In the first bank closure nationwide since 2017, the Texas Department of Banking closed Enloe State Bank in Cooper, Texas, on May 31, 2019. Although bank failures are uncommon, they are not rare: according to Bankrate.com, banks have failed in each of the last ten years, with the exception of 2018.

Bank failures are significant because people who have deposits over the federally insured limits will likely lose some of their money. It is important to note that depositors do generally receive some portion of their uninsured funds, but it’s not guaranteed.

Since 1933, the Federal Deposit Insurance Corporation (FDIC), a U.S. government agency, has insured deposits at banks and savings associations that pay for such insurance. The initial limit of insured deposits at a single bank was $2,500. That limit has increased over time, and is currently $250,000, which applies to deposits in each of the following categories. Two of the categories are single accounts, titled to one individual, and joint accounts, titled to more than one individual.

For example, if a family has an account at a single bank in the husband’s name alone in the amount of $250,000, a separate account in the wife’s name in the amount of $250,000 and a joint account of $250,000, all $750,000 would be insured. However, if you have a single account of $750,000, only $250,000 would be insured. If you want more details about the FDIC’s Ownership Categories, click here.

Credit unions are covered by a separate entity, the National Credit Union Administration, also a U.S. government agency. Its coverage limits are similar to the FDIC’s.

Why does this matter for estate planning or estate administration?

• Like personal deposits, funds held in trust in a bank are subject to insurance limits, although the rules are somewhat less straightforward. However, the rules often result in a higher amount of insured deposits. You should contact your estate planning attorney or bank if you have concerns.
• Although depositors generally receive some portion of their uninsured deposits, there is likely to be a delay, sometimes of years, before funds can be withdrawn.
• If your heirs already have funds in the same financial institution as you, the inherited funds may cause the heir to exceed the insurance limit.

What should you do to protect the assets you want to leave to your heirs?

• Review your deposit accounts to ensure that none have over $250,000, keeping in mind that all identically titled deposits in a bank count toward the limit. If you have deposits over the insured limit, consider moving funds to a different financial institution. It is important to note that different branches of the same bank often do not qualify as separate financial institutions. It’s also important to check whether “related” banks are covered by the same FDIC certificate, even though they don’t have a common name. For example, Citizen’s Bank, Citizen’s Access and RBS Citizens are all covered by FDIC certificate 57957. This means that they count as a single institution for FDIC insurance. You can check the FDIC certificate number for your banks on the FDIC website.
• Assess the financial health of your banks. Although the FDIC doesn’t release its evaluations of banks, bankrate.com does its own evaluations.
• And, finally, if you have any uncertainty about whether your accounts at an individual bank exceed the FDIC deposit insurance limit, you can use this tool, provided by the FDIC.

If you have any questions about how FDIC deposit insurance limits may affect your estate planning, it’s a good idea to talk to your estate planning attorney.

Nielsen Law PLLC provides family focused estate planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area.  For more information and to learn about our firm, please contact us.