Most people know that the FDIC (Federal Deposit Insurance Corporation) insures bank accounts for up to $250,000 per depositor per covered bank. This insurance was increased from $100,000 to $250,000 in 2008, to reassure people during the chaos of the financial meltdown that started in that year. (This increase was supposed to be temporary, but was made permanent in 2010, as part of the Dodd-Frank Act).
So, if, for example, you are the sole owner of a bank account with $500,000 in it, that account is only insured for $250,000. If that same bank account is co-owned by your spouse, that account is insured for $500,000 because each owner gets that $250,000 of insurance. For many of us, that’s enough insurance. But not always. I’ve had clients call me after they’ve sold a house, nervous about the fact that they have a large balance on deposit at the bank. What to do?
A living trust can help here. While it is true that everyday bank accounts that don’t accumulate much money (the ones you use to pay bills) are usually not put into a living trust, larger accounts are. There are two reasons for this: first, large accounts should be held in trust to avoid probate at the owner’s death; second, holding a bank account in the name of a trust means additional FDIC insurance on that account.