My Experience as a Beneficiary Claiming POD Bank CDs
Most banks and credit unions allow you to name payable-on-death beneficiaries on your accounts. I reviewed many times how this can be used to increase your deposit insurance coverage. If you don't need to worry about increasing your deposit insurance coverage, you may still want to specify beneficiaries on your accounts. It can make it much easier on your heirs. When the owner dies, the account doesn't have to go through the probate process. This can save your heirs time and legal expenses. The beneficiary can claim the account directly at the bank or credit union.
I was the beneficiary on several small bank accounts that my dad owned. He passed away in March, and this year I had my first experience of claiming accounts as a beneficiary. Except for my problems at Wells Fargo, the process of claiming the accounts was simple. However, there were a few issues that I had to consider. I thought it would be useful for me to review these in a blog post.
In the last 20 years of my dad's life, almost all of his savings were in CDs. He had several small CDs at a few banks and credit unions. In addition to the safety and simplicity of the CDs, he also liked the ability to designate beneficiaries. He didn't have enough to worry about higher deposit insurance coverage. His main concern was to make it easy for me and my two brothers to inherit his savings without having to go through probate.
Specifying beneficiaries on bank accounts is indeed an easy way to keep money out of probate. Most banks allow you to add one or more beneficiaries to an account. They typically label beneficiaries as "payable on death" (POD) or "in trust for" (ITF).
One downside to specifying a beneficiary is that many banks and credit unions require the beneficiary's social security number. One of my credit unions refused to add a beneficiary without the beneficiary's social security number. I know readers have also reported this problem at some banks. I was wanting to add my brothers as the beneficiaries, but I didn't want to carry their social security numbers. Also, I didn't want to provide this number. I trust the credit union, but nothing is 100% secure. The more you give out these numbers, the more likely it could be found by hackers.
While you are alive, the beneficiaries have no access to the bank accounts. Access is only available after you die. In my experience, I just had to bring the certified copy of the death certificate and my ID. I also brought the copies of the account documentation with the account number and the beneficiary designation. This made it easier for the banks to look up the accounts in their system, but I don't think this was necessary for all cases except for that one Wells Fargo CD in which they had used the wrong beneficiary form.
Keeping the CD Rates and Terms
If a beneficiary is claiming a certificate of deposit, he or she can typically close the CD without an early withdrawal penalty. That was the case for all of my dad's CDs. However, there was an interesting issue with this. Many of my dad's CDs were 5-year CDs that were opened a few years ago when the rates were much higher. If I closed those CDs early, I would lose out on the high rates.
I was hoping that the banks and credit unions would allow me to take ownership of the CDs with the original rates and maturity dates. However, only two banks allowed this. The credit unions and the other banks required that the CDs be closed before I could take ownership of the funds.
The two banks that changed ownership without closing the CDs were SunTrust and PNC.
SunTrust Bank had the best process. They quickly gave me this choice at the branch, and converted the CDs with my name as the owner. They also allowed me to add new beneficiaries. The CD rates and maturity dates remained the same.
PNC also converted the CDs, but it did one surprising thing. It converted the CDs that listed me as the beneficiary without my permission. My brother was also a beneficiary on some PNC CDs, and he went to a PNC branch before I did. For some reason, PNC not only converted my brother's CDs, but it also converted my CDs. When I visited PNC, I learned that I was already the owners of these CDs. The main problem was that I could no longer close the CDs without an early withdrawal penalty. Fortunately, I had wanted to keep the CDs opened with the original rates and maturity dates. So I didn't protest what they did.
For all the other banks and credit unions, I was not allowed to keep ownership of the CDs with the original rates and maturity dates. The CDs had to be closed before I could take ownership of the funds. However, I still had a choice to make. Most would allow me to wait before closing the CDs. My dad had set up all of the CDs so interest would accrue in the CDs. I could just let the CDs mature and close them at maturity. There were two issues with this approach. First, all of the CDs would mature after 2011. My brothers and I felt that it would simplify tax reporting to have the CDs closed before 2012. Second, there's an issue of FDIC coverage. According to the FDIC:
The FDIC insures a deceased person’s accounts as if the person were still alive for six months after the death of the account holder. During this grace period, the insurance coverage of the owner’s accounts will not change unless the accounts are restructured by those authorized to do so.
Thus, for reasons of safety and simplicity, my brothers and I decided to close the CDs at the end of this year.
