The FDIC receives thousands of calls each month from depositors, bankers and other professionals asking about the effect of adding or deleting someone else's name on an account. And in many cases, it's a good thing they ask. That's because decisions about whose names appear on a deposit account can affect such matters as who has a right to withdraw money, how much of the funds are FDIC- insured if the bank were to fail, and who will inherit your money when you die.
FDIC Consumer News can't advise you on how to share your money — now or upon your death — but we can give you the following guidance about the implications of adding names onto deposit accounts and even onto the list of people who can access a safe deposit box.
Adding a co-owner to a deposit account is very different from giving someone limited access in an emergency. People often want family members or friends to be able to withdraw funds from their bank account if, for example, they become ill or incapacitated. One way to do that is to make an arrangement with the bank to specify in the account records that you are giving someone the right to withdraw money on your behalf. Another way is to grant the other person a "power of attorney," which gives him or her the legal authority to handle transactions and make financial and other decisions for you.
However, some bank customers who only want another person to be their backup in an emergency will go ahead and add that other person as a co-owner of an account, and that could be a mistake. "You need to remember that by establishing a joint account with another person, you are giving him or her equal ownership of the funds," said Kathleen Nagle, a supervisor with the FDIC's Division of Supervision and Consumer Protection. "This other person will have as much right to the money as you do, and you shouldn't take that fact lightly."
FDIC insurance coverage for most accounts is based on who owns the money, not who can withdraw the money. "When the FDIC receives an inquiry about deposit insurance coverage, usually our first question is, 'Who owns the funds?'" said Martin Becker, an FDIC senior specialist for deposit insurance claims. "Only the legal owner of the funds is entitled to insurance coverage."
Example: If two people have a joint account at the same bank and no other joint accounts there, the account is FDIC-insured up to $200,000 ($100,000 for each owner). If, instead, the $200,000 account lists one owner and another person authorized to withdraw funds as a convenience for the owner, the account is FDIC-insured to $100,000, not $200,000.
You can get additional FDIC insurance protection on certain accounts that name beneficiaries who will receive your money if you die. One such account is a payable-on-death account (also called an in-trust-for account) that can be set up by simply naming the beneficiaries in the bank's records. Another is a deposit account tied to a formal "living trust," a document that should be drawn up by an attorney.
To obtain the extra insurance coverage, specific requirements must be satisfied. If every beneficiary you name is a parent, spouse, sibling, child or grandchild, the FDIC will insure the account for up to $100,000 per beneficiary, not $100,000 in total. That means your account can be insured up to $200,000 if there are two beneficiaries from the list above, $300,000 if there are three, and so on. But other beneficiaries — including a nephew, niece, cousin, grandparent, in-law, ex-spouse, friend or charity — do not qualify the account for this extra insurance coverage. The portion of the account payable to them would be added to any accounts you have at the bank in the single (individual) account category and the total will be insured to a maximum of $100,000. .
You cannot increase the insurance coverage of Individual Retirement Accounts by adding beneficiaries. Regardless of the number of beneficiaries you name to receive your IRA deposits if you die, your retirement accounts at one institution are insured up to $100,000 in total, and no more.
Think about who else should have access to your safe deposit box. You can jointly rent a safe deposit box with a relative or anyone else who would have unrestricted access to the box, now or when you die. Or, you can arrange with your bank to permit someone to access the box as a convenience to you, not as full or partial owners of the contents. "It isn't enough to tell someone where to find your key to the safe deposit box," noted Janet Kincaid, FDIC Senior Consumer Affairs Officer. "He or she must be on the bank's records to be able to get into the box."
Becker added that it's also important to periodically review who has access to your safe deposit box. "Circumstances may change," he said. "For example, perhaps you've gotten divorced since you rented the box. You might not want that other person to have access to the contents."