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What Is a Fiduciary Deposit Account?

Byline profile imageWritten by Ashley Kilroy
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Byline profile imageEdited by Mo Mozuch
Byline profile imageEdited by Arturo Conde, CEPF®
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A fiduciary deposit account is an account that’s typically used to handle estate or trust assets, among other purposes. It is owned by one or more persons but managed by another. The owner is known as the principal, while the manager is known as the fiduciary. Their legal status and their insurance coverage are determined by the Federal Deposit Insurance Corporation (FDIC).

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Fiduciary Deposit Account, Defined

According to FDIC rules a fiduciary deposit account, also known as a principal account, is a deposit account that a fiduciary establishes to benefit one or more persons who own the assets in the account. The individual who opens the account doesn’t have ownership of it nor any ownership interest.

Some examples of fiduciaries of these accounts are trustees, agents, nominees, custodians, and guardians. Fiduciary accounts are used in various ways:

When FDIC Pass-Through Insurance Coverage Applies

All deposits managed by a fiduciary on behalf of the account’s owner or owners are insured by the FDIC for the full $250,000 on a pass-through basis. This means that all the deposits are considered to be deposits made directly from the principal as long as three requirements are met:

  1. The owner of the funds must be the principal and not the fiduciary who set up the account. The FDIC may review the fiduciary and owner’s agreement on the account, as well as state laws to confirm this.
  2. The record of the insured depository institution (IDI) account must indicate the agency nature of the account. For example, the ownership of the account may read ABC Company as custodian, ABC for the benefit of (FBO), or Sally Rowe UTMA John Rowe, Jr.
  3. The IDI, fiduciary and third-party records must show the owners’ identities and the ownership interest(s) in the deposit account.

For example, let’s say XYZ Brokerage firm establishes an account for Sally Rowe at ABC Bank. In this example, Sally Rowe is the owner, or the principal, of the money in the account. This account would then be added with any other single accounts she owns at ABC Bank, which would be insured as a single account for up to $250,000.

If we assume Sally has more single ownership accounts at ABC Bank, she will not receive additional coverage because XYZ Brokerage firm opened the account for her. With a fiduciary account, coverage is provided as though the actual owner opened the account at the IDI, assuming all responsibilities are met.

Pass-through coverage is also possible if a guardian retains part of the interest paid by the IDI as a guardian fee.

When FDIC Pass-Through Insurance Coverage Applies

All deposits managed by a fiduciary on behalf of the account’s owner or owners are insured by the FDIC for the full $250,000 on a pass-through basis. This means that all the deposits are considered to be deposits made directly from the principal as long as three requirements are met:

  1. The owner of the funds must be the principal and not the fiduciary who set up the account. The FDIC may review the fiduciary and owner’s agreement on the account, as well as state laws to confirm this.
  2. The record of the insured depository institution (IDI) account must indicate the agency nature of the account. For example, the ownership of the account may read ABC Company as custodian, ABC for the benefit of (FBO), or Sally Rowe UTMA John Rowe, Jr.
  3. The IDI, fiduciary and third-party records must show the owners’ identities and the ownership interest(s) in the deposit account.

For example, let’s say XYZ Brokerage firm establishes an account for Sally Rowe at ABC Bank. In this example, Sally Rowe is the owner, or the principal, of the money in the account. This account would then be added with any other single accounts she owns at ABC Bank, which would be insured as a single account for up to $250,000.

If we assume Sally has more single ownership accounts at ABC Bank, she will not receive additional coverage because XYZ Brokerage firm opened the account for her. With a fiduciary account, coverage is provided as though the actual owner opened the account at the IDI, assuming all responsibilities are met.

Pass-through coverage is also possible if a guardian retains part of the interest paid by the IDI as a guardian fee.

When FDIC Pass-Through Insurance Coverage Doesn’t Apply

A couple review a fiduciary account with their advisor.

If requirements of a fiduciary account are not met, the account will be insured under the fiduciary, not the intended principal. In this case, the fiduciary will own the deposits and the account will be categorized as a single account or corporate account. These deposits will then be combined with other deposits the fiduciary holds in the same ownership at the IDI where funds are held. The total sum will be insured up to $250,000.

For example, let’s say a customer of a deposit broker is assured by the guardian (fiduciary) that they will earn 5% on a deposit when the IDI is paying only 3%. The guardian would not be a guardian then; they would be a borrower with an independent responsibility to pay 5%. In this case, the deposits are no longer eligible for pass-through coverage for the principal. Instead, the deposits are now considered corporate deposits belonging to the guardian.

How to Use Fiduciary Deposit Accounts in Estate Planning

Fiduciary deposit accounts can play an important role in estate planning because they allow assets to be held and managed on behalf of beneficiaries. Executors, trustees and guardians often use these accounts to keep estate funds separate from their own money. This separation is key for both legal compliance and clear recordkeeping.

When properly structured, fiduciary accounts can also extend FDIC insurance protection to each beneficiary through pass-through coverage. For example, an estate account at a bank may hold more than $250,000, but coverage applies per beneficiary, and not per account, as long as the records clearly identify the owners and their shares. This can prevent losses if the bank fails while the estate is being settled.

These accounts are also useful for various types of trusts. A trustee can manage deposits in a fiduciary account while maintaining transparency for the beneficiaries. The FDIC insurance follows each beneficiary’s interest, which adds another layer of security during administration. Guardianships and custodial accounts for minors also rely on fiduciary deposit structures to protect assets until the beneficiary comes of age.

For estate planning purposes, the advantage of fiduciary deposit accounts is both control and protection. They allow a fiduciary to manage estate or trust assets according to legal requirements, while ensuring beneficiaries remain the true owners of the funds. When used correctly, they provide structure, accountability, and insurance coverage that can safeguard family wealth through the estate process.

Bottom Line

A man reviews a fiduciary deposit account.

A fiduciary deposit account is an account set up by someone for another person, who actually owns the money. The one who sets up the account and manages it is known as the fiduciary, while the owner of the money is known as a principal. This kind of arrangement is used to handle assets in trusts, escrow accounts, brokerage accounts, and decedent estates, among other uses. It’s important that these arrangements carefully follow all the FDIC’s legal requirements, as well as applicable state regulations, to qualify as a fiduciary deposit account.

Estate Planning Tips

  • Consider talking to a financial advisor about your estate plans. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you have an agent, they may make decisions about your 401(k) account. Find out how much money you’ll have in your account by the time you retire with SmartAsset’s free 401(k) calculator.

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