Madoff Help News & Assistance

Finally. Some Madoff victims are starting to see IRS refunds, and some really lucky folks are even starting to receive their SIPC claim payments. So it stands to reason that if you’ve got a valid IRS and/or SIPC claim you, too, will be receiving perhaps a substantial refund. If not, chances are that you’re looking to protect what you still have. Most folks have already given some thought about these funds, yet many are wondering what to do?

For many, if not most Madoff victims, this is a period of readjustment; for some, a period of truly radical change. For almost all victims, funds are much more dear than even in the past. Ask a Madoff fraud victim — or Stanford or Cosmo victim for that matter – what their tolerance for risk is these days and they’re likely to look a you as if you were crazy. Understandably, this response is not unique to fraud victims. After all, almost all investors lost significant assets in 2008 as very few asset classes escaped the economy’s wrath. And just this year, long-term Treasuries bonds have lost over 20% of their values on paper.

As I’ve indicated in prior blogs, what needs to happen now for many Madoff victims is a two-part task. The first part is finding a safe place to park assets for the time being. The second is figuring out how to get those remaining assets to work best for you. For this blog article, we’re going to focus on first things first – parking assets safely.

For Almost Everyone, a Year to Forget
As we all know, 2008 was the year of the inconceivable. Aside from the Madoff and other frauds, many banks, thought to be the pinnacle of safety were also under siege. Some of the largest required huge bailouts to prevent the collapse of the financial system. Some, like household names Washington Mutual and IndyMac along with many others are no longer around. Indeed, over 60 banks have closed their doors this year, and between 1000 and 3000 are still having significant problems. Even today many banks are much weakened from both prior poor loan practices and a deteriorating depositor base due to the poor economy.

Yet banks remain the most viable place for most investors to park assets. And the good news is, that unlike SIPC (Securities Investor Protection Corporation) which was formed to provide insurance-like protection for securities’ investors, the government and FDIC (Federal Deposit Insurance Corporation) have dramatically increased the safety of bank deposits. So if you’re looking for safety, let me share with you some of the ideas we use at Good Harvest in our Safety-Vest approach.

Start with Strength
Understand that the concept that caveat-emptor – buyer beware – still holds. Banks that offer the most attractive money market and CD rates typically are the weakest. Now if the assets are FDIC insured, that’s a plus, but it could take months, perhaps even years to get a FDIC claim payment for a failed bank, and your interest would likely be lost in the process. Not to mention the aggravation. The best way to avoid a mishap is by making sure your bank is solid in the first place, and don’t assume that “bigger is better.” “Too Big to Fail” is a concept that just won’t cut it the next time around. A good start then is to do what we do for our clients, and review the quality of the bank. The easiest way for the average person to do this is simply to use the internet and go to www.bankrate.com or www.bauerfinancial.com, and make sure you have a bank or institution with a high star rating. This simple process won’t take much time. Sure, find a decent rate, but most importantly, find a decent bank or credit union.

Unlike SIPC, Real Insurance from the FDIC
Thank goodness the FDIC does its job a whole lot better than SIPC. Indeed, the FDIC has been quite vigilant in monitoring bank strength and weakness over the last year, and is currently very aggressive in getting their teeth into institutions that are weakening. More importantly, they’re reliable in paying claims. For many years, however, Congress has only provided FDIC with insurance coverage of $100,000 per account type. Last year in the midst of the financial and banking crisis, that amount was temporary increased to $250,000 per account type per bank and, thankfully, Congress has now extended that protection through 2013. So the challenge is how to make sure your accounts get in under the FDIC limit amounts. This protection extends to participating community development banks and credit unions too, by the way.

Bank Smart — Maximize your FDIC Insurance Coverage
Aside from some minor inconvenience, for all but a very few investors there is no reason to exceed FDIC insurance limits and put your precious dollars at risk. One way to maximize your FDIC coverage at a particular bank is to spread your accounts across a variety of names and types, including ITF (in trust for) accounts. Each account type – individual, ITF, IRA — gets its own $250,000 protection amounts. FDIC has a handy website to determine your coverage at a particular bank (go to www.fdic.gov/edie/index.html) and use their very convenient EDIE program.

Here’s an example of what you can do: let’s say you have $1,000,000 in a personal account at your local bank, which our sharp readers will identify as being $750,000 over the FDIC $250,000 limit, which means $750,000 is at risk. If the bank goes under, only $250,000 would be returned to you. However, let’s also assume you have a spouse and two children. In this situation, you might consider setting up the account jointly with your spouse for $500,000, and set up two ITF accounts for the children, each with $250,000 and each fully covered by the $250,000 FDIC limit. By putting $500,000 into a joint account this permits $250,000 in coverage for you and your wife individually (or $500,000 for the two of you). Meanwhile, the ITF account allows you to change beneficiaries at any time, allows you to retain control of the account, yet keep all accounts protected. Voila – you’ve just extended FDIC coverage from the initial $250,000 you had to a full $1 million. (Obviously this is just an example, and not to be interpreted as a recommendation.)

Using CDARS to Really Increase Your Protection
There’s more. So let’s say you’ve run your EDIE analysis – your bank can also do this for you – and you’ve still got more than the FDIC insurance limit. You can take your FDIC protection even further by spreading accounts automatically across different banks – and something we regularly recommend to clients.

Pronounced like the tree, CDARS stands for Certificates of Deposit Registry Service, which is comprised of a membership of very high quality banks that arrange to share the FDIC exposure to make sure that all your deposits are insured. You open an account at a participating CDARS institution, and the insurance is spread across the full gamut of banks, even though you get your statement from the one bank you choose to do business with. The downside is that you need to find a participating bank, but that shouldn’t be difficult with over 3000 banks currently participating. The good news is you can extend your coverage this way up to a whopping $50 million! To find out more about CDARS, and to get the name of a locally participating bank, go to the website www.cdars.com.

Taking It Up a Notch
Let’s face it, you’re not going get rich leaving assets in banks. If you’re lucky, your funds will be safe and keep pace with inflation. It’s not a good long term income or investment strategy in and of itself. Maximizing your income might entail incorporating select bonds and bond funds and utilizing various income and alternative investments to meet your income and low risk needs, which is just part of what a good financial planner or investment adviser can help you do.

Determining your income needs and figuring out a way to meet those needs? That’s a topic for another day. With peace of mind perhaps the first thing on the minds of Madoff investor victims, finding a safe place to park assets right now makes a whole lot of sense. By doing just a bit of homework, you can easily handle that safety goal even while you’re getting a handle on your expenses and getting an income and estate plan strategy together.

In the mean time, bank smart. Nothing beats a good nights’ sleep!

For more information, or for comments, please contact us via email at info@goodharv.com or by phone at (631) 423-6501.