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On January 13, 2004, the FDIC Board of Directors voted to simplify the insurance rules for deposits held in connection with a living trust, an increasingly popular estate-planning tool. The FDIC is changing the insurance rules for living trust accounts primarily because the existing rules have been confusing for both consumers and bankers.
The revised rule for living trust accounts will provide coverage of up to $100,000 per qualifying beneficiary who is entitled to the funds upon the owner's death. Qualifying beneficiaries will continue to be defined as the account owner's spouse, children, grandchildren, parents and siblings. Unlike under the old rules, defeating contingencies within the trust will not affect this coverage. Additionally, the beneficiaries of a living trust are no longer required to be listed in the account records.
For a living trust to be insured for more than $100,000, the trust must have either more than one qualified beneficiary, and/or more than one owner, each of whom names at least one qualified beneficiary. For example, if a living trust has one owner, who names her three children as beneficiaries, the account would be insured to $300,000. Similarly, a husband and wife who co-own a living trust account naming their child as a beneficiary would be insured to $200,000.
The new rules will become effective April 1, 2004, but the FDIC will apply the new rules to living trust deposits at any insured institution that fails between now and April 1 if doing so would benefit the affected depositors.
March 2004
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