Do not be fooled by all of the political grandstanding. This bailout is inevitable.

Employee benefit plan accounts are deposits of a pension plan, profit-sharing plan or other employee benefit plan.

Employee benefit plan deposits are insured up to $100,000 for each participant’s non-contingent interest in the plan.

This coverage is known as “pass-through” insurance because the insurance coverage passes through the plan administrator to each participant’s interest or share.

Coverage for a plan’s deposits is not based on the number of participants, but rather on each participant’s share of the plan. Because plan participants normally have different interests in the plan, insurance coverage cannot be determined by simply multiplying the number of participants by $100,000.

To determine the maximum amount a plan can have on deposit in a single bank and remain fully insured, first determine which participant has the largest share of the plan assets, then divide $100,000 by that percentage. For example, if a plan has 20 participants, but one participant has an 80% share of the plan assets, the most that can be on deposit and remain fully insured is $125,000. ($100,000/.80 = $125,000)

__________

Corporation/Partnership/Unincorporated Association Accounts

Corporations, partnerships, and unincorporated associations, including for-profit and not-for-profit organizations, are insured under the same ownership category.

To qualify for coverage under this category, a corporation, partnership, or unincorporated association must be engaged in an “independent activity,” meaning that the entity is operated primarily for some purpose other than to increase insurance coverage.

Deposits owned by a corporation, partnership, or unincorporated association are insured up to $100,000 at a single bank, but are insured separately from the personal accounts of the entity’s stockholders, partners, or members.

Accounts owned by the same corporation, partnership, or unincorporated association but designated for different purposes are not separately insured. Instead, such accounts are added together and insured up to $100,000. For example, if a corporation has divisions or units that are not separately incorporated, the deposit accounts of those divisions or units would be added to any other deposit accounts of the corporation and the total insured up to $100,000.

The number of partners, members, or account signatories that a corporation, partnership, or unincorporated association has does not affect coverage. For example, deposits owned by a homeowners association are insured up to $100,000 in total, not $100,000 for each member of the association.

Unincorporated associations typically insured under this category include churches and other religious organizations, community and civic organizations, and social clubs.

Accounts in the names of sole proprietorships (for example, “DBA accounts”) are not insured in this category. Rather, they are added to the owner’s other single accounts, if any, at the same insured bank and the total is insured up to $100,000. (See Single Accounts section.)
_____

Government Accounts

Government accounts are also known as public unit accounts. This category includes deposit accounts of:

The United States

Any state, county, municipality (or a political subdivision of any state, county, or municipality), the District of Columbia, Puerto Rico and other government possessions and territories
An Indian tribe
Insurance coverage of a public unit account differs from a corporation, partnership and unincorporated association account in that the coverage extends to the official custodian of the deposits belonging to the public unit rather than the public unit itself.

Each official custodian of time and savings deposits (including interest-bearing NOW accounts) of a public unit is insured up to $100,000.

Additionally, demand deposits in an insured bank located in the same state as the public unit are separately insured up to $100,000. Thus the same official custodian may receive up to $200,000 in insurance coverage – $100,000 in time and savings deposits and $100,000 in demand deposits – provided the deposits are held in an insured bank located in the same state as the public unit.

Demand deposits maintained by an official custodian of the United States will be insured separately from any time deposits maintained by the same custodian at the same insured bank, regardless of the state in which the insured bank is located.

Public unit deposits maintained in any out-of-state bank – whether time, savings or demand deposits – are limited to a maximum of $100,000 in coverage per official custodian.
_________________

http://www.fdic.gov/index.html

A revocable trust account is a deposit owned by one or more people that indicates an intention that the deposits will belong to one or more named beneficiaries upon the death of the owner(s). A revocable trust account can be revoked (or terminated) at the discretion of the owner. In this section, the term “owner” means the grantor, settlor, or trustor of the trust.

There are both informal and formal revocable trusts. Informal revocable trusts, often called “payable-on-death” (POD), “Totten trust,” or “in trust for” (ITF) accounts, are created when the account owner signs an agreement-usually part of the bank’s signature card – stating that the deposits are payable to one or more beneficiaries upon the owner’s death.

Formal revocable trusts – known as “living” or “family” trusts – are written trusts created for estate planning purposes. The owner controls the deposits and other assets in the trust during his or her lifetime. Upon the owner’s death, the trust generally becomes irrevocable.

All deposits that an owner has in both informal and formal revocable trusts are added together for insurance purposes, and the insurance limit is applied to the combined total.

Payable-on-Death (POD) Accounts
The owner of a POD account is insured up to $100,000 for each beneficiary if all of the following requirements are met:

The account title must include a commonly accepted term such as “payable-on-death,” “in trust for,” “as trustee for” or similar language to indicate the existence of a trust relationship. The term may be abbreviated (for example “POD,” “ITF” or “ATF”).
The beneficiaries must be identified by name in the deposit account records of the insured bank.
The beneficiaries must be “qualifying,” meaning that the beneficiaries must be the owner’s spouse, child, grandchild, parent, or sibling. Adopted and step children, grandchildren, parents, and siblings also qualify. Others including in-laws, cousins, nieces and nephews, friends, organizations (including charities) and trusts do not qualify.

