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#1052645 - 09/29/08 03:50 PM Clarification on new FDIC/Beneificiary rule please
CubDave Offline
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Joined: Oct 2005
Posts: 1,562
Do I understand correctly - beneficiaries can be anyone now with Max of $500,000, so:

Joint account with 5 beneficiaries has $700,000. $100,000 coverage to Owner 1 and owner 2 and $100,000 each beneficiary, correct? (assuming no toher accounts at the bank)

Joint account with 10 beneficiaries has $700,000. $100,000 coverage to Owner 1 and owner 2, and $50,000 for each benficiary because of the $500,000 cap, is that correct?

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#1052656 - 09/29/08 03:59 PM Re: Clarification on new FDIC/Beneificiary rule please CubDave
Marnie Offline
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Joined: Nov 2007
Posts: 437
Nevada

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#1052659 - 09/29/08 04:05 PM Re: Clarification on new FDIC/Beneificiary rule please Marnie
CubDave Offline
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Joined: Oct 2005
Posts: 1,562
Ok - so, joint owner with 10 beneficiaries could have up to $1.2 million insured?

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#1052724 - 09/29/08 04:43 PM Re: Clarification on new FDIC/Beneificiary rule please CubDave
BankerRed Offline
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Joined: Oct 2007
Posts: 38
SC
How do you get $1.2 million if you have a joint account(2 owners) and 10 beneficiaries? Wouldn't it be $100,000 per beneficiary per owner so the maximum would be $2 million

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#1052769 - 09/29/08 05:05 PM Re: Clarification on new FDIC/Beneificiary rule please BankerRed
chgogal Offline
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chgogal
Joined: Mar 2003
Posts: 71
Illinois
just read link from Marnie and part of it states:

It would be insured for the greater of $500,000 or up to $100,000 per beneficiary. In our example, that would yield coverage of $700,000 -- up to $100,000 for each of the 7 beneficiaries, leaving $300,000 uninsured.)

If it's the greater of, why is $300,000 uninsured??
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#1052777 - 09/29/08 05:10 PM Re: Clarification on new FDIC/Beneificiary rule please chgogal
BankerRed Offline
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Joined: Oct 2007
Posts: 38
SC
Because there is only one owner X 7 beneficiaries = $700,000

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#1052840 - 09/29/08 05:40 PM Re: Clarification on new FDIC/Beneificiary rule please CubDave
Mary Beth Guard Offline
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Mary Beth Guard
Joined: Oct 2000
Posts: 797
Oklahoma City, OK
Originally Posted By: CubDave
Ok - so, joint owner with 10 beneficiaries could have up to $1.2 million insured?


CubDave, are you using new math?

Joint owners, 10 beneficiaries (if they each have an equal share under the trust) -- potential insurance of $2 million. BUT if the beneficiaries don't have equal shares, the actual coverage could be half that.

Here's the deal:

POD accounts where everyone has to get an equal share will be insured on a per beneficiary basis, regardless of who the beneficiary is (as long as each is an individual, a charitable organization or a non-profit entity under the Internal Revenue Code) -- up to $100,000 per beneficiary. 20 beneficiaries, one account owner, $2 M potential insurance. 2 account owners (if state law allows POD beneficiaries on a joint account), 20 beneficiaries, $4 million potential coverage (2 owners times 20 beneficiaries, times $100,000 each).

Revocable trusts can get quite complex with beneficiaries getting wildly different allotments. FDIC says to the extent the trust is $500,000 or less and has 5 or more beneficiaries, they aren't going to have their staff waste time studying the provisions of the trust agreement. Instead, they'll just declare it insured for up to $100,000 per beneficiary, up to the $500,000 in the account. Different proportional ownership interests of the beneficiaries in the trust would not affect the deposit insurance coverage for those trusts with balances under $500,000.

If, however, the account for the revocable trust has more than $500,000 (which they say is rare) AND more than 5 fbeneficiaries (both qualifications must be met), the FDIC will actually examine the trust to determine the beneficial interest of each beneficiary and it will be insured up to $100,000 per beneficiary or $500,000 -- whichever is greater.

