San Diego Estate Planning Lawyer Blog

In San Diego, we have many FDIC insured banks. These include Washington Mutual, Union Bank, Bank of America and others. Our law firm of Pinkerton, Doppelt & Associates, LLP does not endorse or recommend any bank or other financial institution. We would be pleased to offer you a complimentary consultation on any estate planning issue. Our firm does not recommend or endorse any bank or financial institution. Please feel free to e mail or call us with any questions.

In 2004, the Federal Deposit Insurance Corporation (FDIC) put in place new rules for insurance coverage of living trust accounts in FDIC-insured institutions. A living trust, sometimes called a family trust, is a formal revocable trust. Its owner specifies who will receive the trust assets when the owner dies. During his or her lifetime, the owner, also known as a grantor or settlor, maintains control of the trust assets and has the power to make changes in the trust.

The owner of a living trust account is insured up to $100,000 per beneficiary if each of the following three requirements is met:

(1) The beneficiary must be the owner's spouse, child, grandchild, parent, or sibling. Not every relative qualifies. For example, cousins, nieces, and nephews do not qualify, but stepparents, stepchildren, and adopted children do.

(2) The beneficiary must become entitled to his or her interest in the trust when the owner dies. FDIC insurance coverage would be based on the beneficiaries who satisfy this requirement as of the time when a bank fails.

(3) The title of the account at the bank must indicate, with terms such as "living trust" or "family trust," that the account is held by a trust.

While insurance coverage is based on the actual interests of each beneficiary, the FDIC will assume that the beneficiaries have equal interests in the trust account unless the trust states otherwise. By way of a simple example, if a father has a living trust leaving all of the trust assets equally to his three children, the account would be insured up to $300,000. The total coverage consists of $100,000 for each of the three qualifying beneficiaries, who would become owners of the trust when their father dies.

In San Diego, we have one federal court which handles bankruptcy and several state courts which handle civil suits such as the one below in the San Diego Superior Court. Our law firm on Pinkerton, Doppelt & Associates, LLP would be pleased to offer you a complimentary consultation on estate planning or family law. Please feel free to e mail or call us. The below is used for illustration purposes only as are all of the blog postings.

Four years after Edward opened a credit card account with one of the major credit card companies, he married Linda. Linda became an authorized user of the card, but she was not, as the credit card company would later claim, a co-applicant for the card. Some years later, without telling Linda, Edward filed for bankruptcy. The credit card company took Edward's name off of the account and notified Linda that she was responsible for the balance on the account, which amounted to many thousands of dollars. After she learned about Edward's secretive bankruptcy, Linda left Edward. But when she tried to buy a condominium on her own, she could not qualify for a mortgage because of the big credit card debt that showed up on her credit record.

Linda's efforts to free herself from the effects of Edward's overspending began by getting copies of her credit reports from all three major credit reporting agencies. These reports confirmed her worst fears, showing her as being legally responsible for the credit card balance. Linda notified the reporting agencies that she disputed the fact that she was obligated on the account, and the agencies informed the credit card company of Linda's position.

In response to learning that Linda was challenging her responsibility for the debt, the credit card company was required by the federal Fair Credit Reporting Act to conduct an "investigation" regarding the disputed information. The nature and extent of that investigative duty became the focus of Linda's lawsuit under the Act. She filed suit when the company continued to maintain that Linda was responsible for the debt, thereby leaving in place the black cloud over her credit picture.

Linda won her case, with an award of damages for good measure. The credit card company had not satisfied its duty to investigate. After hearing from the credit reporting agencies, the company simply confirmed that the disputed information provided by the agencies matched the account information in its computer system. This cursory review was no "investigation." Federal law required the creditor to look beyond the bare information in its customer information system, such as by consulting underlying documents. In this case, the most important document would have been the credit card application submitted by Edward. As it happened, the company had lost the application, but that did not get it off the hook. Had the company done enough to discover that the key document was missing, it at least could have informed the credit reporting agencies that there was no conclusive proof that Linda was responsible for the credit card debt.