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Per Beneficiary Insurance on Trust Accounts
I understand from what I've been reading about deposit insurance on trust accounts that if the bank fails, they are insured up to $100,000 per qualified beneficiary, such as children or grandchildren. What I want to know is whether that means that the FDIC gives the deposit insurance check to the beneficiary?
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First, let's bring you up to date on two significant changes in deposit insurance coverage. In late September 2008, the FDIC amended its deposit insurance regulations to eliminate the former requirement that revocable trust beneficiaries be related to the depositor (informal, undocumented trusts) or grantor (true trusts). Any natural person, or any charity or non-profit recognized by the Internal Revenue Code, is now an eligible beneficiary for the purposes of insurance coverage.
The second major change is a temporary increase in deposit insurance limits, effective October 3, 2008. The "standard maximum deposit insurance amount" on FDIC and NCUSIF deposit coverage was increased to $250,000 beginning on 10/3/08. It will revert to $100,000 after 12/31/2013. Taken in combination with the FDIC's change relating to revocable trusts, means that coverage is currently capped at $250,000 per beneficiary per depositor. For individual depositors or with more than $1,250,000 in revocable trust accounts and more than five beneficiaries, the coverage is the greater of either $1,250,000 or the sum of all the named beneficiaries' proportional interests in the trusts, limited to $250,000 per different beneficiary.
As to your specific question, the answer is "No." The beneficiaries in such a situation don't receive the proceeds of any payout from the FDIC unless a triggering event, such as the death of the depositor or the trustee occurs. If the depositor or trustee is still alive, any FDIC payments will go to the owner of the account, not to the beneficiaries.
If the account owner is an individual or individuals, the account isn't a true trust, but is set up as a revocable "pay on death" account, and then the FDIC payment would go to the individual or individuals. If the account owner is a true trust, the payout would go to the trustee(s) of the trust.
Published on BankingQuestions.com 7/25/08; updated 6/16/09
Updated 10/8/08
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