It's more complicated than that. My dad is worried because all his money is in jumbo CD's at Washington Mutual, Countrywide, etc. So he had me look up the FDIC rules. An oversimplified summary is a POD account (has a beneficial) is considered to be a revocable trust, and is insured for $100K *per qualified* beneficiary. (qualified means a son, daughter, father, mother, grandchild, grandparent, or sibling.)
There's an example in this brochure where a husband and wife can get $10000000 combined coverage with 4 accounts, none of them are retirement accounts. Look at page 13:
Ok, I looked at that. $600K in one account is titled "Husband and Wife POD 3 Children". If the wording is set so on one spouse's death, the $300K passes to the kids, that can work, but if it's on the second death, this is a problem which, if I recall correctly, was the issue with the account as worded by the OP of this thread. The bottom line is there is $100K insurance for each POD beneficiary. If there are enough beneficiaries, or little enough cash, this can work. I still ask, what's wrong with using brokered CDs and keeping the amounts well under the $100k?
Interesting. So they're treating Totten trust (but only some of them) as real trusts. All I can say is ... aaaack.
FWIW, here's the FDIC's page specifically on revocable trusts:
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It's a real mess. A Totten trust is not even a real trust, but just a mechansim for passing assets. See, e.g. this NY Bar Ass'n article:
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"When a father opens a savings account 'in trust' for his daughter, there is really no trust, merely a bank account that is payable to the daughter upon the father's death.") As you point out, this depends on specific relationships between owners and beneficiaries - children, etc. Note that spouse is included on this list (but not if you're in a same marriage), and relations can include step-relations and half-relations (e.g. step-father, half-sister).
If a husband and wife have a joint account with POD to non-qualified beneficiaries, then the account is not treated as a joint account, but rather as two separate accounts for insurance purposes. So, if you have an individual account for $100K, your spouse has an individual account for $100K, and you have a joint account for $100K POD to a niece, then you've just lost $100K in insurance because of that POD clause (each individual already used up their $100K in insurance). See Example 13 in the FDIC detail page (already cited):
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Also, similarly titled Totten trusts and (real) revocable trusts are aggregated together in counting assets towards the $100K limit.
("When a father opens a savings account 'in trust' for his daughter, there > is really no trust, merely a bank account that is payable to the daughter > upon the father's death.")>
I don't understand the $1000000 combined coverage example in the link that I posted. It looks to me like it should be $700k. I also don't like it because it assumes that all the owners and beneficiaries are still alive when the bank fails.
I suggested to my dad that he just limit his holdings at each of several banks to $100k, and put the rest in US Treasury Notes using "TreasuryDirect".
Just out of curiosity, is this all of your Dad's holdings? How old is he? Shouldn't he have at least a portion of his portfolio in a diversified stock mutual fund?
Since you didn't describe how you came up with $700K, I'll have to guess that you are thinking that Husband and Wife to 3 Children should be $300K instead of $600K.
The rules look at all pairs of owners and beneficiaries. Since there are two owners and three beneficiaries, that gives six pairings (H - C1, H - C2, H - C3, W - C1, W - C2, W - C3). Thus, $600K.
See Example 13 in the FDIC Revocable Trust detail link I gave before; it gives a clearer explanation:
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According to the page cited, you have six months grace after an account owner (but not beneficiary) dies.
Or just dump it all in a Treasury MMF. Just don't leave, say, $1M in one Countrywide account :-).
He's 77, and his holdings are mostly in US series EE and I savings bonds (and maybe some E's if they are still earning interest) and bank CD's. He also has a pension and SS. I've sent you an email with more details because I'm not comfortable posting them here without his permission. (no offense intended, Skip)
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