Don’t Put All of Your Eggs In One Basket (or Bank) -- Why Trustees and Executors Should be Following the Bank Closing News to Avoid Breaching Fiduciary Duties


As a trustee or executor, you have a fiduciary responsibility to act in the best interests of the trust or estate's beneficiaries. This responsibility includes managing assets and accounts with prudence and care. Do you understand the banking and FDIC insurance rules covering your trust or estate assets?

As a litigation law firm that handles trust and estate disputes, including fiduciary duty breaches due to mismanagement of assets and accounts, we want to remind you of the importance of staying informed and proactive in mitigating risks to your clients' funds. One way to do that is to know about the two recent bank failures and understand the limits and nuances of FDIC account insurance, which can vary depending on the ownership and beneficiaries of the accounts.

Two Recent Bank Failures:

Recently, there have been two significant bank failures - Silicon Valley Bank (“SVB”) and Signature Bank - that should serve as a reminder of the importance of being vigilant in the management of trust and estate assets.

The sudden collapse of Silicon Valley Bank, a specialized bank that catered to the tech industry, sent shockwaves throughout the tech community. The bank had financed and banked for venture capital-backed startup companies, including some of the biggest names in the industry. When a classic bank run then occurred, and customers withdrew their deposits simultaneously, the bank was unable to liquidate its assets without significant losses, leading to its collapse. As a trustee or executor, it's crucial to note that many of the bank's depositors were startup companies, which deposited large amounts of cash from investors. These deposits exceeding the FDIC Insurance limits were not technically covered and were at risk.

Signature Bank's collapse followed a similar pattern. Its customers withdrew more than $10 billion in deposits after the sudden collapse of Silicon Valley Bank. The resulting bank run quickly led to the third-largest bank failure in U.S. history, with regulators stepping in to protect depositors and the stability of the U.S. financial system.

Fiduciary Duty Risks and the FDIC:

In both cases, these bank failures highlight the risks associated with managing trust and estate assets, including fiduciary duty breaches. As a trustee or executor, you must be vigilant in your management of assets and accounts, especially when they include cash exceeding the basic FDIC Insurance level of $250,000.00.

What is the FDIC?

The FDIC stands for the Federal Deposit Insurance Corporation, which is a United States government agency that provides deposit insurance to protect depositors in case their bank fails. The FDIC was created in 1933 during the Great Depression to restore confidence in the banking system and prevent bank runs.

The FDIC insures deposits at FDIC-insured banks up to a certain amount per depositor, per bank. As of the date of this posting, this amount is $250,000 per depositor, per insured bank (not account), with modified rules for trust or estate beneficiaries (see below). If a bank fails, the FDIC will typically step in and sell the bank's assets to pay off depositors. This helps ensure that depositors can get their money back even if their bank fails.

It's important to note that not all banks are FDIC-insured, and some types of accounts, such as investments in mutual funds, stocks, and bonds, are not covered by FDIC insurance.

How Does the FDIC Insurance Work, Particularly With Trusts and Estate Beneficiaries?

The FDIC insurance amount for individual and joint accounts is $250,000 per depositor, per insured bank. The FDIC also provides insurance coverage for deposits held in trust accounts. The coverage is based on the number of beneficiaries and the ownership interests of each beneficiary in the account. The basic coverage limit for a revocable trust account is $250,000 per beneficiary, per owner. If there are multiple beneficiaries with different ownership interests in the account, the coverage limit may be higher.

It's important to note that there are certain requirements that must be met in order for a trust account to be eligible for FDIC insurance coverage. For example, the account must be structured as a valid trust under state law, and the bank must be able to verify the identities of all beneficiaries.

If a trust or estate has multiple beneficiaries, the coverage can be increased up to $250,000 per beneficiary, provided certain requirements are met. However, if the trust or estate has multiple trustees or executors, each may be insured up to $250,000 for their own interests, even if they represent the same trust or estate. Moreover, certain types of accounts, such as revocable trust accounts, can be insured separately from other accounts of the same owner or beneficiary, depending on how they are structured and titled. See the FDIC website for more information.

Given these complexities, it's important to work with experienced and knowledgeable advisors who can help you structure and manage accounts and investments in a way that maximizes FDIC insurance coverage and minimizes exposure to risks of loss or liability, which may be fiduciary duty breaches. If you have questions about FDIC insurance coverage for trust accounts, it's a good idea to speak with a banker or financial advisor who can help you understand your options and ensure that your deposits are fully insured.


At The Glennon Law Firm, P.C., we have a team of seasoned litigators who have successfully represented trustees and executors in complex trust and estate disputes involving banking and investment issues. We know how to navigate the legal and regulatory landscape of banking and fiduciary law, and we can help you assess and address risks and challenges that may arise in managing trusts and estates. Whether you need advice on account structuring, due diligence, risk management, or litigation, we are here to help you achieve the best outcomes.

When trust and estate disputes arise, or questions or allegations about fiduciary duty breaches arise, it is essential to choose an attorney with the appropriate experience and expertise to handle the specific nature of the conflict. Trust and estates litigation attorneys are better suited to represent clients in disputes and navigate the complexities of the litigation process, especially when it comes to the interplay between Surrogate’s Court rules in New York State and the procedural court rules used in New York Supreme Court litigation. By choosing a skilled litigator, you can ensure that your rights and interests are protected, and that you receive the best possible representation throughout the dispute resolution process.

If you are facing similar concerns or if you have questions about your Trust and Estate dispute, or fiduciary duty issues, please feel free to contact us here. We have many years of experience handling such matters and will be able to assist you in resolving the dispute.

To learn more about these topics, you may want to review our information provided on these pages: Trust & Estate Litigation, Business Litigation.

You may learn more about us and how we operate by visiting these pages: About Us, What Sets Us Apart, and Learn More About Us.

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