What Accounts Should be in Trust, How to Title them, & FDIC Insurance

We have covered a wide range of topics on our website and YouTube Channel under the umbrella of estate planning - Probate, funding a trust, long-term care planning, taxes and more. We have also received some great questions in the comments on our videos. We try to answer each one, but also figure if one person is asking, then it’s likely someone else has the same question. With that, today we’re going to tackle questions on bank accounts in your living trust. All these questions came from the comment section on our video on How to Fund a Trust and Transferring Bank Accounts to Your Trust.

FDIC Insurance for Trust Accounts

First is a question on whether cash accounts inside a trust are FDIC insured. Yes, trust accounts are FDIC insured. For those that may not know, the Federal Deposit Insurance Corporation is one of two agencies that supply deposit insurance to depositors at American banks. The other being the National Credit Union Administration for credit unions, and for which the same insurance coverage applies. Thus, whether it be a bank or credit union, the same deposit insurance is provided.

The coverage on said trust account is dependent on how many beneficiaries there are on the trust. For each beneficiary, there is $250,000 of coverage applied. Keep in mind, there are typically two instances where your beneficiaries “change” – when you amend your trust to change the distribution, or when the trustors pass away. For example, my wife and I have a Trust together. Since it is a normal Revocable Living Trust, the trust is to operate for our benefit during our lifetimes, meaning she and I are the current lifetime beneficiaries of our trust, and thus any trust account we open will have coverage up to $500,000. $250,000 for each of us. However, if both of us pass away and we leave everything to our son, he becomes the sole beneficiary at our deaths, thus, the coverage at that point would only be for $250,000 while he wraps up our estate.

Business Accounts in Trust and Best Type of Trust to Hold a Business

Next, we have the question of whether business accounts go into a trust and what kind of trust do we recommend when needing to hold a business in trust. Business accounts are typically treated a little differently than a normal trust bank account as they are owned by another entity: the business. Thus, the only parties that can be on a business bank account are the owners and authorized managers. However, keep in mind that the value of one’s business is included when determining whether an estate qualifies for probate or not. Thus, the following question then arises, if a business and the money held by it cannot be held within a typical trust bank account, how do we avoid the probate if the overall value is above the probate threshold?

If you own a business and are creating a trust, you should assign your interest in that business to your trust, with a document called an Assignment of Interest. This would allow for a trustee of the trust (yourself or your successor) to manage business affairs such as bank accounts, as the trustee would technically be the manager of the holding entity, that being the trust. This means the business is in trust, and thus is not counted when determining whether the assets held outside the trust are subject to probate or not. Additionally, we have seen some banks allow for a non-owner/manager to be on a business bank account so you should always speak to your banker for their requirements.

To answer the follow-up question as to what kind of trust we recommend when needing to hold a business in trust, it is going to depend on the situation and whether we are planning with a certain tax strategy in mind or with charitable organizations. However, for the overwhelming majority of cases, a normal revocable living trust is going to be the best option here. You should make sure your trust has provisions for management of a business within the trust terms so the trustee has explicit authority as to what they can do when managing a business though. Our trusts have that language by default but talk to your attorney if you aren’t sure if your trust has those provisions.

How Should Trust Accounts be Titled

Finally, we have the question of what should appear on the title of a bank account for said account to be in trust. Simply put, any bank account you want to hold in trust must have the name of the trust on the account. Even when the trustee changes, the name of the trust itself stays the same and thus is the most important aspect to keep on the title to the account. In theory, you could have a trust account with only 1 of 2 trustees on title to the account, but that would generally defeat the purpose of having co-trustees to begin with, or if you are doing family dynasty trusts, which are way beyond the scope of this post.

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