Listen to Lawrence: FDIC Part 7B – Irrevocable Trusts Continued

July 28, 2020

Dear clients and friends,



My wife and I each created a revocable trust in your office to avoid probate. My wife died last year and her trust became irrevocable. Is her trust insured under the revocable or irrevocable category? It seems the revocable trust category is much more generous.

The correct answer is both rules apply…sort of. To the extent that a revocable trust account becomes irrevocable (in part or entirely) upon the death of one or more of the trust’s owners, the trust account will continue to be insured under the revocable trust rules. Think of it this way, deposits already in the trust at the time of death get grandfathered in.

Mike and Carol Brady have a joint revocable trust. Upon Mike’s death, half the trust becomes irrevocable. The insurance coverage will continue for the money in the trust as if he was still alive and the trust was still revocable.

However, in spite of the above grandfather rule, the general rule is that revocable trusts that become irrevocable upon the death of the owner are indeed governed by the irrevocable trust rules. Therefore, new deposits to a newly irrevocable trust will most likely be limited to $250,000 of insurance.

I hope this helps.

Please forward this information to your friends and relatives.

As always, please send 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!