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More About Extending FDIC and NCUA Coverage Past $100K

Update: For a summary of the 2008 FDIC & NCUA deposit insurance coverage changes, please refer to this post. For the latest status of extending the $250K coverage increase, refer to this post.

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. 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 the 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.
  |     |   Comment #1
Banking guy,
Thanks for the info. If an FDIC bank goes down what is the process for claiming your deposits. Does the depositor have to provide bank statements etc?
  |     |   Comment #2
Very nice info BG.. you rock.. as usual...

Here is my Q
If a person and spouse JOINT account got a POD as their Kid.. what will be the max NCUA coverage(I guess $200) - given that there is no other account exists for that family at that institution...
  |     |   Comment #3
again, I am the above anyn 2,
Played around on the FDIC site for me, spouse and a minor kid, reached a max of $700K insured account combinations..
  |     |   Comment #4
This is great information.

However, I don't trust any of this additional coverage. If major crap hits the fan, my thought is that the first 100k will be paid and anything past that is questionable and cause to check the fine print. I am going to always TRY to keep under 100K. Just my two cents.
  |     |   Comment #5
Here is my Q
If a person and spouse JOINT account got a POD as their Kid.. what will be the max NCUA coverage(I guess $200) - given that there is no other account exists for that family at that institution

You would not even need to add a POD to get $200k. You get that anyways with a joint.
One other thing, I use to hear that same thing about being careful to make sure no other accounts are held at bank by any of the PODs. I asked that question to the FDIC and below is the answer

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 beneficiaries (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.
Banking Guy
  |     |   Comment #6
1st Anonymous, about the process for claiming your deposits, please refer to misconception #3 of the Top 10 FDIC misconceptions.

In most cases, the FDIC will provide each depositor with a new account at another insured bank. Or, if arrangements cannot be made with another institution, the FDIC will issue a check to each depositor.
  |     |   Comment #7
Scott, you’re right that the PODs’ ownership of accounts at the same bank would not affect their being beneficiaries on other peoples’ accounts.

However, Anonymous 5:20 PM is correct in stipulating that “no other account exists for that family at that institution” because the results can be different if other accounts did exist. For example, if he also has a single POD with his child for 100K, and his wife also has a single POD with the same child for 100K, the joint POD account with the same child would be uninsured. This is because POD accounts are only insured for up to $100,000 per owner for each beneficiary.

In addition, while it’s true that he can have 200K of coverage with just a joint account with his wife, he would be able to receive 400K of coverage at that bank by adding a joint POD account with their child. Opening accounts in different category of accounts (e.g. single, joint, POD) is an effective strategy for maximizing FDIC coverage at a bank.
  |     |   Comment #8
Sounds like I may have done the wrong thing. Opened 3 100K & 1 50K CDs each as Joint Accounts (husband & wife) w/POD as 2 daughters. Is this OK for approaching 400K NCU coverage?
  |     |   Comment #9
Ran it thru estimator and it shows you are fully insured

Your deposits at Bank are fully insured.
You entered the following group of accounts:

Account Name Owner(s) Beneficiaries LT/ITF/POD IRA Balance
1 1 husband, wife D1, D2 Y N $100,000
2 2 husband, wife D1, D2 Y N $100,000
3 3 husband, wife D1, D2 Y N $100,000
4 4 husband, wife D1, D2 Y N $50,000
  |     |   Comment #10
Kudos to you, Banking Guy, for highlighting the requirement a POD beneficiary be alive when a bank fails - else coverage based on POD to that beneficiary is lost. I can only imagine how many folks are unaware of this. It is the INSTANTANEOUS loss of FDIC insurance, upon beneficiary death, which makes this situation so threatening. It's an FDIC rule that desperately needs to be changed. At least a little time should be allowed for the depositor to put matters right, and name a new beneficiary when a POD beneficiary passes away. Thanks again Banking Guy - you help people and do good work.
  |     |   Comment #11
To Anonymous 12:46 PM, August 27, 2007:

Assuming those are the only accounts with these two daughters as beneficiaries in any accounts with you and your spouse at this bank, your four accounts are fully insured. The FDIC coverage for the Husband on the four accounts is 87.5K for each daughter.
Similarly, the FDIC coverage for the Wife on the four accounts is 87.5K for each daughter.

Here’s the breakdown of the FDIC coverage:

For each of the 100K CDs:
100K/2 = 50K for Husband/2 = 25K for Daughter #1 + 25K for Daughter #2

=50K for Wife/2 = 25K for Daughter #1 + 25K for Daughter #2

For the 50K CD:
50K/2 = 25K for Husband/2 = 12.5K for Daughter #1 + 12.5K for Daughter #2

= 25K for Wife/2 = 12.5K for Daughter #1 + 12.5K for Daughter #2

FDIC coverage for Husband: 25K x 3 = 75K + 12.5K = 87.5K for Daughter #1
25K x 3 = 75K + 12.5K = 87.5K for Daughter #2

FDIC coverage for Wife: 25K x 3 = 75K + 12.5K = 87.5K for Daughter #1
25K x 3 = 75K + 12.5K = 87.5K for Daughter #2
  |     |   Comment #12
Correction: I should have said NCUA coverage instead of FDIC coverage above.
  |     |   Comment #13
I called the National NUCA office and the Regional Office that services Alliant CU. Both of them told me that NCUA does not require that POD be in the account title as does the FDIC although they do strongly recommend to their credit unions that they do so. They said that some of their clients do list POD in the title and some do not. They said they know that Alliant CU does not list POD in their account titles but did not know why not.
  |     |   Comment #14
How accurate is the FDIC calculator?

Owners: Me and a domestic partner.

Joint account for $200000

POD account for $100000, domestic partner as beneficiary.

The calculator says both accounts are insured. But their rules say that domestic partners are not acceptable as POD.

Banking Guy
  |     |   Comment #15
Note, co-owners of joint accounts do not need to be related to qualify for joint account coverage (FDIC source). This is different than POD accounts.

A single ownership account will be separate from a Joint account for purposes of coverage. So one Joint account can have total coverage of $200K and one single ownership account can have coverage of another $100K.

In the case you described, the issue of qualified beneficiaries doesn't come into play.
  |     |   Comment #16
Coverage extends down to the trancaction level in these tough times. Protect your self an dyour business with http://www.merchantprocessingaccounts.com/electronic_check_processing.html
  |     |   Comment #17
Two important facts:

1) You must clarify title when talking about account title. It does not have to be included where the depositors name and address show on a signature card. This section is referred to as the legal titling of the account. A signature card's ownership is also listed on the account's signature card which is part of the titling. ie;
John Doe
11111 Main St.
Bankville, NY 11111
(legal titling)

single party account with payable on death:
John Doe Jr.
(legal ownership)

It is important to know this difference. Many banks won't and do not need to include this in the name and address line. If you had 5 beneficiaries on one account there would be no way to list these. This is why banks designate the OWNERSHIP of the account.

2) Please read up on FDIC updates. http://www.fdic.gov/news/news/press/2008/pr08086.html
The current temporary provisions allow a depositor to list virtually any person as a beneficiary. This provision along with the 250k limit will more than likely be a permanent rule.

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