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Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Insuring Bank Deposits Over $250,000 With Multiple Ownership Categories


Long-time readers of this blog are probably aware that there are many ways to have FDIC coverage of more than $250,000 at one bank. However, as I described in past posts, you have to be careful. If you or your bank makes any mistakes, your money above $250,000 may not be covered. If the bank fails, that uninsured money could be lost.

After the financial crisis of 2008, the standard maximum deposit insurance amount was increased from $100,000 to $250,000. This is now permanent and applies to both banks and credit unions.

Before the insurance limit was increased, there was another important change that became permanent. That effectively eliminated the concept of qualifying beneficiaries for revocable trust accounts - commonly called payable-on-death accounts or living trust accounts. This made it easier to extend your FDIC coverage over the standard amount. Here’s how the FDIC now defines eligible beneficiaries:

To qualify as an eligible beneficiary, the beneficiary must be a living person, a charity or a non-profit organization. If a charity or non-profit organization is named as beneficiary, it must qualify as such under Internal Revenue Service (IRS) regulations.

The most important thing to note is that the beneficiary must be living. As soon as the beneficiary dies, the added coverage ends. There’s no grace period. That’s one reason you may want to use charities as beneficiaries. As I described in my post Maximizing Your FDIC Coverage with Beneficiaries, it’s easy to allocate the amounts to your beneficiaries so you can decide how much goes to the charities.

If you’re trying to find out how to cover your savings, you can review the details in this FDIC Comprehensive Seminar on Deposit Insurance Coverage For Bankers. Unlike the guide for consumers, this guide for bankers includes more details and examples which can be useful to ensure you understand all of the rules. The guide is dated March 23, 2011 so it includes the recent changes that have occurred in the last few years including the new higher standard coverage of $250,000.

In addition to using beneficiaries to extend your coverage, you can also use multiple account ownership categories. Four common ones include:

  • Single Accounts
  • Joint Accounts
  • Revocable Trust Accounts (includes PODs/ITFs)
  • Certain Retirement Accounts (includes IRAs)

One easy method for one person to insure $500,000 with just one beneficiary is to open both a single account and a POD account. However, this requires two accounts. One account with one POD will only insure $250,000. To show this, I used the FDIC EDIE calculator. Below is a snapshot showing the uninsured amount for one CD with a single owner and one POD:


FDIC Coverage with one POD account

For one person with one beneficiary to insure $500,000 at one bank, the person needs to open two accounts: a single account without a beneficiary and a revocable trust account which can be just a POD account. The person can then have $250,000 in the single account and $250,000 in the revocable trust account and be fully insured. Below is a snapshot showing the entire amount is insured:


FDIC Coverage with one single and one POD account

For a couple who opens single accounts, joint accounts and revocable trust accounts, it’s easy to insure $1.5 million at one bank. I’ll let you see how this can be done by using the FDIC EDIE tool. If you can find out a way to go above $1.5 million without any additional persons for beneficiaries, please leave a comment.

NCUA coverage for credit unions is essentially equivalent to FDIC coverage. In fact, I found the NCUA Share Insurance Calculator to be very similar to the FDIC EDIE tool. If you find any differences, please leave a comment.



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Comments
15 Comments.
Comment #1 by Anonymous posted on
Anonymous
Mountain America Credit union claims that all secondary beneficiaries need to have notarized signatures to the effect by the account's owners. Is this just their policy or an NCUA requiement.

?

2
Comment #2 by me1004 posted on
me1004
I never cease to be amazed how so many banks don't know what they are talking about about these things. Not only on beneficiaries, but also on things like power of attorney. No, the notarized signature of the beneficiary is not needed. In fact, they do not even have to be informed that they are a beneficiary, whether primary or secondary (and I have never informed my beneficiaries that they are named as such, for various reasons), much less sign anything or have that signature notarized.

Thus, Mountain America's requirement is simply an in-house one, even if they mistakenly think it is the legal requirement. It is just a stupid rule they have made up. 

