Monday, August 11, 2008

FDIC Part IV: Revocable Trust Accounts

Revocable Trust Accounts
A revocable trust account is a deposit owned by one or more people that indicates an intention that the deposits will belong to one or more named beneficiaries upon the death of the owner(s). A revocable trust account can be revoked (or terminated) at the discretion of the owner. The term "owner" means the grantor, settlor, or trustor of the trust.
There are both informal and formal revocable trusts.

Informal revocable trusts, often called "payable on death" (POD), "Totten trust" or "in trust for" (ITF) accounts, are created when the account owner signs an agreement usually part of the bank's signature card stating that the deposits are payable to one or more beneficiaries upon the owner's death.

Formal revocable trusts known as "living" or "family" trusts are written trusts created for estate planning purposes. The owner controls the deposits and other assets in the trust during his or her lifetime. Upon the owner's death, the trust generally becomes irrevocable.

All deposits that an owner has in both informal and formal revocable trusts are added together for insurance purposes, and the insurance limit is applied to the combined total.

Payable on Death (POD) Accounts
The owner of a POD account is insured up to $100,000 for each beneficiary if all of the following requirements are met:
  • The account title must include a commonly accepted term such as "payable on death," "in trust for," "as trustee for" or similar language to indicate the existence of a trust relationship. The term may be abbreviated (for example, "POD," "ITF" or "ATF").
  • The beneficiaries must be identified by name in the deposit account records of the insured bank.
  • The beneficiaries must be the owner's spouse, child, grandchild, parent, or sibling. Adopted and step children, grandchildren, parents, and siblings also qualify. Others including in-laws, cousins, nieces and nephews, friends, organization (including charities) and trusts do not qualify.