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Insuring Soft Trust Account FDIC Requirementes

Zemo999
  |     |   103 posts since 2017

First off, I'm new here so forgive me my sins. I've seen questions close to mine, but in crucial ways are different. So I'd like if anyone has definitive advice or can point me to it on this situation:

Let's say I have liquid cash deposits that I'd like to vest in saving or money market account(s) that will be a 'soft trust', but the amounts will be well over $250k. I read Ken Tumin's excellent blog post from 2011, which said that 1. there must be beneficiaries and 2. There must be the requisite term in the title of the account (POD, ITF, etc.)

But I'm puzzled by a number of things, as I try and plow through FDIC legalese, posts, and phone conv. with FDIC 'specialists'.

To wit: As noted by other posters, some banks will make it easy to clear this requirement by having those designations in the title of the trust. Others (often quite high yield) say they can't/won't do that. There is some FDIC regulations that ... at the end of this post.

I'm asking: 1. Have requirements changed? When I spoke with FDIC 'specialists', in two different conversations, they both eventually said that there are no title requirements, just having the names of beneficiaries means it is a 'soft trust'. And each beneficiary would, in fact, each bring in $250k in FDIC Insurance for the account at a bank. I asked, and they said there is no limit to the number of beneficiaries you can name, and each one, even over 6 beneficiaries, each additional beneficiary would bring another $250k in FDIC insurance.That is great news, if it's true. (The 2nd specialist I spoke with was rather dodgy, changing her position throughout the conversation, unlike the 1st, who was surer and more 'with it.' I may make a 3rd attempt and record it if it is legal in my state, in case where I got that info might be asked for. Still, I would expect that FDIC would take the position that what they told me isn't definitive - the law is.)

2. I think it might've been Ken's blog article that pointed me to FDIC regulations, in terms of what the designation, e.g., constituted the titling of an account. It seemed to be the case that the title of the account did not actually need to be in the bank's title - as long as it's in the bank's 'electronic account? electronic deposit? data. I have no idea of what or where that is, and I'm unfortunately fairly certain that the person at almost every bank will be flummoxed by what exactly that means also. Anyone have clarity on that? It'd be important because I believe it is on FDIC's site where I saw that 'electronic records' can be used in substitute of the designations POD etc. being in the title.

3. Ken's original article seemed to indicate that above 6 beneficiaries, insuring funds above $1.25 million, gets dicey.

My situation, frankly, and seemingly ruthless (but I'm not) - is that I am not so concerned what happens if/when I die that different percentages be given to different beneficiaries - or anything related to that. I just want to know that the funds are insuranced if a bank goes under while I'm alive, taking my I-though-were-covered funds with it.

I'm appreciative of any light one can shed on these issues. I've read all I can take in and still am not quite sure what is so and what is not. I *could* find ten or whatever banks and not worry about FDIC insurance coverage, but that seems rather impractical, esp. in light of current quick changes in APR rates. Thanks to all

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Zemo999
  |     |   103 posts since 2017
I am the author of the above post, and I can't find a way to edit it, and save reader a ton of time - I'm quite sorry. But.....I found this FDIC online PDF that, to me, explains all the questions above (I think...not sure) except for being explicit about what constitutes the correct 'electronic records' that drops the requirement that POD, etc. have to be in the name of the account title. They lead to youtube videos that I've not watched yet, but the online pdf doc can be found here:
https://www.fdic.gov/news/conferences/di-seminar/comprehensive.pdf
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Ricochet
  |     |   522 posts since 2010
https://www.fdic.gov/regulations/laws/rules/4000-8920.html
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Ricochet
  |     |   522 posts since 2010
https://www.fdic.gov/regulations/laws/rules/2000-5400.html#fdic2000part330.5