14
Comment #3 by Anonymous posted on
Anonymous
Revocable trust account - hubsand and wife with 2 children (living),  can be insure up to $1 Million dollars.

hubsand $250,000.00 for son

hubsand $250,000.00 for daughter

wife       $250,000.00 for son

wife       $250,000.00 for daughter

the Revocable trust should be draw by attorney, and make sure you verify that the bank or credit union opens the account the property way.  we have found mistakes in the past...Just like (me1004 #2) said they don't know what they are doing..

7
Comment #4 by Anonymous posted on
Anonymous
What has always intrigued me is that people with FDIC or NCUA coverage believe they are protected against theft.  FDIC or NCUA "insurance" protects depositors should a bank or CU go belly up.  But if money is embezzled, for example, by a bank or CU employee; or, as happened just in the last few days, if money is stolen through electronic theft, there is no FDIC or NCUA coverage whatsoever.  Your sole recourse, should the bank or CU refuse to make good following the theft, is a lawsuit.  

9
Comment #5 by Anonymous posted on
Anonymous
Creating a trust is expensive and need to be periodically updated should you change banks and involves attorneys. Should I say more, well every time you involve third party cost money and in order to save money, most people stay with the same banks for years and years just to avoid changes and fees and in the process loose money.
In many case, should the creator of the trust dies, the state gets involved and the relatives and the next of keen and people you barely new, want part of the estate.
All my accounts are joint accounts, same benefits as trusts and no costs and I can move around to better rate banks any time, problem solved.

11
Comment #7 by Anonymous posted on
Anonymous
#5, it is quite apparent you know nothing about Revocable Trust Accounts.  It may require an attorney to set up the trust account originally, depending on the type of assets going into the trust.  After that it does not require an attorney to add or pull assets out of the trust, but a person has to makes sure any new assets are titles in the name of the trust.  Upon death of the owner(s) of the trust, all the assets pass to the beneficiaries named in the trust.  No court probate to go through and no one else is entitled to anything in the trust but the named beneficiaries in the trust.  That's the beauty part of a revocable trust.  I know from experience.

6
Comment #6 by Anonymous posted on
Anonymous
Mistaken interpretation about Mountain American Credit Union notarization signature requirements.It is not the beneficiary's signature they want notarized but rather the account holder's signature on the beneficiary indication page.

4
Comment #8 by Anonymous posted on
Anonymous
Of course, no attorney is needed to set up a POD/ITF account at a bank or credit union, as described in Ken's posting above.  POD is Payable on Death; ITF is In Trust For.  But be sure the account is titled correctly, with POD or ITF in the account records, as Ken warned, or you could be uninsured.

5
Comment #9 by rosie43 (anonymous) posted on
rosie43
You do not need a lawyer to set up a trust for CD's usless you are going to title the CD's to the trust. I cannot think of a reason why someone would want to go through the expense of establishing a trust for CD's. 

2
Comment #10 by rosie43 (anonymous) posted on
rosie43
Puting POD (payable on death) or ITF (in trust for) in the account title establishes a totten trust and increases the insurance on CD's in banks. In a credit union putting beneficiaries on the account is all that is needed. It shows intent and increases the insurance NCUA told me when I called. 

Just to protect yourself get a copy signed by the bank or credit union official on the signature card with the names of the beneficiaries on it. Keep it in your files. 

I had a credit union that could not find  the beneficiary designation of an  IRA after death. I had a copy of the signature card with the signature of the credit union official and the signature cared named the beneficiaries and still they refused to process the IRA. The disclosure we were given  at the opening of the account stated if no beneficiaries were named it goes to the wife, if no wife, then children, if no children, then parents, if no parents, then siblings if no siblings then the estate. After they refused to accept  the  copy of their signature card signed by their bank official I mentioned that they should read their disclosure. If they still refused they would have a lawsuit. They now have changed their disclosures to read  if they have no signature card with beneficiaries name on the signature card it automatically goes through probate. I had them write a letter and had one of their employees notarize it. The letter listed all of account numbers and naming beneficiaries on each of the accounts. 