Not all of the banks were as willing to let me wait. Bank of America and Wells Fargo did not give me the choice to wait. I had two Wells Fargo CDs that had me as the beneficiary. Only one was done wrong. When I learned of the problem with that CD, I asked if I could wait to close the other CD. The banker insisted that the CD had to be closed immediately. I had a similar issue with Bank of America. Since the rates of these two CDs weren't that high, I didn't protest. It does show that you need to be careful when you decide to claim the account if you want to maximize the interest.
me1004 - #1, Monday, November 28, 2011 - 10:36 AM
Very interesting to note the loss of FDIC coverage 6 months after the death.
I note, when I did this a few years ago after my father died, I learned that I, as beneficiary, was the trust executor. I had always thought the banks were the executor, and I was merely the receiving beneficiary. But as such, I am VERY alarmed that PNC converted your CDs without ever even hearing from you. Yes, your brother had informed them of the death. Still, as I understand it, they had no legal authority to do anything with the accounts on which you were beneficiary -- I believe only the executor has power to do that -- unless perhaps it was part of the terms of the CD that it would automatically close upon death, but I've never seen such terms.
Come to think of it, I'm not sure I've seen anything of disclosures about what happens to a POD upon death. If the bank wants to apply rules, such as whether you MUST close it, I would think that would have to be specified in disclosures up front upon opening the POD.
In my case, I was dealing with a CD at Hudson City Bank in New Jersey. I was there, and just wanted to close it while there. But I learned that if I closed the CD before the interest was posted, I would lose all accrued interest that had not yet been posted. It was posted quarterly, so I waited until the end of the quarter and then closed immediately, and they mailed me the check. If they had had a rule that it must close upon death, that I had no choice to let it ride, then I would have lost all accrued interest! Even worse if they had taken it upon themselves to close it before I even had a chance to get in touch wiht them (my brother had given them a copy of the death certificate before I was even informed of the CD, so there are always circumstances why they might know of a death yet the beneficiary could not yet have been in touch with them).
Anonymous - #2, Monday, November 28, 2011 - 11:07 AM
I think me1004 (comment #1) is misinterpreting the FDIC provision: "The FDIC insures a deceased person’s accounts as if the person were still alive for six months after the death of the account holder."
This does not mean that FDIC coverage ends 6 months after death - the only thing that changes after 6 months is the method of calculating the total amount of FDIC coverage available. So if the beneficiary had other accounts (in the same ownership class) at the same bank, then the FDIC would only provide insurance up to the limit for that beneficiary alone after 6 months had passed; for the first 6 months, there would be an increased insurance limit, calculated as if the account holder were still alive.
If the beneficiary had no other accounts (in the same ownership class) at the same bank, or if the combined total of existing accounts and inherited accounts were below the FDIC coverage limit, then all funds would continue to be insured by the FDIC regardless of whether the account has been claimed.
me1004 - #3, Monday, November 28, 2011 - 3:51 PM
Oh, is that what they were saying? Wasn't clear immediately without more specific language. They should say it as clearly as you did.
BTW, I wasn't misrepresenting. I merely misunderstood.
Living Trustee (anonymous) - #5, Monday, November 28, 2011 - 6:15 PM
Excellent column! Passing this around to all my friends. Thanks!
A related note: My folks put all their accounts (a big bunch of CD's) and other assets into a family trust, and I was the Managing Trustee. Hence, all of their bank accounts were titled under their trust, so no POD's (the trust was filed with each account and showed the beneficiaries, and the FDIC treats that beneficiary page like a POD page). Upon my second parent's death I set up a special liquidation account and, upon presentation of the death certificates and my trustee certificate to each bank, I received checks payable to the temporary liquidation trust acccount that I set up (I then paid the pooled cash out to the trust's beneficiaries from that one account).
In that regard, I delayed a 5-year, 6.00% APY CD's liquidation until the very end of my trust-liquidation duty. All went smooth with all banks, and the FDIC coverage during the acccounts' existence was tied to the number of beneficiaries in the trust. BUT, this was an "A-B" trust, so if one parent dies first his share becomes "A-trust" and "irrevocable," while the surviving parent's share (B trust) remained revocable. The pitfall: FDIC coverage on an irrevocable trust was reduced to just one-beneficiary level (i.e., as if there was only one beneficiary on the account, even if there were multiple trust beneficiaries shown on the trust document filed with every bank).
Still, when IndyMac failed (I managed the cash by CD-investing in weak, high-pay banks), the FDIC didn't seem to notice that it was an irrevocable trust account and my marginal, over-limit portion was safe (I got 100% of the account paid out).
POD's are wonderful; I have them on all my accounts. They are obviated, however, by the use of a living trust. So when you see a POD, that often means that the owner is using a will, rather than a trust. A will is more expensive to administer at death than a living trust. But simple estates like mine (CD's with POD's, a few assets, no spouse or child support) can get away with POD's and a will. Those with more complex estates -- look into a living trust, and remember that POD's won't work if the CD's and other bank accounts are placed in the trust (because the trust's beneficiary page controls).
