Sometimes you can't avoid handing money over to the government, like when pay your federal and state taxes. But if you aren't careful, your assets might inadvertently end up in your state's lost property fund.
This is known as escheatment. The purpose of unclaimed property laws is to protect consumers by ensuring money owed to them can be returned to them or their heirs. But those same laws can cause problems for consumers who don't stay on top of their accounts.
This can happen if you don't pay attention to correspondence from your broker, investment advisor, mutual fund, bank, or 401(k) administrator, or if you don't notify these institutions regarding changes to your address and contact information. If financial organizations can't get in touch with you, they may be forced to turn over the money in your accounts to your state.
Shorter dormancy periods
In recent years, as states have worked hard to boost revenues, many have shortened their dormancy period. This is the number of years you're given to take a required action (such as cashing a dividend check or responding to a corporate action). A few years ago, five-year and even seven-year dormancy periods were common. Now, the majority of states have cut their dormancy period to three years.
The dormancy "clock" may start ticking either when mail from your financial institution is returned as undeliverable or when you fail to contact your financial institution for the dormancy period. State law requires banks, brokers and other institutions to turn assets over to your last known state of residence at the end of the dormancy period. In other words, if you move and don't notify your firm, then there's a good chance that in three years your assets will end up in a state's lost property fund. Also, even if you haven't moved, if you don't contact your financial institution at least once during the dormancy period, there's a good chance your assets will be turned over to the state.
Lost property process: what you should know
Each state has different unclaimed property laws that require financial institutions and other organizations to remit lost or abandoned property to the appropriate state authority. Unclaimed property includes securities such as stocks, mutual funds, and bonds. It also includes wages, traveler's checks, trust distributions, unredeemed money orders or gift certificates (in some states), insurance payments or refunds, life insurance policies, annuities, certificates of deposit, customer overpayments, utility security deposits, mineral royalty payments, and the contents of safe deposit boxes.
The list is long, and dormancy periods vary. For instance, the dormancy period for unclaimed wages is often only one year, while some states have a 15-year dormancy period for some property, such as gift cards.
Depending on its laws, a state might have full use of any unclaimed property until and unless the owner steps forward to claim it. To do so, they may sell any securities (including mutual funds) and retain the cash value of them. When an owner attempts to claim their property, they are only entitled to the cash value of it as of the date the state liquidated it -- thereby depriving the owner of any subsequent appreciation, market gains, or dividends on the property.
Before transferring assets to the state, an institution must make a good faith effort to contact the property holder. This attempt might consist of using any known contact information for the owner, mailing reminders, and issuing notices in publications to locate the owners of these assets before transferring the property to the state.
Tips to hold on to your property
Every state maintains a list of unclaimed property and makes that information public. Some states publish the names of all residents with lost property on a yearly basis or maintain a website with this information. Don't expect the state to track you down -- it's up to you to check whether any of your assets have landed in a state's lost property fund.
While all is not lost if your property falls into escheatment, it is something best avoided. After all, if your property falls to the state, you will stop earning interest, dividends, or other returns on that property. Follow these steps to help prevent your assets from escheating to your state:
- Notify your financial institutions of any changes to your contact information, including email and snail mail addresses. Do so even if you primarily view your account information online. Call your firm if you fail to receive account statements or other information you normally receive.
- Take action if you receive any calls asking that you update your mailing address, email address, or other contact information. To guard against identity theft, you might prefer to thank the caller and then contact the institution on your own to verify that it requested the update.
- Consider consolidating small accounts to reduce management tasks and to limit your chances of forgetting an account.
- Check in with your financial institutions at least once each year by phone, by email, or in person.
- Periodically check the unclaimed property database of the state you currently live in and any states where you once lived.
- Check the unclaimed property listings for the states of Delaware, Massachusetts, and Maryland, where many financial firms are registered. Note: Some dormant accounts may be listed at the firm's address instead of the account holder's.
- Be attentive to mailings from institutions with which you may not be familiar. Financial firms are rebranded, bought, sold, or go out of business on a regular basis.
- Be open to the possibility that you might also be contacted by a firm handling the affairs of a relative or acquaintance. You might be the recipient of their bequest without realizing you were included in their will or estate.
- Contact your financial institution to determine how it interprets the laws in your state. For instance, ask how your institution handles automatic contributions. Some states do not count regular automatic account deposits or withdrawals as active management.
Finally, keep a list of all your accounts and update it regularly. Tax time might serve as an annual reminder to update your records. And you might want to let your spouse and heirs know where you keep this list so they can track down your assets should you become incapacitated.
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