I am in the process of getting copies of all signature cards with the beneficiaries named on the signature cards. What a pain to have to go through this. 

6
Comment #11 by Anonymous posted on
Anonymous
To Anonymous - #7,
Obviously you have never been involved in trust litigation. I have as recently as last year.
The owner dies and have a will and trust, but the named beneficiaries in the trust did not match the beneficiary in the will, then the lawsuit started and everyone one got involved from the state, opposing attorneys, IRS, creditors, mortgagors, banks and every beneficiary’s attorney.
The judge can not handle it from all those filed motions, he dismisses the case with prejudice and proclaimed the trust null and void.
There will NOT be a single penny left for any of the beneficiaries out of the $399K, all went to the attorneys, courts, taxes and the state of New York.
Revocable trust are traps and they are NOT judgment proof and anyone can attack the trust with a lawsuit long before any money are passed on to the beneficiaries.

I rather do what #5 did, Joint accounts with whom ever you like with what ever amounts you like, instead of a revocable trust. Joint ownership does not require attorneys or money and nobody will ever know to whom you left the money.

7
Comment #12 by rosie43 (anonymous) posted on
rosie43
If there is a name  on a bank account listed as a beneficiary the will or trust is irrelevant. The will or trust does not reign over the beneficiary on a bank account. If the account holder dies the beneficiary would just need a death certificate to mail or bring into the bank with norarized copy of ID and a check for the money will be given to you. If you have a will with the trust the will  should only be a pour over will. This pour over  states anything that is not titled to the trust should automatically pour over to the trust if no beneficiaries are named. Only things titled to the trust would go to the trust unless you have a pour over will. With a trust you never ever name beneficiaries in a will. A CD etc does not go to the trust unless it is titled to the trust or if there is a pour over will and no beneficiaries are listed in the CD papers. I have been the personal representative of two estates and that is how it is in Michigan. 

3
Comment #13 by Anonymous posted on
Anonymous
#12

What you say is generally true.  But there's always that one "bank" that has other their own rules, which they "may" follow. 

Can you cite a LAW that trumps everything and states a "named beneficiary" on a bank CD will get the funds upon the death of the account owner?

 

2
Comment #14 by Anonymous posted on
Anonymous
To rosie43 (anonymous) - #12, under ideal case yes, but most of the banks follow their own internal rules to protect themselves from law suits.
What if there is pending lawsuit against the trust, the owner or the beneficiary for what ever reason (taxes, criminal, illegal activities and so on), you think the bank will just hand over the money, not likely at all.
The bank always check for taxes due with IRS and the  courts for lis pendis.
How the bank will know that the trust was registered properly and all money were directed to the beneficiary?
The bank’s legal department gets involved in all trust accounts, believe me, I’ve been through that and is very frustrating to wait and wait endlessly and the forms they made me sign was endless, from all kind of liability releases to promises to pay any future deficiency.

Stay with joint accounts, nobody knows and cares if one of the party is dead. The account function as nothing ever happened and the beneficiary is not stuck with any liabilities, because the money belongs to either party now and forever equally.

4
Comment #15 by Anonymous posted on
Anonymous
In my area of eastern Massachusetts, it frequently seems credit unions and even banks with good deposit rates don’t allow POD accounts to have a charity as beneficiary. The Terms and Conditions of those are all prepared by Wolters Kluwer Financial Services - Bankers Systems. It’s true Massachusetts General Laws 171:40 says: “deposits may be accepted in the name of one or two persons in trust for another”. But they seem to have missed MGL 4:7 which says: “ "Person'' or "whoever'' shall include corporations, societies, associations and partnerships.” My repeated attempts to contact them have not worked.

1