Anonymous - #6, Monday, November 28, 2011 - 8:00 PM
Very interesting information. I just have been looking into the best way to set up CD's when my relatives live overseas and will not be able (or willing) to come to claim the CD personally at the bank if I use POD designation. Can anyone give me any advice. I would greatly appreciate it.
lou - #7, Monday, November 28, 2011 - 9:55 PM
Poster #2 I am confused by your explanation. I think you are saying the $250,000 insurance for a beneficiary would continue beyond the 6 months even if the account owner has died. However, if you were a beneficiary for another account owner at the same bank, the $500,000 of insurance you had as a beneficiary for both accounts would now be reduced to $250,000 after 6 months of the death of one of the account owners. Is this correct? Assuming I am understanding this correctly, this could be a problem if there is $500,000 in both accounts. After 6 months, $250,000 of the funds would be uninsured if I did not close the accounts.
Future Living Trustee (anonymous) - #8, Tuesday, November 29, 2011 - 5:40 PM
Question to "Living Trustee" (post #5) and others:
I am pondering setting up a living trust.
My understanding is that it will eventually be up to any candidate financial institution to review my trust document to decide whether it will be bound by its conditions before it will agree to open a trust account and re-title my assets into the trust.
One key condition for me would be that my trust document stipulates that any term deposits can only be held in institutions that allow redemption and/or transfer of title prior to maturity upon the triggering event of my death. The idea here is to explitcitly ensure that my trust is only involved with financial institutions that agree to allow my trust to be wound up promptly. (Otherwise there is a worst case scenario: suppose trust termination is delayed for years pending maturation of locked-in CDs, then consider the annual fees if a backup corporate trustee comes into play.)
My question is: how specific can my trust document be without spooking the candidate financial institutions?
E.g. can I safely elaborate in the following manner? :
“… for term deposit assets, the trustee can only use institutions that allow term deposits to be converted prior to maturity upon the triggering event of the settlor's death in at least one of the following manners (A) redemption for cash prior to maturity penalty-free for par value, plus any unpaid accrued interest earned to date of withdrawal, (B) transfer of ownership prior to maturity to one or more individual beneficiaries specified by the successor trustee without change of terms …”
The idea here is of course that my trust can be wound up not only promptly, but also for fair value and possibly considering preferences across the beneficiaries.
I would appreciate any expert comments on this matter.
Anonymous - #9, Wednesday, November 30, 2011 - 10:09 AM
There are no real advantages to a living trust over POD's. In fact there can be several disadvantages. Do your own due diligence to determine whether your estate actually requires an LT.Do not automatically take a lawyers advice that you need one.
Ed (anonymous) - #10, Thursday, December 8, 2011 - 12:22 AM
I was told i may be benificiery to a c/d. how can i find out if this is true, the person has passed away. should i contact the bank . im not sure how to go about it.thank you Ed.
KenBDG - #11, Thursday, December 8, 2011 - 8:43 AM
Ed, If you contact the bank and tell them your name and the name of the person who passed away, they may be able to confirm if you're a beneficiary of an account. The bank may need a certified copy of the death certificate before they disclose any information. You'll definitely need the death certificate to claim the account.
KLN (anonymous) - #12, Wednesday, December 28, 2011 - 1:37 PM
My father had 2 cd's with BofA totalling slightly more than the 100k required for probate in the state of California. He had a trust and a will specifying my sister and I as executors/trustees. BofA would not release the funds from the cd because the title on the cd was in my dad's name -not the trusts.
I went into the branch where the cd's were opened yesterday. They said they DID NOT HAVE the original terms or info on the cds to determine if a beneficiary or death 'put' or POD was on either of the cds. This seems unbelievable to me that they don't have this information at the branch where they were initiated. They said I needed to go to court to get the 'letters testimentary' to access the funds - costing me court and attorney fees.
Meanwhile all his funds are in those cds and I have no way to pay his bills. I felt like they were stalling and that by some type of fed law they should HAVE to have this information.
Any help is appreciated.
KN
Apache - #13, Thursday, December 29, 2011 - 2:59 PM
Do you have a copy of your dad's original CDs and do they have the POD or beneficiary listed anywheres on them? If not, you may have a problem proving these CDs belong to you. This is why I do not deal with any bank or CU which will not give me a copy of the CD with the POD or beneficiary listed on the CD even if it is on the back. No matter how computerized we are, I still rely heavily on my "paper" copies of everything! One credit union I just went with does not seem to send out copies of CDs and told me to print the info off the computer. I did this and keep it in my folder with my other CDs for "just in case" there is ever a misunderstanding about what I purchased.
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