Are my exchange funds FDIC insured while the QI holds them?

The FDIC insures deposits against a bank failure, not against your intermediary

The FDIC's deposit insurance overview says coverage is $250,000 per depositor, per FDIC-insured bank, for each account ownership category, and that it covers only deposits and only at insured banks. The same page says deposit insurance does not cover the default or bankruptcy of any institution that is not an FDIC-insured bank.

That is the gap that matters for an exchange. The failures the IRS addressed in Rev. Proc. 2010-14 were intermediaries entering bankruptcy or receivership, not banks. What happens then is covered in if your intermediary goes bankrupt or steals your money.

The FDIC's brochure on insured deposits also lists what it does not insure: stocks, bonds, mutual funds and Treasury bills, bonds or notes, among others. If your funds are swept into a money market fund, that portion is outside deposit insurance even if the sweep runs through a bank.

Coverage passes through to you only if the account is set up for you

12 CFR 330.7(a) says funds owned by a principal and deposited in the name of an agent, custodian or nominee are insured as if deposited in the principal's name. 12 CFR 330.5(b) adds the conditions: the fiduciary relationship must be expressly disclosed in the bank's deposit account records, and the details of each owner's interest must be ascertainable from the bank's or the fiduciary's records.

The FDIC brochure adds a third: the underlying owners, not the third party, must actually own the funds, and the FDIC decides whether the requirements are met when the bank fails. An account in the intermediary's own corporate name with no fiduciary disclosure is the intermediary's deposit, insured once for the company, not once per client.

Tax rules point the same way. Under Reg. section 1.468B-6(c), exchange funds are treated as loaned to the exchange facilitator unless the agreement pays all earnings to you, and a separately identified account is one established under your name and taxpayer identification number. That is a tax rule, not an FDIC rule, but an account titled to you helps on both fronts.

Worked example: $1,200,000 of proceeds at one bank and spread across five

Hypothetical, round numbers. You sell a rental and $1,200,000 goes to the intermediary. It holds the money in a properly titled custodial account for you at one insured bank where you also keep $50,000 in personal checking.

If that bank fails, your exchange funds are added to your checking balance in the single-ownership category. You are insured for $250,000 in total, leaving $1,000,000 exposed to the bank's receivership.

If the intermediary instead places $240,000 in each of five insured banks, each titled for your benefit, and you hold no other deposits at those banks, all $1,200,000 is within the limit. The FDIC brochure lists companies that place customers' funds at different banks to maximize coverage among the arrangements that can qualify for pass-through insurance.

• None of this helps if the intermediary itself moves the money out of the account.
• Ask whether earnings from the account are paid to you, because that decides who reports them under Reg. section 1.468B-6.

The structures that keep the money out of the intermediary's hands

Reg. section 1.1031(k)-1(g)(3) offers a qualified escrow account or a qualified trust as a safe harbor alongside the intermediary safe harbor. The holder must not be you or a disqualified person, and the agreement must limit your right to receive, pledge or borrow the money as paragraph (g)(6) requires.

These structures address a different risk from FDIC insurance. A qualified escrow or trust places the cash with an escrow holder or trustee bound by the written limits, rather than leaving it in the intermediary's general accounts; FDIC titling guards only against a bank failure. Some exchangers ask for both.

Ask your intermediary, in writing, for the bank's name, the exact account title, whether the account carries your name and taxpayer number, whether any of it is swept into non-deposit products, and whether funds are spread across banks. Then confirm the bank is insured through the FDIC's BankFind tool. The wider selection checklist is in how to choose a qualified intermediary.

Shortening the time the money sits is the other lever

Exposure lasts as long as the funds stay with the intermediary, up to 180 days. Closing replacement purchases early cuts that window, and an exchanger who has identified a beneficial interest in a Delaware Statutory Trust can often close that leg quickly, as explained in how fast a DST can close.

Whatever the structure, the money cannot come back to you early without breaking the exchange; the rules are in touching or borrowing against exchange funds, and the earnings question is in interest on exchange funds.