In my Thursday's post I described how you can exceed $100K of coverage with FDIC insurance by using Payable-on-Death (POD) accounts. However, I noted how you have to be careful. Just listing POD beneficiaires in an application may not mean the account is set up as a revocable trust account.
According to the FDIC an owner of a POD account is insured up to $100,000 for each beneficiary if all of the following requirements are met:
- The account title must include a commonly accepted term such as "payable-on-death," "in trust for," "as trustee for" or similar language to indicate the existence of a trust relationship. The term may be abbreviated (for example "POD," "ITF" or "ATF").
- The beneficiaries must be identified by name in the deposit account records of the insured bank.
- The beneficiaries must be "qualifying," meaning that the beneficiaries must be the owner's spouse, child, grandchild, parent, or sibling. Adopted and step children, grandchildren, parents, and siblings also qualify. Others including in-laws, cousins, nieces and nephews, friends, organizations (including charities) and trusts do not qualify. Update: As of 9/2008, the FDIC has removed this qualifying requirement (see post)
I recommend checking directly with your bank and the FDIC to ensure your deposits are fully insured. You can check your specific situations at the FDIC website by using the FDIC Electronic Deposit Insurance Estimator (EDIE). I ran through some examples using this calculator. Here are some ways that you can go above the $100K limit at one bank. Note, all POD beneficiaries are assumed to be qualified as defined above. Also, they must be alive and have equal interest in their respective revocable trust accounts.
- One person with one Single Ownership Account (with no POD) and one Revocable Trust Account with one POD: Total insured is $200,000
- One person with one Revocable Trust Account with 2 POD's: Total insured is $200,000
- One person with one Revocable Trust Account with 3 POD's: Total insured is $300,000
- Husband and wife with one Joint Ownership Account (with no POD): Total insured is $200,000
- Husband and wife with one Joint Ownership Account and two Single Ownership Accounts (none with POD's): Total insured is $400,000
- Husband and wife with one Joint Ownership Account (with no POD), two Single Ownership Accounts (with no POD's) and two Revocable Trust Accounts with POD's of each other: Total insured is $600,000
For more examples provided by the FDIC, please refer to this FDIC page.
Extending Your Coverage at Credit Unions
Credit union that are insured by the National Credit Union Administration (NCUA) have a very similar insurance criteria. Insurance coverage can be determined using the NCUA Share Insurance Estimator. I went through the same examples as above and had the same results in insurance coverage.
One note about credit unions, the rule about the POD being in the account title may not be required. Here's what the NCUA has regarding Revocable Trust Accounts:
The term "revocable trust account" includes a testamentary account, tentative or "Totten" trust account, "payable-on-death" account, or any similar account which evidences an intention that the funds shall pass on the death of the owner of the funds to a named beneficiary. If the named beneficiary is a spouse, child, grandchild, parent, brother or sister of the owner, the funds in all such accounts are insured for the owner up to $100,000 SMSIA in the aggregate as to each such beneficiary.
There's no mention that POD or ITF has to be in the account title of the Revocable Trust Account. Also, I found the following opinion on the NCUA site:
As long as the "POD Designation" form is maintained as an account record of the credit union, it should be sufficient to classify the account as a POD account for National Credit Union Share Insurance Fund ("NCUSIF") purposes.
Let me know in the comments if you find any other information on this.
Downsides of Using PODs for Added Coverage
There are some downsides to consider why you use PODs to extend your coverage. First, if the beneficiary dies, the coverage is reduced immediately (see Example #18 at this FDIC page). Another downside is that PODs could slow the time that you can access your money after a bank failure. I'm assuming this is based on FAQ # 9 from this FDIC FAQ page:
When an insured bank fails, what evidence will the FDIC require to determine the amount of insurance coverage for a living trust account?
If an insured bank fails, the FDIC would look to the account title to determine whether an account is held by a living trust. The FDIC would then ask the owner to provide a copy of the trust document, which the FDIC would review to identify the beneficiaries and determine their interests in the account. The owner also may be required to complete an affidavit attesting to the relationships of the beneficiaries to the trust owner.
The above was in reference to a living trust account, but I would assume the issue of verifying the beneficiaries are qualified would be the same for POD accounts.
Example of Delayed Access: (update 7/16/08) A depositor at the failed bank Indymac had over $100K and was fully insured via revocable trust accounts. He is in fact experiencing a delay in receiving the funds over $100K. Here's what he described:
Regarding the remaining money, I have an appointment scheduled for a phone call from FDIC on August 1st which is the next step I must take to recover my remaining funds. In the meantime, I have no access to any of these funds. Access to these funds is not critical to me at this time; however, I will make it a point to never deposit over the $100K limit again. It isn't worth the aggravation.
Update 7/24/08: The depositor provided the following updates describing how he was able to have the funds released early:
I had over $100K in a revocable trust at IndyMac that was insured however, as you all know, monies above $100K were placed on hold and my call appointment was scheduled for Aug 1st.
Decided I would attempt to speed up the process and on Saturday I faxed a copy of my trust along with the Declaration of Trust to the number FDIC had listed on their site (thanks for keeping us updated on what you learn pertaining to FDIC). In addition, I overnited a hard copy of all on Monday morning to FDIC in Texas.
This morning (7-23) I received a call from FDIC advising me my funds were released and would be available in 3-5 days. I don't know which did it,the fax or overnite mail. Being proactive made a difference and sped up the process.
No more over $100K deposits (revocable trust like) for me.
Here's another real life example of the FDIC coming through to cover over $100K, but only after some hassles and worries. It also shows how careful you have to be to make sure the bank handles the account titles correctly. This is in regards to the failure of ANB Financial.
Please see my Facts about FDIC and NCUA post for more general info and links.