If I Add Tax Exempt INSTITUTION As POD Beneficiary At Credit Union, Will That Increase NCUA Insurance To 500K?

pua | May 25, 2021 | 10 posts since 2011

I currently have 250K in certificates in a credit union covered by NCUA federal insurance. They will allow adding a payable-on-death beneficiary which is a 501(C)(3) tax exempt foundation, not a human individual. If I add the same one POD beneficiary to all my accounts, including more accounts to be added up to total of 500K, will that increase the amount of NCUA insurance to 500K ? Let me emphasize that this concerns a beneficiary which is an institution, not an individual. And the institution is a federally registered 501(c)(3) tax exempt. And I'm talking about a POD beneficiary, NOT a joint owner.

Does it matter whether the POD beneficiary is an institution not an individual?

Does it matter whether the institution in tax-exempt?

Does it matter whether it's a POD beneficiary and not a joint owner?

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Answers

111 | May 25, 2021 | 672 posts since 2019

Pua – From your post I could not tell if your current situation is single-owner with NO POD beneficiaries, or single-owner with ONE POD beneficiary. It matters greatly, because if you add “the same one POD beneficiary to all my accounts”, as you stated, that would give you only $250K of insurance in the first case, but $500K in the second.

It may seem counter-intuitive, but a single-owner account(s) at a CU with 1 POD beneficiary gets only $250K of insurance. It requires two POD beneficiaries for a single-owner account(s) to get $500K in insurance.

You can model this here - Insurance Estimator | MyCreditUnion.gov

111 | May 25, 2021 | 672 posts since 2019

A better link - https://www.mycreditunion.gov/insurance-estimator

Kaight | May 25, 2021 | 1,192 posts since 2011

Same link as above, but in clickable form:

https://www.mycreditunion.gov/insurance-estimator

blazer9 | May 25, 2021 | 228 posts since 2019

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.

That is all I can offer. Seek more Info.

pua | May 25, 2021 | 10 posts since 2011

Thank you 111 and Kaight. Excellent link to calculator. At present the 250K in CDs is under my name as an individual person with no beneficiaries. I wanted to add a single IRS-recognized tax-exempt institution as beneficiary to all 250K. And then, later, was thinking of adding more CDs with same beneficiary. The conclusion I draw from that excellent calculator is that I should either NOT add beneficiary to existing CDs but do include beneficiary on future CDs in order to get up to 500K total insurance; or else go ahead and add beneficiary to existing 250K but leave future CDs in my name as individual without any beneficiary (or with a different beneficiary) in order to get up to 500K total insurance. In other words, an individual with one particular tax exempt institutional beneficiary counts as only a single insured combo getting max of 250K insurance; and if I want 500K max insurance I must either (a) keep 250K as individual person with no beneficiary while adding new 250K as same individual but with beneficiary; or (b) add beneficiary to existing 250K while then adding new 250K as individual with no beneficiary; or (c) could add my favorite tax-exempt institution as beneficiary to existing 250K while then adding new 250K but with different beneficiary after I figure out who is worthy to be the new, different beneficiary. Seems logical. Thanks for your help.

111 | May 25, 2021 | 672 posts since 2019

Pua - Thanks for the kind words. However, I fear you may still leave some assets uninsured - in certain situations.

To analogize, I'm typing this (as a file) on a 256G USB drive. I also have another 256G USB drive in another USB port on this PC. That gives me 512G of USB storage. But if this file were to grow to 270G, could I put it on either drive?

All of your 3 solutions (a, b and c) WILL work if you have no single CD OR “group” of CDs that has exactly the same ownership category, AND totals less than $250K at maturity (principal plus interest). By “work”, I mean be fully insured. However, none of your 3 solutions will work if any single CD OR “group” of CDs has exactly the same ownership category, AND totals MORE than $250K at maturity. The remainder over $250K will be uninsured.

You can test this in the NCUA calculator by modeling - 1) a single-owner account containing a CD (it could also be a group of CDs) totaling $270K, and, 2) a 2nd account with the same single-owner but with 1 POD beneficiary, totaling $230K (again, holding 1 CD or several). Running the calculator, you'll see you have $500K of insurance “overall”, BUT the account with $270K still has $20K uninsured.

In my earlier suggestion in this thread regarding, at a particular CU, a single-owner account(s) with 2 (or more) POD beneficiaries, this problem would not happen. All CDs or groups of CDs totaling $500K or less would be completely insured. And, from this aspect of things, it does not particularly matter whether the POD beneficiaries are persons, (IRS-approved) institutions, or trusts.

pua | May 26, 2021 | 10 posts since 2011

Thank you VERY MUCH Ken Tumin. Extremely helpful, including your examples.

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