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Important Note about Adding Beneficiaries to Your Ally Bank Accounts
As I mentioned on Monday, Ally Bank has made a major change to its website account center. In my Monday post I reviewed Ally's new bank-to-bank transfer service. I updated the post yesterday with results of my two transfers. The transfers completed in the exact times that Ally states in its documentation. From my experience, the transfers appear to take one day longer. Readers have also been trying out the new transfer service and other features of Ally's new account center. Several have reported on various issues with the transfer service and in the new account application system. You can read through them in my Monday review of Ally Bank's website changes.
One nice feature that's in Ally Bank's new banking center is the beneficiary page which allows you to add and edit your beneficiaries for each account. To access this page, click on "Beneficiaries" under the "Account Services" menu which is on the right hand side of your "my accounts" page when you log in.
Each account can have one or more beneficiaries. You can decide if you want a payable on death (POD) or in trust for (ITF) status for the beneficiaries. In addition to the name, Ally's form asks for the beneficiary's birth date and address. They don't ask for their social security number. It seems like most banks and credit unions require the SSNs for the beneficiaries. I never liked that since I don't want to carry around the SSNs of my family members.
When you update the beneficiaries, you can verify that the beneficiaries are listed by going to the account page. Click on the account name in the "my accounts" page to go to the account page. In the account page, click on "More Details", and you should see the beneficiaries listed on the bottom right.
When I first added my beneficiaries, the account title did not have any indication of the beneficiaries. The account title is shown on the left side when you click "More Details". If you are adding beneficiaries with the intent of increasing your FDIC insurance coverage, this is an issue. Here is what the FDIC states (at the time of this writing) for coverage and requirements for revocable trust accounts:
In general, the owner of a revocable trust account is insured up to $250,000 for each different beneficiary, if all of the following requirements are met:
1. The account title at the bank must indicate that the account is held pursuant to a trust relationship. This rule can be met by using the terms payable on death (or POD), in trust for (or ITF), as trustee for (or ATF), living trust, family trust, or any similar language, including simply having the word “trust” in the account title. Account title includes information contained in the bank’s electronic deposit account records.
2. The beneficiaries must be named in either the deposit account records of the bank (for informal revocable trusts) or identified in the formal revocable trust document. For a formal trust agreement, it is acceptable for the trust to use language such as “my issue” or other commonly used legal terms to describe the designated beneficiaries, provided the specific names and number of eligible beneficiaries can be determined.
3. 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.
(Note: consult this FDIC page for current information and requirements for both revocable and irrevocable trust accounts.)
Thus, to meet the FDIC requirements for higher coverage, the account title must reflect the POD or ITF status.
I did an online chat with an Ally CSR about this. The CSR said that she would have the account titles updated for me. Two days after my request I logged in and checked my Ally accounts, and all account titles were updated as promised. Here's an example of how the account titles look now:
Account Title:
Mr. John D. Smith
Jane P. Smith POD
Susan B. Brown POD
Note, I'm not near the $250K balance. I only made this change to test out the process. Hopefully, this will be something that I'll have to worry about at some point in the future :-)
Here are some of my previous blog posts on Ally Bank that you may find useful:
In my experience, I find most bansk don't know about that rule nor understand anythign of what you are talking about and jsut reefuse to budge and add POD or ITF or whatever on the ttitle.
But I now read that rule again in your posting here. I note, it now seem to be much broader that I had thoght. It has a line I had not picked up on before:
"Account title includes information contained in the bank’s electronic deposit account records."
To me, that means it does NOT have to have POD or ITF or whatever following your name, or add the names of the PODs below as Ally did for you. It merely has to have them designated as beneficiaries somewhere in the documentation of the account in the bank's files, and that counts as being on the "title."
I had been taking "title" to mean the name of the account, which would be my name. The FDIC seems to be using it to mean the entire account record, not merely the name of the account.
I suggest you put this question directly to the FDIC for definitive clarification, as like I said, most banks and credit unions I have dealt with have no understanding at all and just will not bend and add ITF or POD or whatever after my name or the names of the PODs right there in the title; maybe they never had to because the info is elsewhere in the record and thus "on the title."
On an aside, I certainly would appreciate another story on the difference between POD and ITF. I've never know, so have no idea if I prefer one to the other.
When IndyMac failed in 2008 my over the limit accounts weren't titled POD but having named beneficiaries should have been sufficient to guarantee coverage, at least according to the EDIE estimator which is subject to user error characterizing ITF/ITF/POD designations. Thinking back, IndyMac operations were assumed by OneWest so maybe the title issue wasn't actually tested.