I thought I'd concentrate what appear to me to be outstanding questions. Although there are other threads that touch on this, there's also a lot of snark and misinformation.
Several years ago, I called both the FDIC and NCUA to try to get definitive answers on securing insurance above the $250k/institution personal limit on insurance. These are the answers I received, which ranged from solid to questionable, and may have changed across time, but are vital to securing the account insurance you need.
1. Is the account considered to be ITF (In Trust For) or POD (Payable Upon Death)?
This is the first step in obtaining greater insurance. Some banks and CU's will title the account with those letters in them (thank you - problem solved). Having those letters in the title of the account, to my understanding and research, makes the account an 'informal trust'.
However, many institutions, particularly smaller ones, say they don't have the capability to put those letter in the account. There is a rather obscure, but important, rule that states that even without that designation in the account title, if the bank (or CU) has in their 'electronic documents' (a term that is often undefined) that connects 'ITF or 'POD' to the account, then it is considered the same as if the institution had those letters in the title, i.e., you have an informal trust.
Going lower on the 'totem pole', there are references in some FDIC or NCUA sources of information (documents or telephone conversations) that state that the mere act of naming beneficiaries to an account, and having the institution have documents naming those beneficiaries and the requirements in identifying them (name, address, phone, sometimes even SS#, etc.), this alone creates an informal trust. I recall speaking to a very senior NCUA official, (senior in terms of years of service at NCUA), who agreed that the naming of beneficiaries was enough to establish an informal trust, but, she also said she'd prefer to have 'ITF' or 'POD' in the account title, just to be sure. So there appears to be some ambiguity here, given that some institutions simply won't/can't do this.
2. The establishment of the account as an ITF or POD trust (even if that is established by naming beneficiaries - yes, 'pretzel logic', but that's how I was told it can work, as per above) is critical in increasing coverage, because each beneficiary that you name to the account brings $250k in insurance (FDIC or NCUA, as appropriate) to the account. When such beneficiaries are named, you no longer count as an 'insurer' of the account. That is, beneficiary #1 brings $250k, #2 increases that to $500k total, #3 increases insurance to $750k total, and so forth. I'd particularly like to get whether naming beneficiaries in itself is 100% bulletproof in creating a trust to which beneficiaries can be named (yes, that 'pretzel logic' situation), given how hard this is to establish and verify at most institutions.
3. There currently does not appear to be a limit to the number of beneficiaries you can name, and therefore, the amount of insurance you can cover a single account with, appears unlimited. (I recall in a recent post Ken giving an example by using 5 beneficiaries, and creating the impression that 5 was the limit - perhaps my misunderstanding, perhaps unintentional on his part.)
I 'tested' this today by going to the FDIC's site, giving an account balance of $2,300,000 and using their 'insurance calculator to test whether I could insure it all by naming enough beneficiaries. I named 11 beneficiaries (which should yield a max insurance amount of $2,725,000), and the FDIC calculator created a report (printable) that all $2,300,000 would be covered. It did, however, have me stipulate that the account was an 'ITF' or 'POD' account, once more bringing to the fore the question of what it takes to establish that designation.
4. *Importantly*, on the FDIC site, there is a notice of a rule change, approved in January of 2023, that will take effect April 1, 2024: That the number of beneficiaries that can be named to a single account (and I assume an institution aggregate) will be 5, and therefore the maximum amount that can be insured as of that date will be $1,250,000 per account/institution. They're giving this information out now, in part so that depositors who plan on far-dated 'timed' deposits, e.g., a 3 year CD, can be aware of how to stay within the 'new' deposit insured limit.https://www.fdic.gov/resources/deposit-insurance/index.html
I welcome any and all serious discussion/information on these issues, as I think robust information will help the entire DA community.
