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FDIC Changes Insurance Rules for Payable on Death ("POD") Accounts
The FDIC has adopted an interim rule today, September 26, 2008, that dramatically impacts the FDIC deposit insurance coverage for revocable trust accounts and payable on death accounts. The article below outlines those changes. While we don't have all the details yet, the article summarizes what we understand as of today. This originally appeared on BankersOnline.com, a sister website to BankingQuestions.com that provides articles, advice, tools, and support to financial institutions.
Updated 10/8/2008 to reflect the temporary increase in the basic FDIC coverage amount to $250,000 (effective 10/3/2008 through 12/31/2009). |
Up until today, the FDIC rules provided that Payable On Death ("POD") accounts could be insured on a per beneficiary basis up to $100,000 per beneficiary, but only if the beneficiary was "qualifying." In order to be "qualifying," a beneficiary had to fall within one of five categories of relationships to the owner: the beneficiary had to be a spouse, child, grandchild, sibling or parent of the owner of the account. The same held true on revocable trusts (with the additional requirement that the funds had to be set up to go to the beneficiary, or be set aside for the beneficiary) upon the death of the owner.
That has ALL CHANGED. The FDIC has adopted an interim rule amending the deposit insurance provisions on revocable trusts and payable on death accounts. It takes effect immediately (September 26, 2008). [The $100,000 limit was also raised to $250,000 effective 10/3/2008, on a temporary basis. The law will revert to the $100,000 limit after 12/31/2009.] Here's a synopsis of the changes:
- The concept of qualifying beneficiaries is being eliminated.
- Virtually any beneficiary may potentially qualify for per beneficiary coverage. In addition to natural persons, the FDIC rule will cover beneficiaries that are charitable organizations or non-profit entities recognized under the Internal Revenue Code. For those customers who want to make someone else the beneficiary of their largesse (or who have small families and few options within the five former categories), this is MAJOR news. For example, a depositor can now designate a beloved friend, life partner or relative outside of the former "immediate family" group. Non-profits and charities may be able to promote POD (where permitted by state law) and revocable trust beneficiary designations as part of their planned-giving programs.
- There are limits. If a revocable trust has more than $1,250,000 in it (and if a POD account has more than $1,250,000 in it), and it names more than five beneficiaries, the coverage is the greater of either (l) $1,250,000 or (2) the sum of all the named beneficiaries' proportional interest in the trusts, limited to $250,000 per different beneficiary. (So, let's say you have a trust that has $2.5 million in it and seven beneficiaries, all of whom are supposed to get an equal share. It would be insured for the greater of $1,250,000 or up to $250,000 per beneficiary. In our example, that would yield coverage of $1,750,000 -- up to $250,000 for each of the 7 beneficiaries, leaving $750,000 uninsured.)
- The new rules apply not only to new accounts being opened on a go-forward basis, but also to existing accounts.
The NCUA made similar amendments to its NCUSIF rules.
Here's a link to the FDIC's publication of the interim final rule in the Federal Register. The FDIC has completed its update of EDIE (the Electronic Deposit Insurance Estimator) to reflect these changes.
Published on BankingQuestions.com 9/26/08
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