Tag Archive for 'beneficiaries'

FDIC Insurance & Trust Beneficiaries

The news regarding FDIC insurance limits and trust beneficiaries has been making the rounds this morning, both here and here…  But I thought it needed a little more context.

First, a little background:

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government that protects against the loss of insured deposits if an FDIC-insured bank or savings association fails. 1

The bailout legislation, passed October 3 of this year, has the following details with regards to FDIC coverage:

Basic FDIC Deposit Insurance Coverage Limits*

Single Accounts (owned by one person) $250,000 per owner**
Joint Accounts (two or more persons) $250,000 per co-owner**
IRAs and certain other retirement accounts $250,000 per owner
Trust Accounts $250,000 per owner per beneficiary subject to specific limitations and requirements**
Corporation, Partnership and Unincorporated Association Accounts $250,000 per corporation, partnership or unincorporated association
Employee Benefit Plan Accounts $250,000 for the non-contingent, ascertainable interest of each participant
Government Accounts $250,000 per official custodian

Now, the context:

Over the last few days I have been culling through the vague and (merely) advisory opinions of a few state bar associations researching the following problem:  If I am acting as a trustee (or other fidcuary) for a client’s trust (or gaurdianship or estate) account(s), what liability (either ethically or civilly) do I face if the bank where those funds are held collapses?  …  I’m working on a memo on this subject so this news caught my eye.  Oh by the way, when I get an answer to the above question, I’ll post it here.  Nonetheless, this is good and welcome news!

As I am attempting to develop a policy for the firm with regards to the amount of due diligence we fiduciaries should bring to bear on our cutodial depository institutions, there will in the near future, be more details to come.

1 http://www.fdic.gov/news/news/financial/2008/fil08102a.html
** The legislation authorizing the increase in deposit insurance coverage limits makes the change effective October 3, 2008, through December 31, 2009.

I know, I’ve been gone for a while now but lets not make a big deal about it. I feel bad about it too… I changed jobs, sold a house, moved, am trying to buy another house now while living in temporary shelter… Its been crazy.

Good to see you too 😉

“Breaking Up Is Hard To Do” …

… is the title of this great article in yesterday’s NYT. Dissatisfaction with trustees — particularly corporate trustees rather than individuals — has been growing over the last five years[…].

Most complaints center on investment performance, mostly because beneficiaries have become more financially sophisticated and more types of investments are now available.

So what to do about Trustees and beneficiaries that can’t get along with each other? The article discusses different options from multiple perspectives:

Newer trusts often spell out procedures for firing a trustee. A growing trend is to designate a so-called trust protector — typically, an accountant, a lawyer or a relative — [at BDB we call this a Trust Advisor] with the power to fire a trustee or change the investment manager. But Melvyn H. Bergstein, a partner at the law firm Walder, Hayden & Brogan in Roseland, N.J., said that even if there were provisions for firing, “friction or hostility between a beneficiary and the trustee alone is not enough to warrant removal. It takes essentially misconduct.”

Experts disagree on how difficult it is to win a trustee-dumping case. Mr. Dardaman said that evidence like a log showing a long spate of unreturned phone calls or proof of poor investment returns could convince a judge. But Mr. Kahn said such complaints were not enough. “You have to do something egregious before the court will fire you as a trustee,” he said, like putting trust assets into an investment where the trustee has a personal interest. “The court may simply say you owe some money back to the trust.”

The situation gets very sticky if the beneficiaries disagree among themselves. Trust documents usually require majority or unanimous consent among the beneficiaries to fire a trustee.

Poor service — including high turnover among trust officials and phone calls that are not returned — is another common complaint. “The longer a trust lasts, the more you’re going to have a change in trustee personnel,” said Richard Kahn, a partner in the law firm Day Pitney in Florham Park, N.J., who specializes in trusts and estate planning.

Read the rest of the article here.