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Trusts Can Enhance FDIC Protection over Savings

Are you concerned about the safety of your bank
accounts? If so, your fears are justified: Earlier this year the Federal
Deposit Insurance Corp. (“FDIC”), which backs bank deposits, reported the
biggest jump in "problem institutions" it has seen since the savings
and loan crisis of the late 1980s. The FDIC identified 76 banks in trouble, a
52% increase from just one year ago. In fact, some experts predict as many as
200 bank failures could occur in the next few years.

But there’s also good news: With proper planning you
can protect your assets – even if you have considerable assets.

The FDIC insures bank accounts. Each individual is
covered for up to $100,000 in account assets. The limit is based on account
ownership – if you own three different accounts totaling $200,000, at any one
institution, only $100,000 is covered. One way to increase the amount of FDIC
insurance at any one bank is to designate different ownership of the accounts
at that bank. Say you own the $200,000 in your name alone; in that case, only
$100,000 is covered. If you divide the accounts so you own $100,000 and your
spouse owns $100,000, the full $200,000 is covered. (While this is an easy way
to get greater FDIC coverage for accounts at the same financial institution, it
can lead to problems when the spouse whose name is not on an account needs to access
the funds in that account.)

Another option is to avoid placing more than $100,000
with any one financial institution. If you and your spouse place $500,000 in
assets equally across five different banks, all the funds will be fully
insured. To make the process easier, ask us about the Certificate of Deposit
Account Registry Service (CDARS), a program which divides your assets across a
network of institutions that can help you maintain insurance coverage on funds
up to $50 million.

Arguably the best alternative is to place the accounts
in the name of a revocable living trust. Handled properly, the amount of FDIC
insurance on bank accounts owned by a revocable living trust can then be much
greater. Why? In 2004, regulations were changed allowing coverage to be
calculated not just on ownership but also based on the number of “qualifying
beneficiaries” identified in the trust agreement. If your trust names three
qualifying beneficiaries, the account is covered up to $300,000. Under the
right circumstances, if you and your spouse set up a joint trust, that coverage
could expand to $600,000!   For a free report on FDIC insurance and Trusts, contact our office, or visit our website at

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