NEW FDIC RULES APPLY FROM OCTOBER 3, 2008 - DECEMBER 31, 2009

The new FDIC rules have received significant publicity, and most people know that the previous $100,000 per person per account rule has been increased to $250,000 per person per account. It should be noted that under the new rules, FDIC coverage will revert to the original $100,000 (plus adjustment for inflation) as of January 1, 2010. [See 12 U.S.C.A. § 1821(a)(1)(E), as amended by the Emergency Economic Stabilization Act of 2008, PL 110-343, § 136. Also, while this article discusses FDIC rules, very similar rules have also been adopted by the National Credit Union Administration (NCUA), effective October 3, 2008. See Share Insurance for Revocable Trust Accounts, 73 FR 60616-01 (October 14, 2008).]

The FDIC offers some excellent resources at www.fdic.gov, including an easy-to-use calculator to determine whether accounts are fully covered. For more information, see http://www.fdic.gov/deposit/Deposits/insured/info.html.

This article outlines detailed rules that apply to various types of accounts under recent rules.

All single accounts for the same person are added together, and are covered up to an aggregate of $250,000. Single accounts include:

• Solely owned accounts - in one person's sole name.
• Accounts established for one person by an agent, nominee, guardian, custodian or conservator.
• Business sole proprietor accounts (e.g., d/b/a accounts)
• Decedent's estate accounts
• Any account that fails to qualify for coverage under another ownership category.

Giving a power of attorney to another person to authorize withdrawal from the account on the owner's behalf will not compromise coverage as a single account.

Effective Oct. 14, 2008, all non-interest bearing transaction deposit accounts at an FDIC insured institution, including all personal and business checking deposit accounts that do not earn interest, are fully insured for the entire amount in the deposit account. This temporary coverage will also remain in effect through December 31, 2009.

Retirement accounts, including all forms of IRAs, all Section 457 deferred compensation plans, self-directed defined contribution plans, and self-directed Keogh or HR10 plan accounts designed for self-employed individuals, are covered up to a combined total of $250,000.

Naming beneficiaries on retirement accounts does not increase FDIC coverage. Coverdell Education Savings Accounts (f/k/a Education IRAs), HSAs, and Medical Savings Accounts are not included in this category. Depending on structure, these accounts will be categorized as either single or trust accounts.

Each co-owner's share of every asset held jointly at the same insured bank is added together with the co-owner's other shares, and the total for each joint tenant is insured up to $250,000. Therefore, husband and wife could have up to $500,000 in one or more joint accounts in the same bank, and deposits will be fully insured.

Which joint tenant's social security number is used, use of "and" or "or" references, or rearranging joint owners" names does not impact coverage. FDIC assumes all joint owners" shares are equal unless the deposit account states otherwise.

All types of revocable trust accounts, including revocable trusts, POD accounts, Totten trusts, or in-trust-for (ITF) accounts are aggregated to determine coverage. FDIC's use of the term "owner" means the grantor, settlor, or trustor of the trust or the "owner" of the account.

The owner of a POD account is insured up to $250,000 for each beneficiary if all of the following requirements are met:

• The account title must contain terminology such as "payable-on-death", "in trust for", "as trustee for" or similar language. Terms may be abbreviated.
• Beneficiaries must be identified by name in the deposit account records.
• A beneficiary must be a person, charity or other non-profit organization.

The concept of "qualifying" beneficiaries based on certain family relationships has been eliminated. (As with POD accounts, beneficiaries must be persons, charities, or other non-profit organizations.) Under prior rules, "qualifying beneficiaries" were limited to the owner's spouse, children, grandchildren, parents and siblings. This limitation no longer applies.

For each account owner with combined revocable trust deposit balances of $1.25 million or less at a single bank, the maximum coverage will be determined by multiplying the number of different beneficiaries by $250,000. (This will apply to the vast majority of revocable trust accounts.)

For each account owner with combined revocable trust deposit balances of more than $1.25 million and more than five named beneficiaries, coverage is the greater of $1.25 million or, as before, the aggregate of all beneficiaries" proportional interests in the trust deposits, limited to $250,000 per beneficiary.

In determining coverage for living trust accounts, a life estate interest is valued at $250,000.

Irrevocable trusts that spring from a revocable trust upon the death of the revocable trust owner will continue to be insured under the revocable trust rules.

When two or more insured banks merge, the deposits from the assumed bank continue to be insured separately for at least six months after the merger. CDs from the assumed bank are separately insured until the earliest maturity date after the end of the six-month grace period. CDs that mature during the six-month period and are renewed for the same dollar amount (either with or without accrued interest) continue to be separately insured until the first maturity date after the six-month period. If a CD matures during the six-month grace period and is renewed on any other basis, it would be separately insured only until the end of the six-month grace period.