In trust accounts, what is the collateral requirement when cash is deposited above FDIC limits?

In trust accounts, what is the collateral requirement when cash is deposited above FDIC limits?

• A. No collateral is required.
• B. Collateral must equal the amount deposited.
• C. Collateral must be a percentage of the available cash.
• D. Collateral is not necessary if loss reserves exist.

Answer: (B)

In trust accounts, when cash is deposited above the Federal Deposit Insurance Corporation (FDIC) limits, it is necessary to require collateral that matches the amount deposited above those limits. This requirement is in place to protect the interests of the trust beneficiaries by ensuring that their funds are safeguarded against potential bank failures or insolvencies that could affect the cash above the insured limits. The collateral requirement serves as a security measure, providing an added layer of protection. Should the bank fail, the trust has recourse to the collateral to recover the assets in excess of the insured amount. As a result, matching the collateral to the amount over the FDIC limits ensures that trust account holders have their interests adequately protected. This approach aligns with regulatory practices which often mandate collateralization to prevent losses in trust accounts, especially given the fiduciary nature of these accounts, where the trustee has an obligation to act in the best interest of the beneficiaries.

In trust accounts, when cash is deposited above the Federal Deposit Insurance Corporation (FDIC) limits, it is necessary to require collateral that matches the amount deposited above those limits. This requirement is in place to protect the interests of the trust beneficiaries by ensuring that their funds are safeguarded against potential bank failures or insolvencies that could affect the cash above the insured limits.

The collateral requirement serves as a security measure, providing an added layer of protection. Should the bank fail, the trust has recourse to the collateral to recover the assets in excess of the insured amount. As a result, matching the collateral to the amount over the FDIC limits ensures that trust account holders have their interests adequately protected.

This approach aligns with regulatory practices which often mandate collateralization to prevent losses in trust accounts, especially given the fiduciary nature of these accounts, where the trustee has an obligation to act in the best interest of the beneficiaries.