What Do You Know for Sure?

National elections are upon us, and both major parties are running campaigns calling for change. I have finally figured out what that means. After they finish taxing us for all of their bumblings, ‘change’ is all that we will have left. If you think that is funny, try opening up one of those envelopes from your broker or your bank. The news is not great, but as is always the case, the smart people stay the course and they end up doing the best over the long run. Unfortunately, our age group is becoming increasingly uneasy about financial things since the run is not too long before we need money to fund our retirements.

In recent months, the failure of a few banks and some Wall Street firms have caused many of us to wonder if our money is safe. In next month's article, I will discuss the insurance you can get when dealing with an investment broker. This month, however, we will look at banks and the Federal Deposit Insurance Corporation. The FDIC insurance sticker that you pass each time you walk through the door of a bank carries with it positive protections for consumers. This insurance protection started in 1933 during the Great Depression, and it put the full faith and credit of the United States government behind our banking system in order to restore consumers' faith in that system. It is paid for with premiums that each bank pays, and the FDIC claims that no customer has ever lost a penny since they began to insure bank deposits.

The basic insurance amount was $100,000 per depositor per insured bank until last month when Congress enacted the new ‘bailout package,’ and temporarily increased the insurance to $250,000. This includes principal and accrued interest, and it applies to all depositors of an insured bank and owners of certain retirement accounts. Deposits in separate branches of an insured bank are not separately insured. Deposits in one insured bank are insured separately from deposits in another insured bank. Deposits maintained in different categories of legal ownership of the same bank can be separately insured. Therefore, it is possible to have deposits of more than $250,000 at one insured bank and still be fully insured. This temporary increase in insurance coverage expires on December 31, 2009.

To see how you can be covered, let's take a look at a few of the FDIC's examples, taken from their Web site, www.FDIC.gov/deposit/deposits/insured.

A single account is a deposit owned by one person. The following deposit account types are included in this ownership category:

• Accounts held in one person's name alone

• Accounts established for one person by an agent, nominee, guardian, custodian or conservator, including Uniform Transfers to Minors Act accounts, escrow accounts and brokered deposit accounts

• Accounts held in the name of a business that is a sole proprietorship (for example, a DBA account)

• Accounts established for a decedent's estate

• Any account that fails to qualify for coverage under another ownership category
  All single accounts owned by the same person at the same insured bank are added together, and the total is insured up to $250,000.
  A joint account is a deposit owned by two or more people. To qualify for insurance under this ownership category, all of the following requirements must be met:

• All co-owners must be people. Legal entities such as corporations, trusts, estates or partnerships are not eligible for joint account coverage.

• All co-owners must have equal rights to withdraw deposits from the account. For example, if one co-owner can withdraw deposits on his or her signature alone but the other co-owner can withdraw deposits only with the signature of both co-owners, the co-owners do not have equal withdrawal rights.

• All co-owners must sign the deposit account signature card unless the account is a CD or is established by an agent, nominee, guardian, custodian, executor or conservator.

If all of these requirements are met, each co-owner's share of every account that is jointly held at the same insured bank is added together with the co-owner's other shares, and the total is insured up to $250,000.

The FDIC assumes that all co-owners' shares are equal unless the deposit account records state otherwise. For example, a husband and wife could have up to $500,000 in one or more joint accounts at the same insured bank and the deposits would be fully insured. The husband's ownership share is insured up to $250,000, and the wife's ownership share is insured up to $250,000.

Insurance coverage of joint accounts is not increased by rearranging the owners' names or by changing the styling of their names. Alternating the use of ‘or,’ ‘and’ or ‘and/or’ to separate the names of co-owners in a joint account title also does not affect the amount of insurance coverage provided. In addition, using different Social Security numbers on multiple accounts held by the same co-owners will not increase insurance coverage.

The following types of retirement plan deposits qualify for coverage as ‘certain retirement accounts’:

• All types of IRAs, including Traditional IRAs, Roth IRAs, Simplified Employee Pension (SEP) IRAs, Savings Incentive Match Plans for Employees (SIMPLE) IRAs and all Section 457 deferred compensation plan accounts, such as eligible deferred compensation plans provided by state and local governments regardless of whether they are self-directed

• Self-directed defined contribution plan accounts, such as self-directed 401(k) plans, self-directed SIMPLE held in the form of 401(k) plans, self-directed defined contribution money purchase plans and self-directed defined contribution profit-sharing plans

• Self-directed Keogh plan accounts (or H.R. 10 plan accounts) designed for self-employed individuals

All retirement accounts listed above owned by the same person in the same FDIC-insured bank are added together and the total is insured up to $250,000.

The best thing you can do if you have questions on this topic is to go to your bank and ask your branch manager if he or she can explain what your coverage is. For instance, if you have a sole account, a joint account with your spouse and an IRA at the same bank, ask what is covered and what might not be covered. If the bank person can explain this to you and show you how you are covered, then you will leave with some peace of mind. If your banker gives you an opinion on the level of insurance for your accounts, ask for it in writing on the bank's letterhead.

On the other hand, if your accounts have moved into the uncovered area, you might consider moving some of your money to the bank next door just to be certain that you are covered in full. While bank failures are very rare, it only takes one when your money is in there.

Christopher M. Abernethy has been practicing law in Hampton Township since 1976. He focuses on elder law, which includes wills, trusts, powers of attorney, living wills and probate matters. He also is proficient in all aspects of real estate law and business law. He is a member of the National Association of Elder Law Attorneys and the AARP Legal Services Network. He can be reached at 412-486-6624 or by e-mail at cabernethy@aaylaw.com.