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CD Rates Summary November 6, 2018Insuring 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:
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:
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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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.
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..
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.
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.
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.
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?
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.