Wealthy savers could be hit by minor tweak to the way their money is insured at banks- are YOU affected?

Wealthy savers are being urged to check their money is still insured by the Federal Government following a little-known tweak to rules.

Typically, all bank deposits up to $250,000 are covered by the Federal Deposit Insurance Corporation (FDIC). This proved to be a vital lifeline during the sensational collapse of Silicon Valley Bank (SVB) last year.

But from April 1 a minor change to these rules - designed to simplify the system - could affect beneficiaries of trusts. 

Under the old system, irrevocable and revocable trusts - the former being harder to set up but offering more tax benefits - were treated very differently. 

Now the protection for irrevocable trusts has been increased but for the latter it is not nearly as extensive for those with more than five beneficiaries. 

Wealthy savers are being urged to check their money is still insured by the Federal Government following a little-known tweak to rules

From April 1, a minor change to these rules - designed to simplify the system - could affect beneficiaries of revocable and irrevocable trusts 

Bofore the rule change a revocable trust was FDIC insured on up to $250,000 for each trust beneficiary - no matter how many. That meant large funds with multiple beneficaries could be covered for multiple millions of dollars. 

For example,  for a fund of $2.5million or more, with ten benefiaries each getting an equal slice, the maximum value of insurance would be that $2.5million. 

By comparison, irrevocable trusts were only covered up to a maximum of $250,000 regardless of the number of beneficiaries.

But from this month both trusts will now be covered to a maximum of $1.25 million - or $250,000 per beneficiary. 

It means those with a revocable trust that exceeds this figure are now at risk of not being fully insured. 

Certified public accountant Tom Wheelwright, founder and CEO of WealthAbility, told DailyMail.com: 'Those with irrevocable trusts with lots of beneficiaries are the people who will get caught.

'The FDIC is just explicitly spelling out how many beneficiaries it will cover on a trust. Because previously that was unclear.'

Investors with $250,000 in a revocable trust and $250,000 in an irrevocable trust at the same bank may have their FDIC coverage reduced from $500,000 to $250,000.

Wheelwright recommends that investors who may be affected could open up accounts at multiple FDIC insured banks to ensure the coverage.

'Most of my clients have money stored across different FDIC banks to maximize the benefits of the coverage.  

Certified public accountant Tom Wheelwright, founder and CEO of WealthAbility , told DailyMail.com: 'Those with irrevocable trusts with lots of beneficiaries are the people who will get caught.'

Savers can also open a joint account for two people to double their effective coverage. 

A fact sheet from the FDIC alerted investors to the change in January 2022 - giving them more than two years to prepare.

It explained: 'The final rule is also intended to facilitate more timely deposit insurance determinations for trust accounts in the event of a bank failure by streamlining the detailed, time-consuming review of trust agreements that is often required under the current, complicated trust rules.'

The issue of FDIC insurance came up during the collapse of several regional banks including SVB last year.

In the case of SVB, federal officials took the unusual step to cover all of its deposits - even those that exceeded the $250,000 limit.

Wheelwright told DailyMail.com: 'This is the big question the FDIC needs to answer: is $250,000 even the true limit?' 

'After SVB, depositors with $30 million dollars were getting their money bank. It meant the government essentially saying: in the event of a bank failure, coverage is unlimited. It certainly undermined the FDIC.'