There are good reasons and bad reasons for setting up a funded revocable living trust (RLT) – here is one of the better reasons: FDIC insurance has been increased and now covers each beneficiary’s interest in an RLT up to $250,000 each.
See the FDIC website explanation here.
The legislation authorizing the increase in deposit insurance coverage limits makes the change effective October 3, 2008, through December 31, 2009.
A beneficiary must be a person, charity or another non-profit organization (as recognized by the Internal Revenue Service). All other beneficiaries are not eligible for separate coverage as revocable trust deposits.
While the owners [grantors] of a trust may benefit from the trust during their lifetimes, they are not considered beneficiaries for the purpose of calculating deposit insurance coverage. Beneficiaries are those identified by the owner to receive an interest in the trust assets when the last owner dies. Unlike POD accounts, the beneficiaries do not have to be identified by name in the deposit account records of the bank. But the account title at the bank has to show that the account is owned by the RLT.
For example, if the RLT holds $1 million in a bank account and provides that on the grantor’s death, the trust is distributed in 1/4 shares to the grantor’s four children, there is $ 1 million of FDIC insurance on the account.
Blogging credit to Liza Weiman Hanks, author of Everyday Estate Planning.