Reverse Mortgage Guide

The news on the financial front is hardly re-assuring. President Bush went on television last week to inform us that “we’re in the midst of a serious financial crisis, and the federal government is responding with decisive action. We’ve boosted confidence in money market mutual funds, and acted to prevent major investors from intentionally driving down stocks for their own personal gain.”

Huh? Notice that we haven’t prevented major investors from intentionally driving up stocks for their own personal gain. The free market system is on vacation, at least for those 1,000 or so companies favored by the government.

If you’re like me, old enough to think about a reverse mortgage, the events of the past six months have been new and different — and not in a good way. We are busily nationalizing companies, fixing the market to okay ups but not downs, watching the failure of once-prized brokerages and banks, paying unprecedented amounts for gas, devaluing the currency with massive deficits, and using federal power to favor some investors but not others.

None of this is comforting.

So, to balance things out a bit….

The Federal Deposit Insurance Corporation has adopted new interim rules for determining the coverage available for revocable trust accounts –- commonly called payable-on-death accounts or living trust accounts. In essence, “qualified” beneficiaries are out and instead just about anyone can be named a beneficiary.

Under the new rules, the FDIC insurance limit will be based on $100,000 per named beneficiary. For revocable trust account owners with more than $500,000 in such accounts and naming more than five beneficiaries, the coverage is the greater of either $500,000 or the sum of all the named beneficiaries’ proportional interest in the trusts, limited to $100,000 per different beneficiary.

In other words, you could have more than $500,000 worth of FDIC insurance coverage if you have more than five beneficiaries and more than $500,000 in the trust — but no beneficiary can have more than $100,000 in coverage.

To see how much insurance you have with various accounts, try the FDIC’s Edie the Estimator.

In the first step you identify the institution where the money is kept. (If you want to play with the system, just put in Smith Bank.

In step two you describe the type of account — single–no beneficiaries, joint (no beneficiaries), ITF-POD (with beneficiaries), living trust, IRA or other

In step three you name your beneficiaries.

Then press the magic button and you can see who’s insured — and who isn’t.

I tried Edie for a model account with $600,000 and six beneficiaries. Everyone was insured, not a minor consideration given the iffy nature of too-many once-solid institutions.

If you get a reverse mortgage with a lump sum up front be sure to first consider where you will put such cash. Mattresses are out — if there’s a fire or theft the cash is not insured and you will be sunk. Instead, look for accounts which are fully insured by the federal government. If this means working with several banks or other account holders, that’s fine. Just make sure you have an much federal insurance as possible.

For further information, speak with appropriate advisors for specifics.

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This entry was posted on Tuesday, September 30th, 2008 at 5:34 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.