Welcome to CPA at Law, helping individuals and small businesses plan for the future and keep what they have.

This is the personal blog of Sterling Olander, a Certified Public Accountant and Utah-licensed attorney. For over nine years, I have assisted clients with estate planning and administration, tax mitigation, tax controversies, small business planning, asset protection, and nonprofit law.

I write about any legal, tax, or technological information that I find interesting or useful in serving my clients. All ideas expressed herein are my own and don't constitute legal or tax advice.

Higher FDIC Protection for Trust Accounts

As most people know, the Federal Deposit Insurance Corporation (FDIC) is a federal government agency that insures customers of insured banks so that even if the bank fails, the depositors do not lose their money. The basic FDIC insurance amount is $250,000 per depositor per insured bank per account category.

The account categories include single-owner accounts, joint accounts, revocable trust accounts, and entity accounts. In other words, a single depositor can multiply their FDIC coverage by spreading their deposits across a single-owner account, joint account, etc. Of course, coverage can be multiplied by spreading deposits across multiple banks as well.

One benefit of establishing a revocable trust and opening a bank account in the name of the trust is that the maximum FDIC coverage for a revocable trust account at a single bank is $250,000 multiplied by the number of unique beneficiaries of the trust. To qualify for this increased coverage, the account name must indicate trust ownership, the trust beneficiaries must be identified in the trust agreement, and the beneficiaries must be living persons or qualified charitable organizations.

Of course, such a trust account will also have the benefit of never needing probate to administer, and the successor trustee will easily be able to manage the account upon the death or incapacity of the grantor of the trust. Increased FDIC insurance coverage is one more benefit of establishing a revocable trust.

Real Property Transfer on Death

In a prior post, I referenced the trend in probate law of testamentary contractual arrangements becoming more common. One such arrangement that can be used to transfer real property is a transfer-on-death deed, which is available in any state that has adopted the Uniform Real Property Transfer on Death Act or a similar statute.

The URPTODA allows real property to be transferred almost like a brokerage account would be transferred pursuant to a beneficiary designation.  The law permits a property owner to execute a transfer-on-death deed naming another individual or entity that will take title to the property upon the owner's death. Such a deed is revocable during the owner's life, meaning that the designated beneficiary has no rights with respect to the property until the owner's death. To be enforceable at such time, the deed must otherwise qualify as a recordable, inter vivos deed, must state that the transfer occur upon death, and must in fact be recorded with the county recorder's office.

Under the URPTODA, a designated beneficiary may disclaim the real property that would otherwise pass to them under a transfer-on-death deed but need not take any affirmative action in order to succeed to ownership of the property. However, individual state laws vary on this point; in at least one state (Oklahoma), the designated beneficiary must affirmatively record an affidavit accepting such interest or the property will revert back to the decedent's estate.

The URPTODA offers a solution that is preferable to other informal mechanisms for avoiding probate, such as executing but not recording a deed (a "sleeping deed") or naming a non-spouse beneficiary as a joint owner of a real property. However, utilizing a transfer-on-death deed is inferior in almost every way to executing and recording a traditional deed to a revocable living trust. For a good summary of these relative drawbacks, see page 34 of a recent issue of the Utah Bar Journal, located here.  In short, the URPTODA provides a new alternative for transferring real property to an heir outside of probate, but it will rarely be the best alternative.