After the banking crisis of 2008, many depositors became alarmed and more aware than they ever had been before regarding where they were depositing their money and how much of it was insured. The reality is that through the Federal Deposit Insurance Corporation (“FDIC”), which was established under the Banking Act of 1933, a single depositor is granted only $250,000 of principal and income insurance at each FDIC-nsured bank. However, this rule applies only to single depositor accounts and thus allows for several exceptions, so long as certain stipulations established by the FDIC are met. For example, revocable trusts are allocated $250,000 of insurance protection at each FDIC-insured bank, per named beneficiary, regardless of the number of grantors; each depositor is granted $250,000 of insurance coverage for their qualified retirement accounts held at each FDIC-insured bank (which is considered a separate allocation from the $250,000 total coverage otherwise offered to single depositors) and joint account holders are given $250,000 of insurance coverage, per joint owner, per FDIC-insured bank. Unfortunately, while some bankers might view these exceptions as solutions to the short-term problem of FDIC insurance, these exceptions could drastically alter an individual’s estate plan, partially or in full, if exercised outside the guidance of an estate planning attorney.
Imagine Mary Jones, a New Jersey resident and widow, who has two children, a son and a daughter. She has among her various assets three certificates of deposit (“CD”) at an FDIC-insured bank, and each CD is valued at $100,000. As indicated above, since she is a single depositor with accounts solely in her name, she has $300,000 worth of CDs insured for only $250,000, thus leaving $50,000 of one of her CD’s unsecured. However, as indicated, Mrs. Jones could alleviate this problem if she held one of her accounts in joint name with another individual, such as her daughter, since each joint owner is allocated $250,000 of insurance coverage at each FDIC-insured bank.
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