Beat FDIC insurance limits with payable-on-death accounts

Umbrella over stacks of coins

When I cobbled together my estate plan, way back when, I provided specific bequests to three legatees.

At the time, most of my money sat in no-load mutual funds.

Had I known I’d eventually move that money into government-insured deposit accounts, I’d have had five legatees.

(Editor's note: OK. Stop. This is the second time Charles, a retired attorney, has thrown out the word legatee that no doubt has some of you reaching for a dictionary. We know we did. A legatee is basically a beneficiary.

Back to you, Charles.)

You see, under Federal Deposit Insurance Corp. (FDIC) and National Credit Union Administration (NCUA) rules, I get $250,000 in coverage for each qualifying individual or entity I name as a beneficiary of my revocable trust accounts, such as payable-on-death accounts, up to a maximum of five separate beneficiaries.

(There’s a different computation with more than five beneficiaries and $1.25 million deposited, but it doesn’t improve my own situation, so I’m ignoring it.)

Let’s say I have an estate with a value, after taxes and expenses, of $1.5 million.

Under the FDIC insurance rules, I can establish, at one institution, a $250,000 CD with no beneficiary, a $500,000 CD payable-on-death to Charity A, a $450,000 CD payable-on-death to Individual B, a $298,000 CD payable-on-death to Individual C, and two CDs of $1,000 each payable-on-death to Charities D and E.

I’d be fully covered for the full $1.5 million (ignoring interest, of course).

Readers can crunch the numbers on the agencies’ insurance calculators: FDIC or NCUA.

Thus, the government lets me use beneficiaries entitled to small amounts upon my death to bulk up my coverage of accounts naming, as POD beneficiaries, my major legatees (Ed: Again, that word.).

This reflects my actual situation -- except I’ve made up the dollar amounts, and haven’t, until now, felt the need to come up with a D and E.

But pathetic CD rates are forcing me to find ways to get more bang for my bucks at a single institution.

I have a will that leaves specific dollar amounts to A, B and C. A codicil says that those amounts will be reduced, dollar-for-dollar, by what they get from POD accounts.

Fortunately, I don’t have to touch the will to make some D and E (charities, most likely) POD beneficiaries.

The small amounts involved are already in my estate’s projected "residue" -- i.e., money left over after the specific bequests to A, B and C.

This really doesn’t seem kosher -- but I’m desperate for yield.

You understand, I’m sure.

And now, an author's note: Please note that, although a lawyer in a prior life, I no longer provide legal advice -- about estate planning, banking regulations or anything else. I write about my personal situation, and you’ll have to check your own yourself.

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