Bail-Out October 2008 FDIC Insurance Coverage Limit Will Temporarily Increase - New Interim Rules Better Safeguard Trust Account

Dan Penning, the Suttons Bay Attorney with Wright Penning & Beamer has provided this timely and topical "bail-out" information about FDIC Insured Institutions and how it could affect your trust accounts. Read more information on his blog at www.suttonsbaydepot.com.



TAKE ADVANTAGE OF NEW INTERIM RULES TO BETTER SAFEGUARD TRUST ACCOUNTS AT FDIC INSURED INSTITUTIONS

(The $100,000 FDIC insurance coverage limit will temporarily increase to $250,000 upon President Bush’s signing of the “bail-out bill” passed in the House October 3, 2008. This increase is effective until December 31, 2009, at which time the insurance coverage will revert back to the $100,000 limit).

The FDIC has adopted an interim rule to simplify and modernize its deposit insurance rules for revocable trust accounts. Your living trust may be modified to take greater advantage of the new FDIC interim rule. Prior to the interim rule being adopted, all revocable trust accounts (both payable-on-death accounts and living trust accounts) were insured up to $100,000 per “qualifying beneficiary.” (A “qualifying beneficiary” was limited to the account owner’s spouse, child, or grandchild, parents, and siblings.) Under the interim rule, coverage is based on the existence of any beneficiary named in the revocable trust, as long as the beneficiary is a natural person, or a charity or other non-profit organization.

FOR ACCOUNTS TOTALING NO MORE THAN $500,000.

For account owners with revocable trust accounts totaling no more than $500,000, coverage will be determined without regard to the beneficial interest of each beneficiary in the trust. This issue typically arises in the context of a living trust that, for example, provides either varying lump-sum payments for designated beneficiaries or different percentage interests in trust assets to certain beneficiaries, or different remainder interests in the assets to the same or other beneficiaries. Under the new rules, a trust account owner with up to five different beneficiaries named in all his or her revocable trust accounts at one FDIC-insured institution will be insured up to $100,000 (temporarily $250,000 until Dec. 31, 2009) per beneficiary.

SPECIAL TREATMENT FOR ACCOUNTS TOTALING MORE THAN $500,000 WITH MORE THAN FIVE BENEFICIARIES.

Revocable trust account owners with more than $500,000 and more than five different beneficiaries named in the trust(s) will be insured for the greater of either: $500,000 or the aggregate amount of all the beneficiaries' interests in the trust(s), limited to $100,000 (temporarily $250,000 until Dec. 31, 2009) per beneficiary.

We recommend that trust account owners first ensure that the institution holding their funds is FDIC insured. We can help you determine the maximum FDIC insurance coverage amount of your trust account as it currently stands and how to better take advantage of the simplified interim rule. First and foremost, depositors should determine whether the institution holding their funds is maintaining solid footing in the financial industry during these uncertain times. Trust account owners may decide to move their funds to a more secure institution if they discover that their current institution is not equipped to handle the current financial predicament.

Dan A. Penning, Attorney
Wright Penning & Beamer
Farmington Hills and Suttons Bay, Michigan
231-271-4500