Bob’s Journal for 5/2

FDIC Changes Insurance for Trust Accounts

The Federal Deposit Insurance Corporation (FDIC) changed its deposit insurance coverage effective April 1, 2024.

The basic insurance limit of $250,000 per account still holds and most types of accounts aren’t affected.

The changes affect trust accounts and effectively reduce the insured amount for some trust bank accounts.

The FDIC said the changes are intended primarily to streamline the coverage rules and make them easier for both bankers and customers to understand.

The maximum insured amount for a trust is now $1.25 million per trust owner per insured depository institution.

The general rule that a trust account receives $250,000 of coverage per beneficiary is unchanged. A trust account with one owner (the trustee) and three beneficiaries is insured for $750,000.

But under the new rule, if the trust has more than five beneficiaries, the coverage is capped at $1.25 million. (That’s $250,000 for each of the first five beneficiaries and no coverage for the additional beneficiaries.)

The old rule also separated trusts into revocable and irrevocable trusts, and each owner had a separate limit for each type of trust.

Now, there is one trust account category that includes both revocable and irrevocable trusts, and a trust owner has one $1.25 million insurance limit for all the trusts.

In addition, depositors should know that certain types of accounts are labeled informal revocable trusts by the FDIC and considered trusts when applying the limit.

Account types that are considered revocable trusts include payable on death (POD) accounts, transfer on death (TOD) accounts, Totten trusts and accounts with labels such as “in trust for” or “as trustee for.”

For example, if a depositor has a formal trust, whether revocable or irrevocable, and has a separate account with a POD provision, the balances of the two are combined to determine if the $1.25 million per owner insurance limit is reached.

Owners of bank accounts can determine if all their balances are insured by using the FDIC’s Electronic Deposit Insurance Estimator (EDIE) on its website.

The $1.25 million insurance limit also is per financial institution. So, people whose accounts exceed the limit at one institution might want to move one or more accounts to different institutions to increase their FDIC coverage.

Advantages and Disadvantages of TOD Accounts

Since the FDIC insurance rules have changed, as described above, this is a good time to review the use of transfer on death and payable on death accounts, which I’ll refer to as TODs.

Most financial institutions now have a specific form that is completed to designate an account as a TOD and name the beneficiary (or beneficiaries). Most states have specific laws recognizing the accounts and setting the rules for them.

The original TOD account was created informally by the way the account was titled and became known as a Totten trust, after the name of the 1904 court case recognizing it.

A TOD avoids probate and isn’t covered by the will. Those qualities make TODs attractive for relatively modest balances and estates. TODs also can be good for asset transfers the owner wants to keep private.

A TOD ensures the beneficiary has cash available after the owner passes away and before the bulk of the estate is settled.

But an owner should keep a record of all TOD accounts. Some people have multiple TODs. The beneficiaries and the estate executor might not be aware of all the TODs, and the accounts could become lost property.

The owner also must remember the TODs when creating or updating the rest of the estate plan. Otherwise, the plan might have inconsistencies.

Also, the owner needs to review the beneficiary designations periodically. The appropriate beneficiary might change over time.

In most TODs, the owner can’t name a contingent beneficiary. If the primary beneficiary dies first and the owner dies before updating the account, the account will go through the probate estate.

A TOD doesn’t provide creditor protection for the beneficiaries the way a formal trust does, and most financial institutions don’t allow TODs to name formal trusts as their beneficiaries. They allow only individuals as beneficiaries. For asset protection, you might want to create a formal trust.

The account owner needs to be clear with the beneficiary about the purpose of the TOD and expectations about its use.

Sometimes most of a person’s liquid assets in are TODs. That ensures people in the family have enough cash to pay their expenses before the executor is appointed, has access to cash and distributes the estate.

But it also can mean the executor doesn’t have access to enough cash to pay estate expenses, distribute specific bequests and handle other obligations. The beneficiary of a TOD isn’t obligated to help the estate and might not be inclined to do so.

Some TOD beneficiaries will help the estate with cash flow problems but expect to be reimbursed later from the estate.

Consider all the advantages and disadvantages of TODs and be sure they are part of a comprehensive, consistent estate plan.

The Richest Became Richer Faster

It is always interesting to look behind the headlines of the Forbes list of billionaires to the details and side stories.

A subset of the billionaires list contains the centi-billionaires, those with net worths of $100 billion or more.

Only a few years ago, the $100 Billion Club didn’t exist, and a few decades ago it seemed to be far in the future.

The first global rich list from Forbes in 1987 had only two members worth more than $10 billion, both from Japan. Adjusted for inflation, that amount today would be only about $27 billion.

There was one member of the $100 Billion Club in 2020 and six last year. For 2024, the group numbers 14.

The wealth of these 14 people increased 255% over the last decade while the wealth of the rest of the globe’s billionaires increased only 120%.

Some other comparisons are that over the last decade inflation rose 32%, the S&P 500 increased 182% and the value of NFL franchises gained 257%.