paragraph ( b ) and ( 2 )
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Ricochet
  |     |   522 posts since 2010
330.10 is the correct one to look at
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Zemo999
  |     |   103 posts since 2017
Ricochet (and Hank) - thanks for your posts. Yes, FDIC rules 330.10 (b) is the most pertinent information on trust insurance requirements.I'm sorry the post is so long, but it is thorough. I've done more work on this issue, and want to share that, as well as state/ask about issues with insuring informal trust accounts that seems to me quite ambiguous:
Having read 33.10 section on informal trusts about 25 times (so I could grasp the meaning - reproduced portion at the end of this post), I called the FDIC 'specialists' a third time. The woman I spoke with for about 45 minutes contradicted, rightly I believe, what the first two specialists I spoke with told me: Simply naming beneficiaries on an account makes the requirements for a 'soft trust'. Not so.My understanding of 330.10 b) - is this: there are at least 3 requirements necessary to have an account that is a 'soft trust':
1. You must have beneficiaries and they need to be named on the account.
2. (perhaps somewhat optional according 330.10) The title of the account must specify it as a trust using names or their acronyms . i.e. POD, ITF, etc.
Now, it gets ambiguous:
3. Even if those acronyms don't appear in the title of the account, and, by inference, even if they aren't indicated on the signature card, if they appear in the banks 'electronic records' (code or otherwise), it meet the requirements of being recognized as a valid soft trust.
Now, to me there are a few problems with that: The line "the FDIC would recognize an account as a revocable trust account even if the title of the account signature card does not designate the account as a a POD, etc. revocable trust account as long as the institution's electronic deposit account records identify (through a code or otherwise) the account as a revocable trust account.")
These are the problems for my understanding of those requirements: It *implies* that the signature card, if it includes those acronyms, meets the requirement about the trust designation as a soft trust. But it doesn't say that *explicitly*. Which would be correct - the signature card with those designations, or the signature card doesn't meet the requirement. Common sense tells me the former is true.
The really sticky one - the 'electronic' account records may need to have a 'code' or otherwise, to indicate that it is a trust account.
The 45 minutes call to the FDIC went round in circles towards the end, with my repeatedly asking 'what is an electronic deposit account record (or whatever the wording was), and her parrot-like responses - 'because it's electric', or a similar non-specific answer.
So, there is both the question of if the title of the account is only specified on the signature card, does that drop the necessity of an indicator in the bank's electronic records. And what, exactly, constitutes an 'electronic record' ? (or similarly indicated.)
There is another possible 'zinger' in the above-stated requirements: In my reading/interpretation of 333.10 (b), the 'title' of the account must appear in electronic form - simply getting a hard copy of the account name, as well as a hard copy of the beneficiaries, does not meet their requirements. Like Hank, I do have both from the bank in question, and the last FDIC 'specialist' said, in no uncertain terms, that those 'hard copies' were not valid for the purpose - the 'title' must be an *electronic record*, not a sheet pf paper with the title, and the same for beneficiaries.
Now, my particular situation is this: The high-yield savings bank acct. where my funds, quite over the $250k, and with more than 6 beneficiaries, says that it 'dosen't do' trusts. However, I think (hope) they're able to meet the requirements for a soft trust because: 1. The signature card, with the 'title' of the trust both says 'In Trust For', and is *only* available as an *electronic* document. They can't send me a copy because it's only electric and they don't send out hard copies for identity/info security. So, I *think* it meets the requirements: 1. there are named beneficiaries that they have on record (and they sent me a hardcopy of that list. 2. The 'title' of the account as per the signature card says "In Trust For' (although the hard copy of that said my name, and had the acronym 'POD' (I will try to fix that to "In Trust for" which is the 'real' title as per signature card.) and 3. That signature card exist only in electronic form, given that they are solely an internet bank, and cannot give out a hard copy.
So, even if the bank says it doesn't do trusts, it seems to me to meet requirements, am I right about that?
All comments are hoped for and welcomed. I will make a 4th call to the FDIC specialists to see if those 3 requirement are correct and satisfy requirement for a soft trust. I expect I'll get yet a 3rd conflictual answer, but I have to do my best, obviously, to ensure the insurance coverage. I am sorry for the length and complexity of the post, but it sure got my attention that having beneficiaries named, and an acronym on the title, is grossly inadequate to qualify as a soft trust with full insurance coverage
Below is the section of FDIC regulations, 330.10, as it is written.

(b) Required intention and naming of beneficiaries. (1) The required intention in paragraph (a) of this section that upon the owner's death the funds shall belong to one or more beneficiaries must be manifested in the "title" of the account using commonly accepted terms such as, but not limited to, "in trust for," "as trustee for," "payable-on-death to," or any acronym therefor. For purposes of this requirement, "title" includes the electronic deposit account records of the institution. (For example, the FDIC would recognize an account as a revocable trust account even if the title of the account signature card does not designate the account as a a POD, etc. revocable trust account as long as the institution's electronic deposit account records identify (through a code or otherwise) the account as a revocable trust account.) The settlor of a revocable trust shall be presumed to own the funds deposited into the account.
(2) For informal revocable trust accounts, the beneficiaries must be specifically named in the deposit account records of the insured depository institution.
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Ricochet
  |     |   522 posts since 2010
ZEMO999
Admire your pursuit of an answer.
Does the high-lighted provide some solace ?
I don't know if it means Help or Hurt

§ 330.5 Recognition of deposit ownership and fiduciary relationships.

