rule limits the number of beneficiaries of a trust account that receive the $250,000 insurance amount to five, totaling at most $1.25 million. The change also lumps together irrevocable and revocable trusts into one ownership category, encompassing any deposit account with named beneficiaries upon the owner’s death.
Under the old FDIC rules, trust accounts provided a loophole to insure more than $250,000 by allocating $250,000 in insurance protection to each beneficiary listed on the trust. However, the new rule has reduced the number of beneficiaries eligible for insurance to five, limiting the total insured amount to $1.25 million. This change may affect around 27,000 trust account depositors and over 36,000 trust accounts directly. While some irrevocable trusts may see an increase in insurance coverage, most depositors should not experience changes in their coverage overall.
To determine if you are affected by the new rules, you can use the FDIC’s Electronic Deposit Insurance Estimator tool to calculate how much of your money, if any, exceeds the new coverage limits on a per-bank basis. If you find that some of your funds are now uninsured, it is advisable to contact your bank, as financial institutions typically work with customers affected by regulatory changes to ensure their large deposits are protected. This may involve opening a different type of account or transferring the uninsured sum to an account at another bank to maintain full protection.
In conclusion, affluent Americans with large deposits in trust accounts may need to review their deposit insurance coverage following the implementation of new FDIC rules that limit the amount insured in trust accounts to $1.25 million. These changes aim to simplify deposit insurance rules and facilitate the quick identification of insured accounts in the event of a bank failure. While the new rules may result in decreased insurance coverage for some trust account depositors, it is essential to assess your situation using the FDIC’s online tool and consult with your bank to ensure your funds are adequately protected.
