FDIC Coverage for Your 1031 Tax Deferred Exchange Account
FDIC deposit insurance of $250,000 per depositor is available for all interest-bearing deposit accounts with any bank. And because Exchange Services, LLC uses the qualified trust safe harbor for every transaction and puts your funds in a separate bank account, FDIC coverage protects your 1031 tax deferred exchange account.
You benefit with reduced risk, because you own the account. Exchange Services simply acts as the qualified intermediary (QI) and holds the account in trust in your name.
An individual with a qualified trust account holding 1031 exchange proceeds has a separate signing capacity from other deposits held at the same bank. So, the trust has its own coverage up to the maximum of $250,000 per trust relationship. A trust, with a married couple as trustees of the trust, has $500,000 of FDIC coverage—$250,000 for each trustee. A trust with several beneficiaries has maximum FDIC coverage multiplied by the number of beneficiary relationships associated with the trust. So, a family trust with husband and wife as trustees with their 3 children as beneficiaries, has a total of 6 beneficiary relationships; the wife for the benefit of the 3 children and the husband for the benefit of the 3 children for a total of $1,500,000 in FDIC coverage is available.
An exchanger participating with several entities can also receive separate coverage through each of those entities, or signing authorities, if they’re separate legal entities. Each individual, corporation, partnership or other entity has its own $250,000 limit. At a customer’s request, a flexible QI may be able to spread deposits across different banks to increase total coverage with $250,000 coverage at each of the depository institutions.
Tax deferred exchanges and the protection of funds can be complicated. Being aware of the issues and getting sound tax and legal advice are the best way to protect yourself. Consult with your tax and legal advisor to assure your exchange funds are protected to the maximum amount allowed by law.
The information contained herein is for informational purposes only and does not constitute tax, legal, or accounting advice. You are advised to seek appropriate professional advice regarding your specific facts and circumstances. All exchange and qualified intermediary services are offered through Exchange Services, LLC, a Utah limited liability company and affiliate of Zions First National Bank, California Bank & Trust, Vectra Bank Colorado, National Bank of Arizona, and Nevada State Bank.