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FDIC Your Insured Deposit Testamentary Accounts

FDIC: Your Insured Deposit - Testamentary Accounts

Your Insured Deposit - Testamentary Accounts
Testamentary (Payable-On-Death) Accounts
23. What is a testamentary account?

A testamentary account is an account that evidences an intention that the funds will belong to a named beneficiary upon the death of the owner (grantor or depositor) of the testamentary account. Testamentary accounts are sometimes known as tentative or "Totten" trust accounts, revocable trust accounts, or "payable-on-death" accounts.

24. How are testamentary accounts insured?

Testamentary accounts make up another legal ownership category and are, therefore, insured separately from single ownership accounts and joint accounts of the beneficiary or the owner. In order to qualify for this separate insurance coverage, however, a testamentary account must meet all of the following requirements:

  • The named beneficiary must be the owner's spouse, child, grandchild, parent, brother, or sister. ("Child" includes a biological child, adopted child, and stepchild of the owner. "Grandchild" includes a biological child, adopted child, and stepchild of any of the owner's children. "Parent" includes a biological parent, adoptive parent, and stepparent of the owner. "Brother" includes a full brother, half brother, brother through adoption, and stepbrother. "Sister" includes a full sister, half sister, sister through adoption, and stepsister.)
  • The owner's intention that, upon his or her death, the funds shall belong to the named beneficiary must be shown in the title of the account using commonly accepted terms such as "in trust for," "as trustee for," or "payable on death." These terms may be abbreviated as "ITF," "ATF," or "POD."
  • The beneficiaries must be specifically identified by name in the deposit account records of the depository institution.

Each owner meeting these requirements is insured up to $100,000 per qualifying beneficiary at each insured institution.

25. Can a testamentary account have more than $100,000 in insurance coverage?

Yes. If a testamentary account is maintained by co-owners, insurance will be determined as if each co-owner maintained a separate testamentary account for each beneficiary. The co-owners' interests are deemed to be equal unless otherwise stated in the deposit account records. If there are several beneficiaries, their interests are deemed to be equal unless otherwise specified in the deposit account records.

Example of Insurance for Testamentary Accounts

Account

Amount Deposited

Amount Insured

Husband in Trust for Wife $100,000 $100,000
Wife in Trust for Husband $100,000 $100,000
Husband and Wife in Trust for Child One, Child Two, and Child Three $600,000 $600,000
Husband in Trust for Brother and Parent $200,000 $200,000
Total $1,000,000 $1,000,000

26. What is the insurance coverage for an account established by a husband and wife in trust for themselves ("husband and wife in trust for husband and wife")?

An account established by a husband and wife solely for their benefit is treated as a joint account, not a testamentary account. Funds deposited in such an account are added to any other joint ownership funds held by the husband or wife.

27. What is the insurance coverage for a testamentary account where the beneficiary is not the parent, sibling, spouse, child, or grandchild of the owner?

If a beneficiary of a testamentary account is not the parent, sibling, spouse, child, or grandchild of the owner, the funds attributable to the nonqualifying beneficiary are insured as the owner's single ownership funds. For example, if A establishes a testamentary account for the benefit of his friend (a nonqualifying beneficiary), all of the funds in the account are added to any other single ownership funds owned by A and the sum is insured to a maximum of $100,000.

When a testamentary account is maintained by multiple owners for multiple beneficiaries, and some beneficiaries qualify for separate insurance coverage but others do not, the funds are first divided between the co-owners, and then again divided between the beneficiaries as to each co-owner. Funds attributable to the nonqualifying beneficiary are then added to any other single ownership funds of each respective owner.

Assume, for example, that B establishes a testamentary account for the benefit of her daughter and nephew. Deposit insurance coverage is calculated by first allocating one-half of the funds to the daughter and one-half of the funds to the nephew. The funds allocated to the daughter (a qualifying beneficiary) are then insured separately from B's single ownership accounts or joint accounts. However, the funds allocated to the nephew (a nonqualifying beneficiary) are added to any other single ownership funds owned by B and the sum is insured up to a maximum of $100,000.

28. Must testamentary accounts be supported by a written trust agreement?

No. If an insured depository institution should fail, however, the owner of the testamentary account may be required to provide proof of the owner's relationship to the beneficiaries.

29. Does deposit insurance coverage decrease upon the death of one of the co-owners of a testamentary account?

Yes. Each co-owner is entitled to insurance coverage as to each beneficiary only during the co-owner's lifetime. Upon the death of any one of the co-owners, insurance coverage decreases (subject to the "grace period" explained below). When both co-owners of a revocable trust die, the funds in the account are insured as the single ownership funds of the beneficiary. If there are multiple beneficiaries, the funds are insured as joint ownership funds.

Starting July 1, 1998, for six months after the death of a deposit owner, the FDIC will insure that person's accounts as if he or she were still alive. During this "grace period," the insurance coverage of the deposit owner's accounts will not change unless the accounts are restructured by those authorized to do so. The FDIC applies the grace period only if its application would increase, rather than decrease, deposit insurance coverage.

 

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