How to Structure Your Trust and Get Maximum FDIC Protection

Imagine carefully setting up a trust to protect your family’s future—only to find out later that a significant portion of the money isn’t FDIC-insured. It happens more often than you’d think.

Related Article: FDIC Insurance: What's Covered, What's Not

Bank failures may be rare, but they aren’t impossible. Just ask the depositors at Silicon Valley Bank or Signature Bank in 2023. When the financial world wobbles, the Federal Deposit Insurance Corporation (FDIC) is the safety net. But here’s the catch: Trust accounts have different rules. Different limits. Different risks.

So, how do you make sure every dollar in your trust is fully protected?

This guide will walk you through the exact steps to structure your trust account for maximum FDIC coverage—so you never have to wonder whether your money is safe.

1. Understand FDIC Insurance Basics

The FDIC insures deposits up to $250,000 per depositor, per insured bank, per account ownership category. That’s straightforward for individual accounts, but trusts add complexity. The coverage depends on the number of beneficiaries and how the trust is structured.

• Revocable Trusts (living trusts) are insured based on the number of unique beneficiaries.
• Irrevocable Trusts may or may not be insured, depending on whether beneficiaries’ interests are contingent.
  
  
  

2. Maximize Coverage with a Revocable Trust

Revocable trusts offer a great opportunity to increase FDIC coverage beyond the $250,000 limit. Here’s how it works:

• Each unique beneficiary gets up to $250,000 in coverage.
• If you have four beneficiaries, you could get up to $1 million in FDIC insurance.
• But—and this is critical—the trust must specify exact percentages for each beneficiary. If it’s vague, the FDIC might not honor the full coverage potential.

Actionable Step: List out your trust’s beneficiaries and confirm that the bank records reflect them clearly.

3. Choose the Right Bank(s) for Maximum Protection

FDIC limits apply per bank, meaning you can expand coverage by spreading funds across multiple institutions.

• If you have a trust with $1 million and four beneficiaries, but you want more coverage, deposit half at Bank A and half at Bank B.
• Now you have $2 million insured, instead of being capped at $1 million.

Pro Tip: Stick with FDIC-member banks. Some institutions use non-FDIC-insured products that won’t protect you in case of a collapse.

4. Be Strategic About Naming Beneficiaries

One of the most common mistakes is naming a charity or another trust as a beneficiary. The FDIC does not count those as individuals, meaning they won’t increase your coverage.

How to maximize coverage:

• Use real individuals (family members, heirs, etc.) as direct beneficiaries.
• Ensure that each beneficiary gets a clear percentage of the trust assets.
  
  
  

5. Review Irrevocable Trusts Carefully

Irrevocable trusts don’t get the same coverage benefits as revocable trusts. If beneficiaries don’t have an automatic right to the funds, FDIC insurance might be limited to $250,000 total per bank—not per beneficiary.

Key Steps to Take:

• Work with an estate planning attorney to determine FDIC eligibility.
• If FDIC coverage is limited, consider laddering funds across multiple banks.
  
  
  

6. Keep Bank Records Clear and Up to Date

When a bank fails, the FDIC needs to quickly verify your trust account details. If records are unclear, coverage could be reduced.

Ensure these are documented:

• The exact title of your trust account
• A list of beneficiaries with exact percentages
• Whether the trust is revocable or irrevocable
  
  
  

7. Consider a Bank Deposit Sweep Program

Some banks offer FDIC-insured sweep programs, which automatically distribute funds across multiple banks while keeping them accessible in one account.

• Instead of manually opening accounts at different banks, your funds are spread for you.
• This can increase FDIC coverage while simplifying management.
  
  
  

Final Thoughts

Setting up a trust is about protecting your assets and your family’s future. But without the right structure, a large portion of your money could be uninsured and at risk.

To maximize FDIC coverage, follow these steps:

1. Understand how trust account insurance works.
2. Use revocable trusts with multiple beneficiaries.
3. Choose FDIC-member banks and diversify deposits.
4. Avoid naming entities as beneficiaries.
5. Review irrevocable trust structures carefully.
6. Keep bank records crystal clear.
7. Use bank sweep programs when available.

Taking these precautions will ensure that every dollar in your trust is protected—no matter what happens in the banking world.

Need help structuring your trust? Consult with your bank or a financial expert to review your setup and ensure your assets are fully covered.