Nearly every day now, newspapers and televisions are blasting us with information about how bad the economy is. We are in the worst economic crisis since the great depression of the 1930’s. In the midst of this financial crisis, what can you do to protect your own assets?
To start with, make sure your savings are secure. Banks have been failing and others will fail. The Federal Deposit Insurance Corporation (called “FDIC”) was created in 1933 after thousands of banks failed in the late 1920’s and early 1930’s. It is an independent agency of the federal government. Make sure your bank is insured by the FDIC. Insured banks must display an official FDIC sign at each teller window. Credit Unions have similar insurance and display an NCUA sign.
The FDIC insures the following kinds of accounts at banks: 1) checking accounts; 2) savings accounts; and 3) certificates of deposits. The FDIC also insures money market deposit accounts, but not money market mutual fund accounts. If you have a money market account, find out whether it is insured. The FDIC does not insure stocks and bonds, mutual funds, annuities or life insurance policies.
The FDIC used to insure accounts up to $100,000 per depositor. Because of the financial crisis, on October 3, 2008, the insured amount was temporarily increased to $250,000 per depositor, until December 31, 2009. You can have up to $250,000 of insurance coverage for each category of ownership. The categories of ownership include: 1) single accounts (accounts owned by one person); 2) retirement accounts (IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, Section 457 deferred compensation accounts, self-directed defined contribution plan accounts, and self-directed Keogh plan accounts); 3) joint accounts (all co-owners must be individuals with equal rights to withdraw deposits); and 4) revocable trust accounts (including payable-on-death or “POD” accounts). All the accounts at the same bank in the same category are counted to see if you exceed the $250,000 figure. For example, suppose you have at the same bank the following accounts in your name only: checking account with $50,000; savings account with $100,000; 2 certificates of deposit for $100,000 each. The total is $350,000. Only $250,000 is insured. The extra $100,000 is not insured. Suppose you also have at that same bank an IRA with $100,000 and a Roth IRA with $50,000. Both IRAs fall within the “retirement account” category. Since the total of both IRAs is less than $250,000, they are insured. Suppose you also have at the same bank a joint account with your husband with $200,000, a joint account with your daughter with $200,000, and a joint account with you, your husband and your daughter with $300,000. The total of your share of these accounts is $300,000 (1/2 of the joint account with your husband is $100,000, 1/2 of the joint account with your daughter is $100,000, and 1/3 of the joint account with both husband and daughter is $100,000. Only $250,000 of the $300,000 is insured. $50,000 of your joint account holdings is not insured.
The fourth category, “revocable trust accounts,” is different. The rules used to be more complicated. On October 8, 2008, the FDIC issued a simpler interim rule. Under the interim rule, if the accounts in the name of your revocable trust (plus all POD accounts) at one bank total $1.25 million or less, the amount of FDIC insurance coverage is determined by multiplying $250,000 by the number of your beneficiaries. For example, suppose your revocable living trust says that upon your death your assets will be held for the benefit of your spouse, then after your spouse’s death, the assets will be distributed equally to your 2 children. Your trust has 3 beneficiaries. $250,000 x 3 = $750,000. Therefore, you can have up to $750,000 in accounts in the name of your revocable trust at one bank, and it will all be insured! Irrevocable trusts that spring from a revocable trust upon death will continue to be insured under the revocable trust rules.
© OKURA & ASSOCIATES, 2009