The total net worth of the $100 Billion Club is $2 trillion, which is 14% of the total wealth of the world’s 2,781 billionaires.

Bill Gates was the first centi-billionaire in 1999 thanks to the tech stock bubble. But the subsequent crash reduced the value of Microsoft’s stock by about half. No one exceeded an 11-figure net worth until 2017, when Amazon.com founder Jeff Bezos did.

The $100 Billion Club didn’t have additional members until 2021 when Bill Gates, Elon Musk and Bernard Arnault joined.

Forbes says if stock prices keep rising, two additional members might soon join the club.

The results show the benefits of momentum. When you own part of a fast-growing company, maintain your ownership as long as it is well-managed and a top performer in its industry.

You also can see the importance of riding out the inevitable downturns, unless a fundamental change is apparent.

The members of the $100 Billion Club had periods when their net worths dipped substantially, primarily because of stock price declines. But they held on to most of their stock, and some bought more.

The Data

Personal income increased 0.5% in March following a 0.3% rise in February. Compensation increased 0.6% in March after increasing 0.7% in February. Income from assets increased 0.1% in March following a 2.0% decline in February.

Personal consumption expenditures increased 0.8% in both March and February. Spending on goods increased at a faster rate in March than February, partly because of higher energy prices. Spending on services increased in March at a slower rate than in February.

The Personal Consumption Expenditure (PCE) Price Index increased 0.3% in both March and February. Over 12 months, the PCE Price Index increased 2.7% through March and 2.5% through February.

The Fed’s preferred measure of inflation, the PCE Price Index excluding food and energy prices, or the core PCE Price Index, also increased 0.3% in both March and February.

Over 12 months, the core PCE Price Index increased 2.8% through both March and February.

The Consumer Sentiment Index from the University of Michigan declined to 77.2 in April from 79.4 at the end of March. The March level was the highest since July 2021.

There were significant declines in sentiment regarding both current conditions and expectations in April.

The survey found consumers were concerned about both the upcoming election and inflation.

The Consumer Confidence Index from The Conference Board tumbled in April to 97.0 from 103.1 in March. The March number was revised down from the initial estimate.

The index has declined three consecutive months. It is near the lower level of the range it has been in for about two years and is at the lowest level since July 2022.

The ISM Manufacturing Index declined to 49.2 in April from 50.3 in March.

The PMI Manufacturing Index fell to 50.0 in April from 51.9 in March.

The Chicago PMI fell to 37.9 in April from 41.4 in March. April was the fifth consecutive month the index declined, and April’s drop was the largest since November 2022.

Pending home sales increased 3.4% in March following a 1.6% gain in February. Over 12 months, pending home sales rose 0.1% through March after declining 0.7% through February.

March is the second month the 12-month number has been positive since May 2021. The other was December 2023.

The S&P Corelogic Case-Shiller Home Price Index increased 0.9% in February after declining 0.1% in January.

Over 12 months, the index increased 7.3% through February, the highest rate since October 2022, after being up 6.6% through January.

The House Price Index from the FHFA rose 1.2% in February following a 0.1% decline in January. Over 12 months, the index was up 7% through February and 6.5% through January.

The Kansas City Fed Manufacturing Index declined to negative 13 in April from negative 9 in March.

The Dallas Fed Manufacturing Index declined a little in April to negative 14.5 from negative 14.4 in March.

The private sector created 192,000 new jobs in April, according to the ADP Employment Survey, after adding 208,000 new jobs in March.

The number of unfilled job openings in the economy declined marginally in March to 8.488 million from 8.813 million in February, according to the JOLTS (Job Openings and Labor Turnover Survey) report.

There also were minor changes in hires, separations and quits from February to March.

Gross domestic product (GDP) growth decreased to an annualized 1.6% in the first quarter, according to the first estimate, from 3.4% in the last quarter of 2023.

Consumer spending on goods declined in the first quarter while spending on services increased at a faster rate than the previous quarter.

The Employment Cost Index increased by 1.2% in the first quarter after a 0.9% increase in the last quarter of 2023. Both wages and benefits increased by 1.1% in the first quarter.

New unemployment claims decreased by 5,000 to 207,000 in the latest week. That’s the lowest level in two months.

Continuing claims, which lag a week behind new claims, decreased to 1.781 million from 1.796 million. That’s the lowest level since February.

The Markets

The S&P 500 lost 0.72% for the week ended with Tuesday’s close. The Dow Jones Industrial Average fell 1.79%. The Russell 2000 declined 1.34%. The All-Country World Index (excluding U.S. stocks) decreased 0.33%. Emerging market equities gained 1.28%.

Long-term treasuries lost 0.91% for the week. Investment-grade bonds fell 0.44%. Treasury Inflation-Protected Securities (TIPS) dropped 0.34%. High-yield bonds declined 0.55%.

On the currency front, the U.S. dollar rose 0.66%.

Energy-based commodities fell 1.59%. Broader-based commodities lost 1.45%. Gold declined 1.39%.

Bob’s News & Updates

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I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.