Trust Accounts

Definition of a Trust Account

A Trust Account is an account in respect of which a beneficiary has an interest under an irrevocable express trust created by a written law or by a trust instrument, but does not include any interest retained by the holder.

Funds deposited in an account by a trustee under an irrevocable express trust are insured on the basis of the beneficial interests under such trust.

The interest of each beneficiary established under such a trust is insured up to $125,000, separately from other accounts held by the trustee, the settlor (grantor) or the beneficiary in his individual capacity.

Trust Relationships

Settlor: Person whose property was used to establish the trust.
Trustee: Administrator of the trust, may be a person or an Institution
Beneficiary: Person ultimately entitled to the trust property.

Scenario:
T is a trustee of an irrevocable trust created by S, settlor, for the benefit of A and B in equal shares. T holds an account containing $250,000 in trust funds. A and B, as well as T and S, each maintain individual accounts in the amount of $125,000 each.

Insurance coverage:

Individual Accounts
S $125,000
T $125,000
A $125,000
B $125,000

Trust Account $250,000

  1. Individual accounts of A, B, T and S are each separately insured up to $125,000.
  2. Trust account of $250,000 is fully insured, since each of the deemed interest is insured up to $125,000.

Scenario:
S is the settlor of an irrevocable trust for the sole benefit of his son, B. T, the trustee, maintains an account in Y institution containing $125,000 in trust funds for B. S subsequently creates a separate irrevocable trust, also for B’s sole benefit, with X institution as trustee. X institution deposits $5,000 of the trust funds in another account in Y institution.

Insurance Coverage:

B’s interest (First Trust)

$125,000

B’s interest (Second Trust)

$5,000

 

$130,000

Maximum coverage

$125,000

 


Scenario:
S is the settlor of an irrevocable trust fund for the sole benefit of his son B. T, trustee, deposit $125,000 of the trust funds in a trust account. S establishes a revocable trust account in the amount of $125,000 for the sole benefit of B. S also has an individual account of $125,000.

Insurance Coverage:
B’s trust estate (irrevocable trust) $ 125,000 (fully insured)

B’s trust estate (revocable trust)

$125,000

S’s individual account

$125,000

 

$150,000

Maximum coverage

$125,000


Impact of Loans on deposit insurance coverage

If a loan (demand) and a deposit are held in the name of the same person or organisation, the Corporation will offset the balance on the deposit account.

Scenario:
A has a deposit account for $120,000 and a loan account (demand) with a balance of $110,000.

Insurance Implications:

Deposit

$120,000

Loan

$110,000

Insured deposit balance

$10,000

Deposit is fully offset against the loan balance.


Scenario:
A has a deposit account for $60,000 and a loan account with a balance of $70,000.

Insurance Implications:

Deposit

$60,000

Loan

$70,000

Outstanding loan balance

$10,000

Deposit is partially offset against the loan balance and the outstanding balance must be settled by the depositor/loan customer.

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