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Exceeding the $100K FDIC/NCUA Limits with POD's - Use Caution

If you are using a Payable-on-Death (POD) account to extend FDIC insurance limits above $100,000 (changed to $250K as of October 2008), make sure you confirm that the POD is set up correctly with your bank. A reader just left me a comment about his experience at Countrywide Bank. He thought his $200K deposit at Countrywide Bank was fully FDIC insured due to his use of a Payable-on-Death (POD) beneficiaries. This was a reasonable assumption. He signed up last year for Countrywide's Savingslink account, and in the application, he listed two beneficiaries. The problem was that these beneficiaries did not get officially added to the account titled as In Trust For (ITF) or POD. Thus, he only had $100K of his $200K deposit insured. Fortunately he checked on this by contacting Countrywide. They replied saying that they had to update his account so that the beneficiaries would be listed as POD's.

With the recent problems at Countrywide and at other banks that have large ties with the mortgage industry, it's a good idea to make sure your deposits are fully covered. If you have less than $100K of bank deposits, it's straighforward. If you have over $100K, there are many ways you can still be covered, but as the above example shows, you have to be careful.

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.

I wasn't sure how one could confirm that beneficiaries are identified by name in the deposit account records of the insured bank. According to the FDIC's glossary of terms:
Deposit account records include signature cards, certificates of deposit (CDs), passbooks, account ledgers, and computer records that relate to the bank's deposit-taking function. Also called Account Records and Bank Account Records.
However, for the purposes of determining coverage, account statements, deposit slips and cancelled checks are not considered deposit account records. So, having the POD's listed on a statement is probably not enough evidence. If you want to be sure your POD's meet the first two requirements above, I recommend contacting your bank.

In the next few days, I'm planning another post with more details about using POD's to extend FDIC and NCUA insurance coverage. Update: Here's the new post link with the additional details.

For more info and links to the government websites, please refer to my Facts about FDIC and NCUA post.
  |     |   Comment #1
Your post does not make it clear, But one POD will not get you any extra coverage. It's every one you list after the first that gets you an extra $100k
  |     |   Comment #2
@5:10 PM -- You're wrong.
  |     |   Comment #3
What putting a qualified beneficiary on an account does is put it in a different insurance category from any of your individual accounts.

So, if you have no other accounts at the same bank and want to deposit $200k, just opening an account with one beneficiary will not get you $200k in insurance. But you can open an individual account for $100k and a separate POD account with a qualified beneficiary for $100k -- this will get you $100k per account, for a total of $200k in insurance.

See Misconception Number 9 and Misconception Number 1 in this list of misconceptions published by the FDIC:
  |     |   Comment #4
Even the large credit unions I deal with say they have no way to make a POD beneficiary part of the account title unless you have a revokable trust document.

This drives me crazy. I can't even get a clear answer from NCUA whether designating a POD beneficiary on the CD application is sufficient to qualify for the extra insurance.

NCUA clearly says a POD designation is treated the same as a revokable trust for insurance purposes.

Can anyone get some official clarification on this?
  |     |   Comment #5
Anonymous said...
@5:10 PM -- You're wrong.
No, I am not. Go to the FDIC estimator and setup an account for $200k, With a single owner and 1 POD. You will find only $100k is insured.
Anyone wanting to check on FDIC coverage should just send off a message to them. I did and was surprised I got the following email back the same day, Then the next they called me to ask if I had any other questions. He spent about 20 minutes with me answering all my questions. The one he said he hears a lot is from people who say someone at the bank tells them they can increase coverage by adding a single POD

Dear Mr. :

Thank you for your inquiry to FDIC's Division of Supervision and Consumer Protection. You asked about the deposit insurance coverage for your revocable trust account and your brother's account.

Your in trust for account is a revocable trust account and is covered for $200,000 as there is one owner and two qualified beneficaries (daughter and brother). Each owner has $100,000 of deposit insurance coverage for each qualified beneficary.

Your description of your brother's account sounds like he has a single account. If this is the case, your brother's single account is separately covered for another $100,000. This single account has no bearing on your account in trust for your brother and daughter. I have provided below some more information on how deposit insurance coverage works for revocable trust accounts.

