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Use Death To Beat FDIC Insurance Limit

When you’re as old as I am, you focus on your own mortality. You also worry about protecting your nest egg.

Payable-On-Death accounts can help you top the $250,000 FDIC limitThat’s why I like “payable-on-death” accounts (sometimes called “in trust for” or “Totten trust” accounts).

These accounts are a way to pass on assets outside probate (but not tax laws).

They also have separate FDIC insurance, up to $250,000 for each different beneficiary (special limits apply if you have more than five beneficiaries and $1.25 million deposited).

Thus, an individual can get full FDIC coverage for $500,000 in savings by opening a $250,000 certificate of deposit with no beneficiary and a second $250,000 CD with a beneficiary. The depositor retains complete control of both accounts.

Establishing a POD account is supposed to be simple — no trust documents, no lawyers, no hassles. Just sign and go.

But applying sometimes presents hurdles.

Many online application systems don’t include a POD selection feature — you have to call, fax, e-mail or snail-mail the bank to add a beneficiary.

Some brick-and-mortar banks with online application capability may send you to a local branch.

Occasionally, banks request information that’s not readily available — like your beneficiary’s mother’s maiden name.

And sometimes banks won’t do what you want.

Take charitable beneficiaries. In 2008, the FDIC changed its rules to add tax-exempt charities and nonprofits as permitted POD beneficiaries.

This was great, because, being single and childless, I’m leaving a large chuck of my estate to a nonprofit institution (my alma mater).

My California-based banks, like Union Bank, fully supported my gift to higher education. So did most online banks I contacted.

But some said no.

American Express Bank, Allstate Bank, Sallie Mae Bank and USAA Bank all told me they limit POD beneficiaries to human beings. Even my current favorite bank — Salem Five — vetoed my POD selection.

Banks may cite legal restrictions. A charitable organization, for example, may not qualify as a “person” for POD account purposes under certain state laws.

It’s also possible that some banks have decided that, due to scant interest, it’s not worthwhile to modify their systems to reflect the FDIC rule change.

So, make sure your bank is charitable about POD beneficiaries before you apply.

In fact, if establishing a POD account is important — whether you want to name your favorite charity or your deadbeat brother-in-law as beneficiary — it’s best to get everything nailed down before you fund.

For more information on PODs, visit the FDIC website for a discussion of rules and limitations.

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