Posted On: March 21st 2010
From time to time as development occur in the field of tax planning, asset protection and other related areas; we would like to bring these items to your attention.
On Thursday October 16, 2008, the Social Security Administration announced monthly Social Security and Supplemental Security Income benefits for Americans would increase by 5.8% in 2009. This is reportedly the largest increase since 1982. This Cost-of-Living adjustment will begin in January 2009 for Social Security beneficiaries and on December 31, 2009 for Supplemental Security Income beneficiaries.
The annual gift exclusion increases to $13,000 per donee per recipient per year in 2009. Therefore, in 2009, a married couple could now gift up to $26,000 per recipient, and be under the threshold, not required to file a gift tax return.
The FDIC protects depositors against the loss of theirs insured deposits in an FDIC-insured bank or savings association if that entity fails. The accounts of a depositor at one FDIC-insured bank or savings association which total $250,000 or less (up from $100,000 or less) are insured. It is also possible for a depositor to have more than $250,000 at one insured bank or savings association and still be fully insured, provided certain requirements are met by the depositor.
This change is effective October 3, 2008 through December 31, 2013. On January 1, 2014, FDIC deposit insurance for all deposit accounts, except certain retirement accounts, will return to at least $100,000 per depositor. Insurance coverage for certain retirement accounts, which include all IRA deposit accounts, will remain at $250,000 per depositor.
Effective October 14, 2008, all non-interest bearing checking transaction deposit accounts at an FDIC-insured institution, including all personal and business checking deposit accounts that do not earn interest are fully insured for the entire amount in the deposit account. This unlimited insurance coverage is temporary and will remain in effect for participating institutions until December 31, 2013.
FDIC insurance covers all types of deposits at an insured bank, including deposits in checking and savings accounts, money market deposit accounts and certificates of deposit (CD’s). FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if these were purchased at a bank. In addition, US Treasury bills, bonds or notes are backed by the full faith and credit of the United States government, not the FDIC.
Deposits in different branches of the same bank are aggregated and considered together in terms of the FDIC insurance limit. Deposits made in different categories of legal ownership at the same bank can be separately insured. In this way, it is possible to have more than $250,000 of deposits at one bank, and still be fully insured.
There are eight (8) different categories of legal ownership recognized by the FDIC regulations:
a) Single Accounts;
b) Certain Retirement Accounts;
c) Joint Accounts;
d) Revocable Trust Accounts;
e) Irrevocable Trust Accounts;
f) Employee Benefit Plan Accounts;
g) Corporation/Partnership/Unincorporated Association Accounts; and
h) Government Accounts
The most common ownership categories are single accounts, certain retirement accounts, joint accounts and revocable trust accounts.
Single accounts are those owned, as the name implies, by one person. They include accounts created for one person by an agent, nominee, guardian, custodian or conservator, including Unified Transfers to Minors Act accounts, escrow accounts and brokered deposit accounts. Single accounts also include accounts held in the name of a sole proprietorship, accounts established for an estate, and any account that fails to qualify for coverage under another ownership category.
Single accounts also include convenience accounts or those where another signer is authorized to withdraw under a Power of Attorney. 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, (up from $100,000).
Certain retirement accounts covered include deposit accounts owned by one person and titled in that person’s retirement account only. For example, Individual Retirement Accounts (IRA’s), Section 457 deferred compensation plan accounts, self-directed defined contribution plan accounts, and self-directed Keogh plan accounts. All deposits an individual has in any type of the retirement plans listed above up to $250,000 in total are FDIC insured. Naming additional beneficiaries for retirement accounts does not increase FDIC insurance. The account value is the dispositive item.
Joint accounts are deposit accounts owned by two or more persons. These deposit accounts are the same as single accounts: checking, savings, certificate of deposits (CD’s). Both owners have equal rights of withdrawal. In joint accounts, each co-owner contributes up to $250,000 insured deposits. This results in $500,000 of FDIC insurance coverage in total joint accounts between a husband and wife.
Revocable Trust accounts are deposits held in either living trusts or payable-on-death (POD) accounts. POD accounts, also known as totten trusts, are the most common type of revocable trust account. These are informal trust accounts created when the account owner signs an agreement, often the bank signature card, stating the deposits will pass to another stated person upon the owner’s death. Living trusts, also known as family trusts, are formal trusts created during a depositor’s lifetime that may be changed, and are usually created for estate planning reasons.
The owner of the trust controls the deposits during their lifetime. Effective September 26, 2008 (rules released September 30, 2008), the FDIC eliminates the rules of qualifying beneficiaries. Previously, deposit insurance for revocable trust accounts is based on each owner’s relationship with the beneficiaries of the trust.
The FDIC insures the interests of each beneficiary up to $250,000 (increased from $100,000) for each owner if all the following requirements are met: a) the beneficiary is a person, charity or other non-profit organization (as the Internal Revenue Service recognizes); b) the account title indicates a trust relationship exists by including language such as payable on death, or in trust for, trust, living trust, family trust or an acronym such as POD or ITF; c) for POD accounts, each beneficiary must be identified by name in the bank’s account records. The new interim rules now state that a trust account with up to five different beneficiaries named in all her/her revocable trust accounts at one FDIC-insured institution will be insured up to $100,000 per beneficiary.
Revocable trust account owners with more than $500,000 and more than 5 beneficiaries named in the trust(s) will be insured for the greater of either $500,000, or the aggregate amount of all the beneficiaries’ interests in the trust(s), limited to $100,000 per beneficiary.
In these times when laws seem to be changing each week, we will continue to update you as significant and relevant developments occur in these are other important subjects.