FDIC COVERAGE QUESTION

Matt83 | Mar 11, 2023 | 63 posts since 2018

In lieu of recent events it's got me wanting to make sure my ducks are in order. I know they're a lot of smart people on this forum, I would appreciate their wisdom and hopefully some peice of mine.

I'll try to keep this concise.

Basically I have an amount exceeding 250k in 2 CDs and a savings account in an online bank. All single owner. I have structured it in a way I believe gives me 750k coverage with using beneficiaries. According to online FDIC calculator I'm good.

It's PODs with my wife and 2 children listed. They are listed in unequal beneficiaries with 99.8 to the wife and .1 to each kid to a total of 100.

My only concern was the 2 kids don't have 250k interest ( with .1) and my wife has over 250k interest ( with 99.8)

However from my understanding the kids each have 250k coverage ( regardless of unequal beneficiary status) bringing the aggregate coverage to 750k coverage with my wife and 2 kids.

Does that sound correct?

3

Answers

JeffinEasternFL | Mar 11, 2023 | 744 posts since 2020

I know one fact from asking: Never (ever) think the "verbal answer" you get from any bank/CU CSR/Manager etc., is correct regarding coverage. If it's not explicit from the FDIC/NCUA you probably don't have the right information. Just sayin....

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CDmanFL | Mar 11, 2023 | 286 posts since 2019

Excellent question. I’m looking forward to reading the responses.

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sams1985 | Mar 11, 2023 | 781 posts since 2022

The excerpt below was pulled from a legal website:

There are two types of revocable trust accounts:

payable-on-death (POD) accounts, which allow you to name the beneficiaries on the account signature card, and
living trusts, which are formal legal arrangements created as part of an estate plan.

The FDIC assumes that all eligible beneficiaries share equally in the trust unless stated otherwise in the bank's records.

FDIC coverage on a trust does not necessarily equal $250,000 per beneficiary, per owner. For example, let's say a mother owns a trust account with a $500,000 balance. If she names both her children as beneficiaries, you might assume that the entire account balance would be insured—$250,000 per child, per owner. However, if the mother makes one child the beneficiary of 75% of the trust and the second child a beneficiary of only 25%, the child entitled to $125,000 would be fully covered, but the child entitled to $375,000 would not be covered for the $125,000 exceeding the $250,000 limit.

.........

Which contradicts the actual FDIC website:

When a revocable trust owner names five or fewer beneficiaries, the owner's trust deposits are insured up to $250,000 for each unique beneficiary. This rule applies to the combined interests of all beneficiaries the owner has named in all formal and informal revocable trust accounts at the same bank. When there are five or fewer beneficiaries, maximum deposit insurance coverage for each trust owner is determined by multiplying $250,000 times the number of unique beneficiaries, regardless of the dollar amount or percentage allotted to each unique beneficiary. Therefore, a revocable trust with five unique beneficiaries is insured up to $1,250,000.

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Matt83 | Mar 11, 2023 | 63 posts since 2018

Sams1985.

Well that's a little concerning I was going off the FDIC website which I would assume would be the standard. The other site that you posted completely contradicts that and that's kind of what I was worried about.

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Ltssharon | Mar 11, 2023 | 471 posts since 2020

https://www.depositaccounts.com/community/ask/52119-fdic-coverage-question.html#
I think your question is wise. I have accounts up to 500k that the fdic edie says are covered. However, all the news says the FDIC is only covering the failed bank up to 250k. What the heck? I would not be concerned if the news is saying the FDIC is covering all that is FDIC covered according to Edie, but that is not being mentioned. VERY concerning, don't you think?

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Matt83 | Mar 11, 2023 | 63 posts since 2018

After doing some reading I believe we're good. It seems the cut-off is five beneficiaries or less for unequal interest.

Basically meaning that if you have five beneficiaries you're covered up to 1.25 million regardless of how your account amounts are set up. So you could have one CD with 1.2 million and the other four CDs with less than 50,000 and as long as you have 5 beneficiaries they all have a $250,000 protection amount.

After five beneficiaries to me it reads as if to get the $250,000 coverage they must not exceed 250k per ownership category.

As far as the verbiage that the news media is reading I think they're just ignorant of the technicalities of the coverage. I think they just basically try to simplify it and not get too deep into the weeds for their average consumer. They don't have time to try to explain and confuse people of ownership categories in 30 to 60 seconds segments.

It's clearly stated on FDIC that if you structure your accounts correctly that you can indeed have a million dollars or more coverage with the simple use of beneficiaries.

2

CDmanFL | Mar 11, 2023 | 286 posts since 2019

One of the problems I see is that nearly all my banks and credit unions don’t show the names of the beneficiaries when I log on to my accounts. Yes, there’s paperwork “somewhere” but why don’t these institutions make it easier on everyone by showing the beneficiaries for each account? It’s almost like a scavenger hunt to find this information. For example, Navy. Love them but they don’t show beneficiaries. Same for NASA and many others. You’ll need a very good memory and record keeping folder to prove to the FDIC or NCUA that your accounts have PODs. Crazy that it’s our responsibility to do that when it would be so simple to show the beneficiaries in plain sight when you view your accounts.

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CDmanFL | Mar 13, 2023 | 286 posts since 2019

Just read that the government will cover the uninsurable deposits of SVB and Silvergate. Party on! I’m less worried about my POD accounts now, you know those POD accounts where you can’t see who the beneficiaries are when you look online and have to hope and pray that someone can find that information when the house is burning down. And all my situations are with credit unions (not banks) and I can only imagine that the government would be much more eager to bail out a credit union over a bank. What do you guys think?

3

IGR | Mar 12, 2023 | 580 posts since 2020

Wise, Excellent question? doesn't look so to me!
Even if the Regulator policy says today that the coverage would be $750K, I wouldn't bet the language isn't changed tomorrow. Such arrangement mostly speaks about an attempt to game the system and to outsmart the Regulator!
You manufacture the problem to service no purpose.
Where the purpose is to pass the deposits to beneficiaries in case of the death of the Depositor, there 0.1% is not prima facie Beneficiary
Where the purpose is to insure deposits in case of the death of the Depository, there the only matter relevant is the number of beneficiaries specified in informal trust agreement with failed member of FDIC.
Simplest solution usually the most effective one, in Business as in Nature

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