Listen to Lawrence – Continuation of Revocable Trust Category

July 16, 2020

Dear clients and friends,


This email is a continuation of my discussion of FDIC (AND NCUA) insurance protection under the REVOCABLE TRUST category. To review past LISTEN TO LAWRENCE emails, go to DAVIDOWLAW.COM under the tab Media and Resources and click on “Articles” where they are all archived.

In one of my emails last week, we learned that if your REVOCABLE TRUST account has more than five unique beneficiaries, the amount of protection will depend upon how much total money is in the accounts and whether the beneficiaries are receiving EQUAL or UNEQUAL amounts. We also learned that if the total amount in all REVOCABLE TRUST accounts is equal to or less than $1,250,000, the entire account is insured without further analysis.


The rules change when the combined REVOCABLE TRUST accounts have more than $1,250,000 AND more than five beneficiaries. How much insurance is available here depends upon whether the beneficiaries are all EQUAL or UNEQUAL.


If a trust has equal beneficiaries (each beneficiary receives the same amount) then the insurance coverage is straightforward and easy to understand. The rule is simply that each unique beneficiary provides the REVOCABLE TRUST owner (formal or informal trusts) with $250,000 of insurance.

Mike and Carol Brady have a formal revocable trust with $4,000,000, naming all six kids as equal beneficiaries. Since the account exceeds $1,250,000 and the trust has more than five beneficiaries (6), then each owner will have 6 x $250,000 of coverage. Mike and Carol will each receive $1,500,000 of coverage for a total of $3,000,000, leaving $1,000,000 uninsured.

The same result would occur if instead, Mike and Carol had a joint CD with $4,000,000 naming all six kids as beneficiaries.

Therefore, the calculation is the number of owners of the formal or informal revocable trust x (the number of unique equal beneficiaries x $250,000) = insurance amount.


In a REVOCABLE TRUST case with six or more beneficiaries with UNEQUAL interests, the maximum insurance is the greater of: (i) $1,250,000, or (ii) the total of the specific allocations to all named beneficiaries up to $250,000 per beneficiary.

Here are the steps:
Step 1 – Identify all revocable trust deposits established by a specific owner in one insured bank.
Step 2 – Determine how much is allocated to each unique beneficiary, per owner.
Step 3 – If the actual allocation under Step 2 to each beneficiary is $250,000 or less, then the owner’s entire revocable trust deposit is fully insured, even if the balance exceeds $1,250,000. If the actual allocation under Step 2 to any beneficiary exceeds $250,000, then to the extent the amount exceeds $250,000, the excess amount is potentially uninsured.
Step 4 – If any beneficial interest exceeds $250,000, then the owner is insured for the greater of (i) the sum of each beneficiary’s share of the trust deposit up to $250,000 for each beneficiary, or (ii) $1,250,000.

The minimum insured amount is $1,250,000.
No beneficiary is insured for more than $250,000.


In the case of a FORMAL REVOCABLE TRUST with six or more beneficiaries with unequal interests, the FDIC has a formula to determine IF the maximum insurable amount can exceed $1,250,000.

STEP 1: Determine the largest percentage amount allocated to anyone beneficiary pursuant to the provisions of the revocable trust agreement.

STEP 2: Convert the largest percentage allocation from Step 1 to a corresponding decimal number (e.g., 25% = .25), and divide $250,000 by that number. (i.e. $250,000/.25).

STEP 3: Look at the result from Step 2. If the amount is less than or equal to $1,250,000, the formal revocable trust has a maximum insurable amount equal to exactly $1,250,000. If the Step 2 result is greater than $1,250,000, then this greater number is the maximum amount that can be deposited using the trust agreement with no uninsured funds.

The way the numbers play out is that if one or more beneficiaries have an allocated interest at or above 20%, the product of the Step 2 calculation will be $1,250,000 or less and, thus, the maximum insurable amount with no uninsured funds will always be limited to $1,250,000. If the largest beneficial interest is below 20%, the calculation will result in a maximum available amount of deposit insurance greater than $1,250,000.

Beneficiary with Largest Percentage/Share Break Even Calculation
Maximum Available Coverage Amount
$250,000 ÷ .19 = $1,315,789.47

$250,000 ÷ .20 = $1,250,000.00

$250,000 ÷ .21 = $1,190,476.19
MIKE BRADY is the owner of the Mike Brady Revocable Living Trust that designates Mike’s three sons and five grandchildren as beneficiaries, all of whom are living. Upon Mike’s death, the trust will terminate and its assets will be distributed 15% to each son and 11% to each grandchild. He wants to fund the trust with $2,000,000 at one insured bank. What is the maximum that can be insured?

Since the account is greater than $1,250,000 and six or more beneficiaries are receiving unequal amounts, the default rule is $1,250,000 of coverage. Mike would like to use the general rule of adding up each interest capped at $250,000 so he would add up $250,000 per son (15% of $2,000,000 = $300,000 but is capped at $250,000 per person) plus $220,000 per grandchild (11% of $2,000,000).

This would be:

$250,000 x 3 = $750,000 plus
$220,000 x 5 = $1,100,000
Total = $1,850,000

So, is $1,850,000 insured?

The answer is NO!

The rule is that we must first divide $250,000 by the largest percentage, which in this case is 15%. $250,000/.15 = $1,666,666.67. This then becomes the most that can be insured leaving the excess uninsured.

Hey, I get this is complicated. If you have one or more revocable trust accounts with six or more beneficiaries with unequal interests and you are trying to insure more than $1,250,000, please call the FDIC with any questions at 1-877-ASK-FDIC (1-877-275-3342).

I hope this helps.

Please forward this information to your friends and relatives.

As always, please email me your questions. If you are thinking about it, others are probably too, so my answers will no doubt help you and many others.

Let’s stay connected.


Stay safe!