To begin, FDIC deposit insurance is not determined on a per-person or per-account basis. Rather it is determined according to how the funds are owned (right and capacity). Deposits held in an FDIC-insured institution in the same "right and capacity" (which means legal ownership such as single or joint ownership, trust, IRA, etc.) are added together and insured up to $100,000, including principal and any earned interest. All types of deposits--certificates of deposit (CD's), checking, savings, money market, and NOW accounts--held in the same name(s) in the same ownership category are added together for calculation of deposit insurance. Funds held in different rights and capacities are separately insured. Thus funds held in the name of a trust that are in a checking account, a savings account, and a C/D would all be added together before applying the insurance limits.

The term "revocable trust account" refers to any account that evidences an intention that, upon the death of the owner, the funds will pass to a named beneficiary(ies). If the beneficiary is a spouse, child, grandchild, parent, or sibling of the owner and is named in the account records of the institution, the owner's funds can be insured up to $100,000 as to each beneficiary. A qualified beneficiary is a spouse, child, grandchild, parent, or sibling of the owner. Step-children, step-grandchildren, step-parents, adoptive parents, adopted children, adopted grandchildren, and half-siblings also qualify as beneficiaries. Please note that friends, cousins, nephews, nieces, in-law relationships and chariable organizations are NOT qualified beneficiaries.

The types of revocable trusts that commonly qualify for "per qualified beneficiary " coverage are testamentary accounts (also called Totten Trusts or informal trusts). These accounts usually include the words "In Trust For" or "Payable on Death" or the respective acronym. There is no trust document for these accounts, other than the signature card.

I hope this information is helpful. Please contact me directly at 1-877-275-3342 between the hours or 8 am to 4:30 pm Monday -Friday (eastern time) should you have further questions.

As part of our ongoing efforts to improve our service to the public, we would appreciate it if you would complete a short questionnaire on the level of service you received from this office. The questionnaire form can be accessed at: http://www2.fdic.gov/starsmail/customer.html.

Edward Silberhorn
Federal Deposit Insurance Corporation
Division of Supervision and Consumer Protection
550 17th Street, N.W.
Washington, DC 20429
  |     |   Comment #6
Scott, Anonymous 8:32 pm August 23, 2007 is correct.

You are confusing different types of account categories. In a single account, you receive up to 100K of FDIC coverage. In a revocable trust account (POD, ITF, ATF) you receive up to 100K for each qualified beneficiary named.

If you have a single account, you will only have 100K of coverage regardless of the number of beneficiaries that you name. However, if you have a POD revocable trust account and name your brother and daughter as beneficiaries, you will have 200K of FDIC coverage on the account. If you only name your daughter in a POD revocable trust account, you will have 100K of coverage on the account.

For Countrywide, their online application only offers two types of accounts, namely single and joint accounts, Therefore, you only get 100K of coverage if you applied for the single account and 200K coverage for joint accounts (with two account owners). The beneficiaries that they allowed you to list is only for estate distribution purposes.

In order to get additional coverage, you have to request that they change your single account to that of a revocable trust account (POD) with named beneficiaries. This is what you apparently did yesterday. Like Anonymous 8:32 said, you can also get 200K of coverage by opening a single account and a POD account with one qualified beneficiary.
  |     |   Comment #7
Then this stuff is just confusing. I used the FDIC estimator and setup a single $200k account with one POD, I assume that would be a revocable trust. It shows $100k as uninsured

ATTENTION: A portion of your deposits at Bank exceed the FDIC insurance limits!
You entered the following group of accounts:

Account Name Owner(s) Beneficiaries LT/ITF/POD IRA Balance
1 Single scott daughter Y N $200,000

Living Trust/ITF/POD Accounts Balance Account Name
1 scott LT/ITF/POD daughter $200,000

Living Trust/ITF/POD Insurance Summary
(Qualified Beneficiaries) Balance Insured Uninsured
scott LT/ITF/POD daughter (Qualifying Beneficiary) $200,000 $100,000 $100,000

All Accounts Balance Insured Uninsured
Grand Total $200,000 $100,000 $100,000
Banking Guy
  |     |   Comment #8
FYI, I'm planning on another post that will give these specific examples of accounts with and without PODs and the amount insured. I'll be basing it on what the FDIC and NCUA estimators give. Hopefully, this will help clarify things.
  |     |   Comment #9
Not sure if using their estimators will clear things up. My assumption is the estimator does consider a POD account as a revocable trust since it's being used to determine coverage. But what I come up with using it contradicts what Mh says. Maybe you could first give the FDIC a call. They are great about spending time with you and making sure all your questions are answered
  |     |   Comment #10
Scott, whether it’s a single account or POD account with one beneficiary, both would only have 100K of coverage. Why would you expect more than that?

