One of the most useful, flexible and cost-effective legal devices available is the Revocable Living Trust. If properly drafted and funded, a trust can enable us to avoid probate and perhaps save hundreds of thousands of dollars of federal estate taxes. Ordinarily , the FDIC (Federal Deposit Insurance Corporation) insurance on bank deposits only covers the first $100,000 in an account.
If, before I had done my estate planning, I had, say, $400,000 in CD’s, in order to maintain fully insured deposits, I might have held title to them as follows: $100,000 in my name, alone; $100,000 in joint tenancy with my spouse; $100,000 in trust for my first child; $100,000 in trust for my second child.
Once the Trust is formed, it should be fully funded. Herein lies a rub: If I were to title all $400,000 of CD’s in my Trust, it would seem that only $100,000 would be insured.
Happily, that’s not necessarily so. Under FDIC rules, accounts may be insured for up to $100,000 per account per qualified beneficiary. Such beneficiaries include spouses, children and a few other close relatives. This exception applies both to bank trust accounts (“Totten” trusts) and revocable family trusts.
According to Elizabeth Hopp, Vice President of the Bank of Santa Clarita, another cure for the $100,000 limit is available: Some small banks subscribe to the Certificate of Deposit Registry Service, or CDARS. If you have a deposit of several hundred thousand dollars, the subscribing bank will arrange for CDARS to place up to $100,000 each in several other subscribing institutions, titled in the name of the trustee of your Trust and all coordinated for you through your initial bank.
The formation of your living trust should be entrusted to an attorney experienced in estate planning. The funding of your trust should be discussed with your attorney, your accountant, knowledgeable bankers and other financial professionals.
Jerry Kessler practices law in Santa Clarita. He may be reached at 661-255-1001.