Compliance Blog

The great thing about getting a million calls about share insurance is that it forces you to research new issues.   Like children and share insurance.   Take this, for example:

The Appendix to NCUA's Share Insurance regulation states the following:

Any individual, including a minor, may be a co-owner of a joint account. Although, generally, each co-owner must have signed an account signature card and must have the same rights of withdrawal as other co-owners in order for the account to qualify for separate joint account insurance, there is an exception for minors. If state law limits or restricts a minor’s withdrawal rights—for example, a minimum age requirement to make a withdrawal—the account will still be insured as a joint account.

Now, what does this have to do with kids?  Sometimes, minors are joint owners on normal accounts.  Might there be share insurance implications?  You bet.

 Look at the following examples, taken from the appendix to NCUA's Share Insurance Regulations:

Example 1

The following accounts are held by members A, B and C,

1. A, as an individual—$100,000.
2. B, as an individual—$100,000.
3. C, as an individual—$100,000.
4. A and B, as joint tenants w/r/o survivorship—$90,000.
5. A and C, as joint tenants w/r/o survivorship—$90,000.
6. B and C, as joint tenants w/r/o survivorship—$90,000.
7. A, B and C, as joint tenants w/r/o survivorship—$90,000.

Members A and B are husband and wife; C, their minor child, has failed to sign the signature card for Account No. 7. In Account No. 5, according to the term of the account, C cannot make a withdrawal without A’s written consent. (This is not a limitation imposed under state law.) In Account No. 6, the signatures of both B and C are required for withdrawal. A has provided all of the funds for Accounts numbered 5 and 7 and under state law has the entire actual ownership interest in these two accounts. What is the insurance coverage?

Answer: If any of the co-owners of a joint account have failed to meet any of the joint account requirements, the account is not a qualifying joint account. Instead, the account is treated as if it consisted of commingled individual accounts of each of the co-owners in accordance with his or her actual ownership interest in the funds, as determined under applicable state law. (§ 745.8(c)).

Account No. 5 is not a qualifying joint account because C does not have equal withdrawal rights with A. Based on the terms of the account, C can only make a withdrawal if he has A’s written consent. Account No. 7 is not a qualifying joint account because C did not personally sign the signature card. Therefore, all of the funds in Accounts 5 and 7 are treated as individually owned by A and added to A’s individual account, Account No. 1. For insurance purposes then, A has $280,000 in one individual account that is insured for $100,000, leaving $180,000 uninsured.

Account 6 is a qualifying joint account for insurance purposes since each co-owner has the right to withdraw funds on the same basis. Account 4 is also a qualifying joint account. A’s interest in Account 4 is insured for $45,000. B’s interest of $45,000 in Account 4 is added to her interest of $45,000 in Account 6 and insured for $90,000. C’s interest in Account 6 is insured for $45,000.

Example 2

Question: Assume the same accounts as Example 5(a) except that, on Account No. 5, C’s right to make a withdrawal is limited by state law which precludes a minor from making a withdrawal without the co-owner’s written consent. What is the insurance coverage?

Answer:

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Have a great weekend, everyone!