(a) Recognition of deposit ownership--(1) Evidence of deposit ownership. Except as indicated in this paragraph (a)(1) or as provided in § 330.3(j), in determining the amount of insurance available to each depositor, the FDIC shall presume that deposited funds are actually owned in the manner indicated on the deposit account records of the insured depository institution. If the FDIC, in its sole discretion, determines that the deposit account records of the insured depository institution are clear and unambiguous, those records shall be considered binding on the depositor, and the FDIC shall consider no other records on the manner in which the funds are owned. If the deposit account records are ambiguous or unclear on the manner in which the funds are owned, then the FDIC may, in its sole discretion, consider evidence other than the deposit account records of the insured depository institution for the purpose of establishing the manner in which the funds are owned. Despite the general requirements of this paragraph (a)(1), if the FDIC has reason to believe that the insured depository institution's deposit account records misrepresent the actual ownership of deposited funds and such misrepresentation would increase deposit insurance coverage, the FDIC may consider all available evidence and pay claims for insured deposits on the basis of the actual rather than the misrepresented ownership.
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Ricochet
  |     |   522 posts since 2010
The last 5 lines
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Zemo999
  |     |   103 posts since 2017
Richochet - If I understand it, the last 5 lines has to do with ownership of the account, and what happens to insurance if the owner is misrepresented. Thanks for the 330.5 homework on this. UPDATE (on my own question): Spoke with a 4th FDIC 'specialist' who agreed with the other 3 out of 4, i.e., Simply having named beneficiaries make it an 'informal' trust account. I already knew that is not so. But I *DID* speak to an FDIC 'senior staff' member who answered my questions in an authoritative way, and I'd like to share that - i.e. what are the requirements to ensure that an account absolutely has full FDIC coverage: 1. Yes, the account must name beneficiaries whose names appear in bank's records. 2. The words or their acronyms (e.g., POD, ITF) must appear in the title of the account. 3. (and here it gets interesting) - the requirement that says the 'title' must appear in electronic form and be in the 'account records' of the bank, by statement or code or otherwise - This turns out to be simpler than I though. The senior staff person said they had revised/relaxed their rules on this. Since (all? I think so) banks have the info on the account in electronic form, most pertinent documents are in electronic form at the bank, and thus meet the 'electronic form' requirements. What that means to my situation, personally, is that my bank assured me that the signature card I e-signed when I opened my account was *only* in electronic form - they could not give me a hardcopy print-out, because it's in electronic form, and they wouldn't send it out anyway, partly for security reasons. There appear to be so many ways that 'electronic form' requirement is met: e.g., if the 'title' is in electronic form, if the signature card is in electronic form, if the account records are in electronic form. I believe that must be what she was referring to with clearer, 'relaxed' requirements. Perhaps especially pertinent is this: I (like Hank) have in the name of the account, on the bank's letterhead, the words POD. (I don't see a difference between what the banks tell me about the title being available only in electronic form and the name of the account, which they can/did send me a hardcopy on paper - but I digress.) I also have on the bank's letterhead the names of the beneficiaries. While one of the earlier FDIC reps told me that paper means nothing, because it is not electronic, the senior staff person assured me otherwise: If the bank sends me such information on name, beneficiaries, POD designation etc. they by logic *must* be in electronic form at the bank, because their storage of that information is coming from the records of the bank that are in electronic form. So the paper copies with relevant info, must have originated from the bank's electronic records. One can see from this that the title, or signature card, or other documents must have been recorded in electronic form by the bank. So it appears to me that meeting the 'electronic form' requirement for an informal trust is almost an unavoidable meeting of that requirement. For Hank, the fact that he has paper copies, the fact that the copies had to have been derived from electronic information the bank has, may likely mean that he has met all requirements. But if I were him, I'd do some things that even more assuredly says those requirements are met.
Lastly, and important for my situation, is another 'good' surprise: Although the bank where I have my funds in a savings account (now the APR is 1.25%), tells me they 'don't do trusts', the senior staff woman affirmed to me that if the account meets the requirements for an 'informal' trust, it doesn't matter if the bank states that they 'don't do trusts'. For a formal trust, with all the legal requirements and paperwork, that's a different animal. But regardless of what your bank says about this, it's the requirements of an informal trust, not the bank's statements about trusts, that determine whether you've got a viable trust by meeting the FDIC requirements for that.
Again, sorry to be long-winded (and I've not read this post for editing) about this, but I thought info from the most authoritative source I've spoken with would be of help to some on this topic. Unfortunately, FDIC does not record telephone calls, so one can't spit back at them "Let's listen to that recording" if they contradict this senior staff person if the bank goes under and the FDIC says you didn't meet the rules. But she gave me her full name, so I suppose that they could ask her about this conversation for as long as she remains with the FDIC. I feel a lot more assured that all my funds are insured than I did when I started this journey.
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hank
  |     |   110 posts since 2016
I have accounts at multiple institutions where they don't put the pods in the title of the account(I have others that do). I have added beneficiaries , then I ask the credit union or bank to mail something to me as proof that I have the beneficiaries that I have named to the account. I have always gotten that proof. The hardest time I had was with Andrews fcu but they ultimately sent me the proof.
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Ally6770
  |     |   4,292 posts since 2010
I also had accounts at over 2 dozen banks and credit unions when my husband died. All accounts had beneficiaries and only had few had POD or ITF on them. Until he passed I was POA and after was able to send letters to those that inherited some of the money. All of the bank and credit union accounts went to the people stated as beneficiaries in the way we set it up with no problem. All that was necessary was that the bank and or credit union have a copy of the death certificate. Most did not need the original. I should restate this to say all but one credit union that had LOST the beneficiary information and was also totally uninformed about about the rules and regulations of inherited IRA's, the transferring and disclaiming of IRA's and converting to a Roth. I had a copy of the signature card and they still would not accept it until I contacted NCUA and I was able to do as we had planned. I also would prefer that all accounts were titled ITF.
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Zemo999
  |     |   103 posts since 2017
Thanks to all for sharing their knowledge and experience.
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