Posted On: OCTOBER 2020
If your estate plan makes use of a revocable trust — sometimes known as a “living trust” — it’s critical to ensure that the trust is fully “funded.” Revocable trusts provide significant benefits, including the ability to avoid probate of the assets they hold and facilitating management of your assets in the event you become incapacitated. To obtain these benefits, however, you must fund the trust — that is, transfer title of assets to the trust or designate the trust as the beneficiary of retirement accounts or insurance policies.
To the extent that a revocable trust isn’t funded — for example, if you acquire new assets but fail to transfer title to the trust or name it as beneficiary — those assets may be subject to probate and will be beyond the trust’s control in the event you become incapacitated. To avoid this result, it’s a good idea to take inventory of your assets periodically and ensure that your trust is fully funded.
Another important reason to fund your trust is the ability to maximize FDIC insurance coverage. Generally, individuals enjoy FDIC insurance protection on bank deposits up to $250,000. But with a properly structured revocable trust account, it’s possible to increase that protection to as much as $250,000 per beneficiary.So, for example, if your revocable trust names five beneficiaries, a bank account in the trust’s name is eligible for FDIC insurance coverage up to $250,000 per beneficiary, or $1.25 million ($2.5 million for jointly owned accounts). Note that FDIC insurance is provided on a per-institution basis, so coverage can be multiplied by opening similarly structured accounts at several different banks.
FDIC rules regarding revocable trust accounts are complex, especially when a trust has more than five beneficiaries, so be sure to consult your advisor to maximize insurance coverage of your bank deposits.