With the new bailout plan in effect, there were some temporary changes to the FDIC and NCUA insurance. I haven’t heard how long these changes will be in effect for; however, I’m told it will be at least until the credit crisis has reached a less critical mass.

So, let’s go over the new insurance since some rules have changed a little.

Obviously, the big news is that the insurance has increased to $250,000. Yay! That’s definitely good news, especially for me since I can help clients restyle their accounts and keep more with our credit union. Now, the account types that are insured haven’t changed. They’re still:

- Individual
- Joint
- IRA/Keogh
- Accounts held by executors and administrators
- Business accounts
- Revocable Trust
- Irrevocable Trust

Individual and Joint

Individual accounts are those held by one person. New insurance guidelines state that individual accounts are covered up to $250,000 per financial institution. This is an aggregate number, as it was before. However, separate coverage is given for individual accounts held by a guardian or custodian for the benefit of a minor. So, your UTMAs and UGMAs are also insured up to $250,000.

Joint accounts are those held by two or more parties. As with individual accounts, the funds are aggregately covered up to $250,000 for each person on the account.

IRA/Keogh’s

There hasn’t been a change to this section of the rules. Each of these accounts (per individual) are covered up to $250,000.

Accounts for Executors and Administrators

Funds held in the name of a decedent or in the name of an executor or administrator will have separate coverage from an individual or joint account. So, if a customer has an individual account already maxed out, that will not affect the coverage on the account for which they are the executor or administrator, as it is separate.

Business Accounts

Business accounts include corporations, partnerships, and unincorporated associations. They do not include sole proprietors, or DBAs, as these accounts are classified as individual accounts. However, on the business accounts, the limit is also $250,000.

Revocable Trust

Revocable trusts are covered up to $250,000; however, there have been some rule changes with trust accounts. Trust accounts do require the formal Trust documents which clearly identify the intent of an owner passing on their funds to a named beneficiary upon death. This is not a simple POD account, as I mentioned, the Trust documents are required. Living trusts are considered under the revocable trust accounts in terms of insurance and are also insured up to $250,000.

Old Rule

Under the old rules of the revocable trust accounts, the only qualifying beneficiaries were a spouse, child, parent, grandchild, brother, or sister. In other words, only your immediate family. The insurance would go up to $100,000 per beneficiary.

New Rule

Under the new rules, an owner of a revocable trust may name any natural person, as well as, charitable organizations and non-profits, and the amount covered is $250,000.

There are some limitations to this, and here’s where it starts to get a little tricky. An account with up to 5 beneficiaries will be insured up to $250,000 per beneficiary, regardless of that beneficiaries proportional interest in the account. But, accounts with more than 5 beneficiaries AND more than $1.25 million will be insured the greater of:

- $1.25 million OR
- the aggregate of all beneficiaries proportional interest, limited to $250,000

As I said, this is where things get complicated on Trust accounts. I won’t go into specific examples because most people don’t have trust accounts. However, if you do and want some specific help, just let us know.

Irrevocable Trusts

These trusts are similar to revocable trusts in that they require the legal documentation; however, they are very different in terms of what they mean and what they do. Where a revocable trust allows grantors to be both the trustee and beneficiary during their lifetime, the irrevocable trust does not. A revocable trust basically provides management and distribution of your property when you die, and allows you the benefit of changing things and controlling what goes where. An irrevocable trust is an arrangement where the grantor essentially gifts their assets to the trust, meaning they have little control over it and how those assets are distributed once it’s been established. The trust stands as a separate taxable entity, so this account is good to help with taxes ( be sure to see a tax advisor), but beyond that, most people don’t really use this option.

At any rate, in terms of the FDIC and NCUA insurance, all trust interests for the same beneficiary have separate aggregate coverage of $250,000. That means that if a beneficiary holds other accounts with the financial institution, then their beneficiary interests are separate from their other accounts. But, if they are the beneficiary on multiple irrevocable trust accounts, they are limited to an aggregate total of $250,000.

And that’s the new insurance rules in a nutshell. What do you think? Does having this increased insurance make you feel more safe? Are you more comfortable with your financial institution?

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