Example: $800,000 in trust. 2 beneficiaries. Regardless of who gets what, the account will be insured for $200,000 (up to $100,000 per beneficiary because there are fewer than 5 beneficiaries, so the two part test isn't satisfied).

Eample: $800,000 in trust. 8 beneficiaries. FDIC would look at each beneficiary's actual interest and insure each beneficiary's interest up to $100,000. If some of the beneficiaries' interests are less than that, they will be insured for less than that. Let's say 5 of the 8 are supposed to get 1/20 each -- $40,000 in our example (1/4 of the entire trust for the 5 in the aggregate or $200,000 [40X5]) , and the remaining 3 get the remaining 3/4 of the trust ($600,000, or $200,000 each), the two alternative calculations would be
$40,000 Beneficiary 1
$40,000 Beneficiary 2
$40,000 Beneficiary 3
$40,000 Beneficiary 4
$40,000 Beneficiary 5
$200,000 Beneficiary 6 (of which only $100,000 max could be insured)
$200,000 Beneficiary 7 (of which only $100,000 max could be insured)
$200,000 Beneficiary 8 (of which only $100,000 max could be insured)

So, $40,000 x 5 = $200,000, plus $100,000 x 3 = $500,000, so using either formula, the account would be insured for a max of $500,000 under either text. If we change the facts slightly and give Ben. 6 $500,000 and give #7 and #8 $50,000, then under formula 1, the insurance would only amount to $400,000 -- so formula 2 would apply because it would give them $500,000 (which is a greater amount).

If there are two grantors, the coverage is doubled, so it's up to $1M for a trust that has more than 5 beneficiaries, or up to $100,000 (x 2) for the actual interest of each beneficiary up to $100,000 (x 2) per.

Come to my webinar. We'll have flow charts and pictures and all kinds of things to simplify the explanation.

Last edited by Mary Beth Guard; 09/29/08 07:32 PM.
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#1052963 - 09/29/08 06:35 PM Re: Clarification on new FDIC/Beneificiary rule please Mary Beth Guard
elcinoca Offline
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Joined: Jan 2002
Posts: 537
Elizabeth City, NC
Quote:
Example: $800,000 in trust. 2 beneficiaries. Regardless of who gets what, the account will be insured for $500,000 (because it's the greater of the two formulas.)


I thought it had to be more than $500,000 AND more than 5 different beneficiaries before using the "greater of the two formula." I thought I was understanding the new concept until I read this.

Apparently, I'm lost again.

MarkB

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#1053033 - 09/29/08 07:28 PM Re: Clarification on new FDIC/Beneificiary rule please elcinoca
Mary Beth Guard Offline
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Mary Beth Guard
Joined: Oct 2000
Posts: 797
Oklahoma City, OK
Originally Posted By: elcinoca
Quote:
Example: $800,000 in trust. 2 beneficiaries. Regardless of who gets what, the account will be insured for $500,000 (because it's the greater of the two formulas.)


I thought it had to be more than $500,000 AND more than 5 different beneficiaries before using the "greater of the two formula." I thought I was understanding the new concept until I read this.

Apparently, I'm lost again.

MarkB


Nope, you aren't lost. I spaced out above. I'll correct it.

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#1056586 - 10/02/08 04:51 PM Re: Clarification on new FDIC/Beneificiary rule please Mary Beth Guard
MN Banker Offline
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Joined: Aug 2006
Posts: 980
Originally Posted By: Mary Beth Guard
Example: $800,000 in trust. 2 beneficiaries. Regardless of who gets what, the account will be insured for $200,000 (up to $100,000 per beneficiary because there are fewer than 5 beneficiaries, so the two part test isn't satisfied).


I guess I don't see in the interim rule where it states that accounts with balances greater than $500,000 but less than 5 benes would be calculated using the "under $500,000" rule. Actually, I don't see it mention this specific scenario at all. Am I missing something?

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