________

Irrevocable Trust Accounts

Irrevocable trust accounts are deposits held by a trust established by statute or a written trust agreement in which the grantor (the creator of the trust – also referred to as a trustor or settlor) contributes deposits or other property and gives up all power to cancel or change the trust.

An irrevocable trust also may come into existence upon the death of an owner of a revocable trust. The reason is that the owner no longer can revoke or change the terms of the trust. If a trust has multiple owners and one owner passes away, the trust agreement may call for the trust to split into an irrevocable trust and a revocable trust owned by the survivor. Because these two trusts are held under different ownership types, the insurance coverage may be very different, even if the beneficiaries have not changed.

The interests of a beneficiary in all deposit accounts established by the same grantor and held at the same insured bank under an irrevocable trust are added together and insured up to $100,000, only if ALL of the following requirements are met:

The insured bank’s deposit account records must disclose the existence of the trust relationship.
The beneficiaries and their interests in the trust must be identifiable from the bank’s deposit account records or from the trustee’s records.
The amount of each beneficiary’s interest must not be contingent as defined by FDIC regulations.
The trust must be valid under state law.
Note: A beneficiary does not have to be related to the grantor to obtain insurance coverage under the irrevocable trust account category.

If the grantor retains an interest in the trust, the amount of the grantor’s retained interest would be added to any single accounts owned by the grantor at the same bank and the total insured up to $100,000. For this situation to exist, the grantor must be living.

The following are situations where an irrevocable trust would NOT be insured on a per beneficiary basis, resulting in the trust as a whole qualifying for only $100,000 in insurance coverage.

The trust agreement does not name the beneficiaries or provide any means of identifying the beneficiaries.
The trust agreement provides that a beneficiary will receive no assets unless certain conditions are satisfied.
The trust agreement provides that a trustee may invade the principal of the trust (for example, for the support or medical needs of a surviving spouse or other beneficiary), with the result that the assets available for the other beneficiaries may be reduced or eliminated.
The trust agreement provides that a trustee or particular beneficiary may exercise discretion in allocating assets among the beneficiaries, with the result that the future distribution to each beneficiary is impossible to predict.

IMPORTANT!

Since irrevocable trusts often contain conditions that affect the interests of the beneficiaries or provide a trustee or a beneficiary with the authority to invade the principal, deposit insurance for an irrevocable trust account usually is limited to a total of $100,000.

A grantor or trustee of an irrevocable trust account who is unsure of the provisions of the trust should consult with a legal or financial advisor.
_______

http://www.fdic.gov/index.html

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, and

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 $100,000.

Certain Retirement Accounts

These are deposits owned by one person and titled in the name of that person’s retirement account.

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

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.

Joint Accounts

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 $100,000.

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 $200,000 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 $100,000 and the wife’s ownership share is insured up to $100,000.

To be continued…

http://www.fdic.gov/index.html

Washington Mutual, which was bought by JP Morgan after being grabbed by the US authorities late yesterday, was a major player in the controversial “option ARM” mortgages which allow borrowers different options in setting the level of their own repayments. The failure of Washington Mutual broke confidence in a large group of well known bank today, as investors tried to figure out the implications of the largest collapse of a major bank on record.

ARM mortgages, which were popular at the height of the housing boom, have proven to be gigantic liabilities for banks.Other firms known to hold them saw their stock prices fall greatly today.

Wachovia, a national chain with 3,000 branches and assets of $812bn, saw its shares nose dive by 21% during early trading in New York.

Details are emerging about the run on the assets of Washington Mutual, known as WAMU, in the days leading up to its seizure. The Office of Thrift Supervision said customers withdrew $16.7bn of deposits in 10 days, beginning on September 15 – the day Lehman Brothers declared itself bankrupt, sparking a crisis of confidence in the larger banking system.

This brings us to our question – what exactly does the FDIC cover and why did so many people scamble to get their money out of WAMU?

FDIC insurance covers all types of deposits received at an insured bank, including deposits in checking, NOW, and savings accounts, money market deposit accounts, and time deposits such as certificates of deposit (CDs).

FDIC deposit insurance covers the balance of each depositor’s account, dollar-for-dollar, up to the insurance limit, including principal and any accrued interest through the date of the insured bank’s closing.

The FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if these investments were bought from an insured bank.

The FDIC does not insure U.S. Treasury bills, bonds, or notes. These are backed by the full faith and credit of the United States government.

How much insurance coverage does the FDIC provide?
The basic insurance amount is $100,000 per depositor, per insured bank.

The $100,000 amount applies to all depositors of an insured bank except for owners of certain retirement accounts, which are insured up to $250,000 per owner, per insured bank.

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 at the same bank can be separately insured. Therefore, it is possible to have deposits of more than $100,000 at one insured bank and still be fully insured.

The following sections describe the eight ownership categories recognized by FDIC regulations and the requirements that must be met to have coverage beyond the basic $100,000 insurance amount.

Tomorrow we will begin to identify the eight ownership categories with facts about each.

http://http://www.fdic.gov/index.html