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FDIC Deposit Insurance: A Review, Part II

Joint Ownership Accounts
There are three requirements that must be met for an account to qualify for separate coverage as a joint account. If all three conditions are satisfied, the insurance coverage is separate from any accounts that are insured in other account ownership categories. Separate coverage means that the insurance provided for a joint account is in addition to coverage provided for one co-owner's single ownership account or trust funds held in the same institution.

For example: If Wilma has an account in her name alone in any FDIC insured institution, it is insured up to $100,000. In the same institution, Wilma and Fred, her husband, could have a joint ownership account insured up to $200,000 - for a total of $300,000 in this one institution.

Three Requirements
However, if their joint account failed to meet one of the three requirements for separate coverage as a joint account, it would instead be insured as each owner's individually owned funds. If Fred had no other individually owned funds at the same institution, his half of the non-qualifying joint account would be insured ($100,000); but Wilma does have an account in her name alone, already insured for $100,000, so her half of the failed joint account would be uninsured if all three requirements are not met. The three are:

  1. A joint account must be held in the names of two or more natural persons - meaning not corporations or other legal entities.
  2. Each co-owner must personally sign a deposit account signature card (unless the account is a CD, a negotiable instrument or an account set up by an agent or nominee.
  3. Each owner must be able to withdraw on the same basis. If one co-owner can withdraw on only her signature while another co-owner requires two signatures, that would be unequal - and the account would not qualify for separate coverage as a joint account.

Note: It makes no difference if the title of the account is "and" or "or" - i.e., Fred AND Wilma - (both to sign), or Fred OR Wilma - (either to sign). Withdrawal is still equal. If, however, the account reads - Fred and Wilma or BamBam - there are unequal withdrawal rights. Fred and Wilma would have to both sign a withdrawal, while BamBam could sign alone. The account then would not qualify as a joint account for insurance purposes.

Also, the social security number reported for a deposit account does NOT affect the deposit insurance coverage of the account. A joint account, by definition, has two or more co-owners, but IRS allows only one social security number to be reported for each account, so the tax reporting number is never an accurate guide to joint account ownership.

A joint tenancy with right of survivorship is the most common type of joint ownership. It allows each co-owner to withdraw funds, and the account will belong to the surviving owner upon the death of the joint tenant. The FDIC will presume that a joint account is a joint tenancy with right of survivorship unless the deposit account records of the institution state otherwise.

Revocable Trust Accounts
FDIC insurance set aside a whole category for payable-on-death and other revocable trust accounts. The revocable trust category will apply if certain requirements are met.

  1. The account title must include terms similar to "Payable-on-Death", "POD", "As Trustee For", "In Trust For", or "ITF" to show that upon the death of the owner, the account will belong to a named beneficiary. The only exception is if the account is based on a written trust document, then a title as simple as "Flintstone Family Trust" or "Flintstone Trust" will do, but the written trust agreement must actually provide that the funds shall belong to the beneficiary upon the death of the owner.


  2. The beneficiary must be the owner's parent, sibling(brother/sister), spouse, child or grandchild.


  3. The beneficiary(ies) must be listed by name in the institution's deposit account records.

If these three requirements are satisfied, a depositor could hold funds in a revocable trust account that would be insured up to $100,000 for each parent, sibling, spouse, child or grandchild named as a beneficiary. For instance, if a man names his wife and two children, either in one account, or in three separate accounts, he could have a total of $300,000 in the account(s) that would be separately insured from the $100,000 he has in his own account.

Suppose Fred were to name his niece as a beneficiary on the trust account? The requirement is parent, sibling, spouse, child or grandchild. The account would not qualify as a revocable trust account for insurance purposes, and the balance would be added to his single ownership account total.

Corporate, Partnership, Unincorporated Association Fund
FDIC uses the term "independent activity" to designate qualification for insurance up to $100,000. The corporation, partnership or unincorporated association cannot be created solely for the purpose of increasing deposit insurance. It can be engaged in any independent activity, however, and qualify.

Corporations must be separately incorporated to receive separate insurance coverage. If a corporation has divisions or departments that are not separately incorporated, funds deposited by those divisions are all added together and insured up to $100,000.Corporate stockholders, officers, employees and employee benefit plan participants can hold their personal deposits at the same depository institution where the corporate funds are deposited, and will be insured separately up to $100,000 in the normal manner.Insurance coverage of the funds owned by a partnership is separate from insurance provided for personal funds of the individual partners.

Funds held by unincorporated associations are insured separately from personal funds of their members, so long as the independent activity requirement it met. As with corporate and partnership accounts, all funds held by the unincorporated association, even if designated for different uses, are aggregated and insured up to $100,000 total.

To be continued...

Copyright © 2002 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 12, No. 5, 6/02

First published on 06/01/2002

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