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A Special Guide for Seniors and Families
7 Things Seniors (and Everyone Else) Should Know About FDIC Insurance
Three
A death or divorce in the family can reduce the FDIC insurance coverage. Let's say two people own an account and one dies. The FDIC's rules allow a six-month grace period after a depositor's death to give survivors or estate executors a chance to restructure accounts. But if you fail to act within six months, you run the risk of the accounts going over the $100,000 limit.
Example: A husband and wife have a joint account with a "right of survivorship," a common provision in joint accounts specifying that if one person dies the other will own all the money. The account totals $150,000, which is fully insured because there are two owners (giving them up to $200,000 of coverage). But if one of the two co-owners dies and the surviving spouse doesn't change the account within six months, the $150,000 deposit automatically would be insured to only $100,000 as the surviving spouse's single-ownership account, along with any other accounts in that category at the bank. The result: $50,000 or more would be over the insurance limit and at risk of loss if the bank failed.
Dennis Trimper, a specialist with the FDIC division that handles insurance claims, recalled a bank closing in Florida where some elderly depositors had money over the insurance limit because they had not made a change to their accounts after a spouse died. "The story was generally the same," he said. "A couple retired, sold their house and placed more than $100,000 in a joint account. Then one spouse died and more than six months later the bank failed. The remaining spouse then faced the prospect of losing some of their life savings."
Also be aware that the death or divorce of a beneficiary on certain trust accounts (see Naming Names: Points to Consider Before Giving Friends or Relatives Access to Bank Accounts and Safe Deposit Boxes) can reduce the insurance coverage immediately. There is no six-month grace period in those situations.
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Fall 2005 |
Basic Insurance Limits |
Ownership Categories |
Death or Divorce in Family | |
FDIC Consumer News is published by the Federal Deposit Insurance Corporation
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Last updated on 6/28/2006