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Is your trust account federally insured?

Posted: November 19, 2008 10:39 p.m.
Updated: November 20, 2008 4:30 a.m.

Due to recent bank failures and the overall economic climate, I have received several calls recently from clients wanting to know whether their bank accounts that are held in the name of a trust would be fully insured by the government if their bank failed.

The rules are complex and have recently changed, but I will attempt to educate and hopefully give some comfort to those of you who may be wondering if trust accounts are insured. I hesitate to attempt to tackle this topic in this short article, and I urge you not to rely on this information as it may not apply to your specific type of account. Please have your accounts reviewed by your banker, investment advisor or other professional before taking any action.

The first step should be to make sure that your bank or credit union is federally insured. The Federal Deposit Insurance Corporation (FDIC) and National Credit Union Association (NCUA) insure most, but not all, banks and credit unions. This is the type of federal insurance that this article will cover.

Next, take a look at the accounts that you own. Traditional types of deposit accounts like checking, savings, CDs and money market and IRA accounts are insured, while investment products like mutual funds, annuities, life insurance policies, stocks and bonds are not insured.

So assuming that you have a qualified account in a federally insured bank or credit union, how much can be insured in an account held by a trust? The deposit insurance rules were recently changed as of Sept. 26 in order to attempt to simplify and modernize rules for revocable trust accounts. Then on Oct. 3, the insurance limits were temporarily increased through Dec. 31, 2009 from $100,000 to $250,000 per depositor.

Using the new rules and the increased temporary limits, a trust account owner is insured for $250,000 per beneficiary for up to five beneficiaries. In other words, a revocable trust account can be insured for up to $1.25 million for a single trust naming five different beneficiaries.

If there are multiple owners of a trust, such as a joint trust for a married couple, each owner is insured separately for each beneficiary. Thus, if a joint trust established by a married couple names five beneficiaries, the account can be insured for up to $1.25 million for each spouse, or a total of $2.5 million.
For trusts naming more than five beneficiaries the insurance coverage may increase but rules become a bit more complicated. In addition, the coverage available on revocable trust accounts is separate from the insurance coverage in connection with accounts that a depositor may own in other capacities at the same insured institution. So an account holder can be insured for an account held in a trust and have an additional $250,000 of insurance available at the same bank or credit union for a single-ownership account.

For more information, the FDIC at and NCUA at have excellent Web sites with explanations, examples and calculators to determine the amount of insurance coverage available for all types of accounts.

Randall D. Armour is an attorney and licensed real estate broker. "It's Your Money" appears Thursdays and rotates between a handful of the Santa Clarita Valley's financial professionals. His column represents his own views, and not necessarily those of The Signal.


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