I’ve never used the estimator. What would it show if you entered two beneficiaries to the POD account? My understanding would be 200K of coverage, no?
  |     |   Comment #11

FDIC coverage is calculated separately in each account type. The maximum amount of coverage on a single account is 100K. But on revocable trust POD accounts, the maximum amount of coverage is dependent on the number of qualified beneficiaries that you name, with 100K max for each beneficiary.

In order to have 200K of coverage with only one qualified beneficiary, you have to open two accounts. One single account will give you 100K. Then, you can open a POD account, naming your daughter as beneficiary for instance, and get another 100K of coverage. You cannot have one account with one beneficiary and get 200K of coverage.
  |     |   Comment #12
Scott, whether it’s a single account or POD account with one beneficiary, both would only have 100K of coverage. Why would you expect more than that?

I don't expect more, But my Countrywide is a single account listing 2 PODs and I am insured for $200k. I understand I could open a single account and then a POD account listing just one and get the same $200k. But I am trying to keep it simple with only one account. Also I have no will yet so I would never open any account without listing my Daughter as POD
  |     |   Comment #13
Thanks to all of you for the clarification on how POD coverage works.

To raise the amount that can be insured over $100,000 you frequently hear it said to add a POD. That makes it sound like you are to add a POD to the existing account & you keep your initial $100,000 insurance as owner of the account & gain an additional $100,000 insurance by adding the POD.

Now I see you are not 'adding' a POD to the existing account, you are 'changing' it to a POD account.

The initial account no longer exists, therefore, the basic $100,000 insurance is gone. You are back where you started, since the POD gives you insurance for only $100,000, unless you are able to add more beneficiaries.

Will be removing the POD from 2 accounts where the amount is over $100,000 so that those will be covered under individual account for $100,000, while the total amount on the remaining POD accounts will now be under $100,000 & also covered.

And thanks for the link to Electronic Deposit Insurance Estimator (EDIE). That confirmed everything.
Banking Guy
  |     |   Comment #14
Just did another post with some POD examples and downsides. Here's the new post link.
  |     |   Comment #15
This may not be in the right spot , but would like your input.2 cds matured bank paid on each with seperate chk . At home i applied simple interest to chk on amt paid . my AMT WAS NOT THE SAME.Went back to bank questioned the amt paid . bank ran the #s and came up with 3 diferent sums. Mgr came over and came up with 2 different sums . He claims the program is right but could not answer why all the sums did not meet the simple int amt . 5.41 % with a 5.70 apy was the stated amt on the cd paper. 70.000 was amount for each cd . what is your dollar amount ??? for int earned
the term was for 9 months I came out with the sum of $5980 Bank came out with $5930 , but after I complained they never arrived at the sum that they paid me .So i kept the chks and felt i was better off as the # bank
came up with were lower than what wqas paid me . HELP ME PLEASE 70,000 5.41 with a 5.70 at 9 months is how much.I doubled the amt paid to get the 5980
  |     |   Comment #16
You are right, it is not in the right spot. That's probably why there have been no responses for 1.5 months. Not to be rude, but its a bit like librarians say: when a book is mis-shelved in a library, it might as well be lost.
  |     |   Comment #17
This is an extremely complicated issue that neither Countrywide reps nor FDIC employees understand fully.
When even the supposed "experts" disagree, you know it's difficult.

If you only have one "Qualified" beneficiary, you can still increase your coverage by setting up some CWB accounts without POD, and using one "Qualified" beneficiary with one "Non-qualified" beneficiary.
You can then subtract half the value of that "Non-qualied" account and thereby have more FDIC coverage.
However, whatever you subtract from the "Non-qualified" "Non-POD" account you must add to the other POD account that has only one "Qualified" benficiary.

Account POD w/one qualified beneficiary=$75k

Account no POD w/one qualified & one non-qualified beneficiary= $50k

In this example the second account actually has $75k of remaining FDIC coverage, while the first account has no remaining coverage because half the value of the second account has been added:

$50k minus $25k equals $25k($75k remains)
$75k plus $25k equals $100k($0 remains)

This could be quite beneficial if you have no more than one living "Qualified" beneficiary, and still wish to have over $100k in covered deposits with any given financial institution.
FYI; check it out, but be prepared for contradicting explanations.
Banking Guy
  |     |   Comment #18
Wow, that is complicated. Thanks for providing the details. I wonder if the FDIC insurance calculator would confirm this?

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