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FDIC Simplifies Coverage Rules for Revocable Trust Accounts


The FDIC just released this press release:
The FDIC's Board of Directors today adopted changes to simplify the rules for determining the coverage available on revocable trust accounts - commonly called payable-on-death accounts or living trust accounts. The interim rules, which are effective immediately, eliminate the concept of qualifying beneficiaries, so that coverage is based on the naming of virtually any beneficiary.

Under the revised rules, coverage for the vast majority of account owners generally is based on the number of beneficiaries named in a depositor's revocable trust account(s). The insurance limit will still be based on $100,000 per named beneficiary. For revocable trust account owners with more than $500,000 in such accounts naming more than five beneficiaries, the coverage is the greater of either $500,000 or the sum of all the named beneficiaries' proportional interest in the trusts, limited to $100,000 per different beneficiary.

"We believe the interim rule will not only result in faster deposit insurance determinations after bank closings, but will help improve public confidence in the banking system," said FDIC Chairman Sheila C. Bair. "We strongly encourage owners of revocable trust accounts to make certain that the names of their beneficiaries are included in the bank's records."

The new rules are effective as of today and apply to all existing and future revocable trust accounts at FDIC-insured institutions.

Comments on the interim rule are due no later than 60 days after the interim rule is published in the Federal Register. Publication is expected to occur within a week.

Two nice things about this change is that it'll make it easier for people to extend FDIC coverage of their deposits, and it should reduce the time it takes the FDIC to release insured deposits over $100K when banks fail. The FDIC shouldn't have to seek documentation that ensures the beneficiaries are qualifying. In my post on extending FDIC coverage, I documented cases in which readers had delays in receiving their deposits after IndyMac's failure due to this qualifying beneficiary requirement.

There's one important thing that's missing from this change to simplify the rules. Before this current change, here were the three requirements described by the FDIC that allow an owner of a POD account to be insured up to $100K for each beneficiary:
  • 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.
This new rule effectively eliminates requirement #3. However, it didn't say anything about the first two requirements. (Note: consult this FDIC page for current FDIC requirements for revocable and irrevocable trust accounts. See this FDIC page for descriptions of and requirements for all FDIC ownership categories.)

In the press release, the FDIC chairman was quoted as saying "We strongly encourage owners of revocable trust accounts to make certain that the names of their beneficiaries are included in the bank's records." She did not mention anything about the account title. Does she even know about it? I would like to see the FDIC also get rid of requirement #1. Many readers have reported problems in getting their banks to comply with this account title requirement. It adds risks to the depositors and it adds complications to the banks. I can't think of a good reason why it should be kept.

Another question I have is what happens if the beneficiary dies? Currently, the extra FDIC coverage ends immediately upon the death of a beneficiary. This is different than if a joint account holder dies. In that case, the other owner has a 6-month grace period before the extra FDIC coverage ends. Why not make the same grace period for revocable trust accounts?

Update: Details of this new interim rule and addresses for sending comments are available at this FDIC webpage. Here's one important detail that was described: "Under the interim rule, coverage is based on the existence of any beneficiary named in the revocable trust, as long as the beneficiary is a natural person, or a charity or other non-profit organization."

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  |     |   Comment #1
The suggestions about simplifying the rules even further look reasonable, esp. getting rid of rule #1. Since there is a period of 60 days to make comments on the interim rule, perhaps we should all present comments making these suggestions.
Does anyone know how to submit comments to the FDIC regarding the interim rule?
  |     |   Comment #2
When they publish the proposed rule in the Federal Register, the notice will include where and how to submit public comments.
  |     |   Comment #3
On requirement #2 that beneficiaries must be identified in the bank's records--what is required? Is it sufficient for the bank to have a copy of the trust document which names the beneficiaries? Often the bank just copies the title page and signature page of the trust, but doesn't care about the entire document.
  |     |   Comment #4
Before you start naming strangers as beneficiaries on your POD accounts, remember that if you get hit by a bus tomorrow, the beneficiaries on your account will inherit all the money in your account. Even if your will says otherwise. Your widow(er) and children will not get the money (unless they are the beneficiaries).

I wonder if a charity could be a qualified beneficiary now?
CD Rates Blog
  |     |   Comment #5
It looks like this link, http://www.fdic.gov/regulations/laws/federal/propose.html may be where you can leave comments. However, it doesn't look like they have added the proposal yet.

Hopefully, they do because it could certainly be simplified further.

BankDeals, why to be on top of things. Do you subscribe to the FDIC's alerts?
  |     |   Comment #6
This is a great post and I think the online community should really push a proposal for getting rid of requirement #1. Thanks for keeping us updated Ken!
  |     |   Comment #7
This is huge for me, a massive help. I am single and have only my sister left. She is very old, in poor health, and I fear I might not have her that much longer. Now going forward I will be able to name cousins, nephews, etc., all young people. I certainly hope the NCUA adopts these same rules very soon. It is SUCH a help . . . it's unusual for the government to do anything this good. It's just amazing! This is certainly the silver lining of the current financial trouble cloud. Of course with credit unions largely having avoided crisis, the NCUA might not have the same impetus for change found at the FDIC. Still, we can hope.

Banking Guy, thank you so much for making us aware of this change!!
  |     |   Comment #8
  |     |   Comment #9
The $500,000 rule is most interesting.

It appears that you could name 4 beneficiaries to get 0.01% each of the account and one other beneficiary to get 99.96% of the account and still be insured for up to $500,000.

Surely, anyone can find a charity or two worth donating 0.01% of your account to after you die.
  |     |   Comment #10
annonymous 4:08 post about 500,000 rule. That's not the way I read it."For revocable trust account owners with more than $500,000 in such accounts naming more than five beneficiaries, the coverage is the greater of either $500,000 or the sum of all the named beneficiaries' proportional interest in the trusts, limited to $100,000 per different beneficiary" I.e. The limited to $100,000 per beneficiary
O-Qua Tangin Wann
  |     |   Comment #11

It used to be, only beneficiaries that were direct family members qualified for the $100k FDIC coverage. Now, any beneficiary will receive full FDIC insurance coverage.


Before, if a trust allocated assets to beneficiaries in unequal amounts, FDIC coverage was basically hobbled. If there were 5 beneficiaries and 1 got 80% of assets and the rest were split between the other 4, FDIC coverage would not equal 500K.

Now, regardless of allocation, FDIC will give 100K coverage to each beneficiary up to 5 beneficiaries. At 6 or more, if the allocation is not equal between all beneficiaries, it reverts to the old rules for amounts over 500K. If the allocation is the same, each beneficiary (to infinity) gets 100K coverage per grantor on the trust.

~O-Qua Tangin Wann

So, good news, there's more lenient FDIC coverage. A small measure designed to help stem the number of depositors, concerned about FDIC coverage, from yanking their accounts, These changes should be reflected on the FDIC website by Monday
  |     |   Comment #12
  |     |   Comment #13
Thank you Banking guy!! I've been reading your blog for two years now and it's always been so helpful!! I appreciate all the information you give to us!!! I continue reading your blog because it's always so helpful!!!!!
  |     |   Comment #14
how about credit unions under NCUA ? my account does not have POD/ ITF / ATF ; it has beneficiary listed . what limit will such a joint account have ?
  |     |   Comment #15
Credit union trade group CUNA says NCUA will consider similar change -- http://www.cuna.org/newsnow/08/wash092608-2.html
  |     |   Comment #16
my bank put pods in the title not POD but PODS , go figure I insisted they put in pod`s so they titled my account " John R. Smith PODS"
I hope if they fail this will work as i have 250K in this bank with 3 beneficiaries.

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