Answer by John Burnett: If this is to be in the form of a POD or similar account, I don't think the desired goal of increasing FDIC coverage will be met. The family trust won't meet the FDIC's definition of qualified beneficiary, and the funds will be counted as the depositor's individual funds.
Answer by Mary Beth Guard: I wholeheartedly agree with John that this strategy will not enhance the depositor's FDIC insurance coverage because the trust is not a "qualifying beneficiary." While it would allow the owner to continue to control the funds until his death and pass the funds to the trust when he dies, you'll need to check your state law to ensure it is permissible. Some states expressly allow a trust to be designated a Payable on Death beneficiary. Others only appear to permit individuals as beneficiaries. One further consideration for your customer: if the customer becomes incapacitated, the trustee of the trust will be powerless to reach trust assets for your customer's benefit or anyone else's, since the POD account (during the customer's life) is not owned by the trust. Only a guardian, conservator, or attorney-in-fact would have access.
First published on BankersOnline.com 1/31/05