Question: I am named as my grandmother’s trustee to handle things on her death and Granny passed away a week ago. In figuring out what her trust assets are, I found that she has over $800,000 in one bank account at a small local bank. The bank has FDIC insurance but, from what I understand, it only covers $250,000 if the bank goes out of business. In my concern, I met with a bank officer to tell them Granny has died, and I am her trustee. The officer said until we have a death certificate, they cannot give me access to her funds and the funeral home tells me it will be at least three weeks until they can give me a death certificate! I can’t sleep at night because I am so worried I could lose everything over the $250,000 in her trust account. Can this be right? What can I do?

Answer: First, you need to consider a few things, not the least of which is a new FDIC law put into effect April 1 this year, which affects trust held deposits. In the 1920s and early 1930s there were thousands of bank closures taking place across the U.S. and depositors were losing their hard eared money. The Federal Deposit Insurance Corporation was put into place by Congress in 1934 to maintain stability and public confidence in our nation’s financial institutions.

When a bank is formed, it obtains FDIC insurance to cover the risk we depositors take when we open an account and put our money in the bank. The bank pays a premium to the FDIC for this insurance coverage. The FDIC receives no Congressional appropriations, it is an independent agency that is run as a corporation, and which pays its bills from the premiums it collects from banks.

If a bank fails, depositors apply to the FDIC for restoration of their funds. The FDIC is good at what it does and restoration of funds to the depositor is usually done within days of a bank failure. Historically, the standard amount a depositor could claim from the FDIC was $250,000. There were options to claim additional coverage, but it was confusing for both depositors and the financial institutions when determining exactly how much of a deposit was insured, particularly when funds were held by a trust.

To clarify how much of a trust held account is covered by FDIC insurance and to ostensively increase the amount of coverage, the FDIC put forward this new regulation. If an account is opened in a trust name and the trust provides that the assets of the trust will pass to one or more beneficiaries on the death of the “grantor” (the person setting up the trust – in your case, Granny), coverage for deposits is increased. The FDIC provides $250,000 of coverage per beneficiary for a maximum of five beneficiaries or $1.25 million. If Granny’s trust names you and a sibling as beneficiaries, for instance, coverage would be $500,000. If the trust names you two and additionally two charities, coverage would be $1 million.

Finally, the new law provides that on the death of the grantor, there is a six-month grace period during which the account continues to be insured giving family the time needed to deal with the death and restructure accounts. So, rest easy, chances are your Granny’s account was covered due to the number of beneficiaries in her trust but, in any event, you have a six-month grace period which should give you the time needed to properly address the account.

Question: My mom and dad have set up an estate plan that has a trust A, a trust B and a QTip trust. What is with the alphabet soup and why does it need to be so complicated?

Answer: Well, my friend, you have barely scratched the surface of the alphabet soup. We deal with trusts by the names of ILIT, CRT, QPRT, SLAT, SLANT, GRAT, CRUT and, my personal favorite, IDGT. The acronyms may sound ominous, but it is so much easier to say IDGT instead of Intentionally Defective Grantor Trust, right? The reason for so many different and complex trusts is that good attorneys and CPAs spend many an hour trying to save their clients income and estate taxes while giving them control to pass their assets to children or charities in the way they intend. You should be relieved; it sounds like your parents have done some good planning!

Liza Horvath has more than 30 years of experience in the estate planning and trust fields and is the president of Monterey Trust Management, a financial and trust management company. This is not intended to be legal or tax advice. Questions? Email liza@montereytrust.com or call (831)646-5262

Originally Published: July 13, 2024 at 11:10 a.m.