A Brief Overview of How Assets and Property Become ‘Unclaimed’
Property becomes unclaimed when a financial institution or company loses contact with the owner of the assets for a period greater than one year, known as the dormancy period. Unclaimed property can be savings accounts, stocks, traveler’s checks, insurance payments, life insurance policies, or contents of safe deposit boxes to name a few. After a period of time specified by state law, holding companies have to turn over any unclaimed property to the state. The state will then attempt to locate the owner of the property and assets. The state can use these confiscated funds for government use while they attempt to locate the owner. When accounts or property are deemed abandoned, they are then converted into cash and taken by the state. In most states heirs can always reclaim their property, even after decades have gone by. However, States have different laws regarding unclaimed property. Many states do not pay interest or account for investment gains when they takes ownership of assets and, therefore, heirs lose out on those potential earnings.
Unclaimed property and lost assets can range in value from a hundred dollars to half a million dollars. Currently, states in the United States hold an estimated $42 billion in unclaimed property; this is an increase from $32.8 billion in 2010.
Case 1: Delaware.
In the fiscal year 2013, 16 percent of Delaware’s total general fund revenue came from unclaimed property, making it the state’s third largest revenue source. During a Supreme Court hearing on a California unclaimed property law, two justices stated that Delaware and several other states have not been working hard enough to inform citizens of their unclaimed property. The Council On State Taxation (COST) rated U.S. states on their unclaimed property laws. The COST report gave Delaware a score of D-, placing Delaware among the lowest ranked states.
The score is based on several key parts of a state’s property laws, such as:
- Whether business-to-business transactions are subject to escheat
- Whether state unclaimed property statutes provide an independent administrative appeals process for holders
- Whether the state imposes excessive penalties in the unclaimed property field
Case 2: California.
The state of California has about $8 billion in unclaimed property. California has become more aggressive in its confiscation of unclaimed property from holding companies, prompting COST to give California a D rating. The state has shortened the dormancy period from five to seven years down to only three years. At the end of February, the U.S. Supreme Court refused to hear another case challenging California’s Unclaimed Property Law, solidifying the dormancy period of only three years and allowing the state to conduct meager searches of owners of unclaimed property.
The U.S. Supreme Court has set precedent against the constitutionality of short dormancy periods in the case Cunnius v. Reading School District. The Supreme Court recognized that short dormancy periods could violate the due process clause. In other words, the state cannot “deprive any person of life, liberty, or property, without due process of law”.
Trends in State Unclaimed Property Laws
The Assistant General Consul for the Investment Company Institute, Tami Salmon stated, “The states, in a grab for money, are changing the rules of the game”. The Assistant General Consul also stated, “we’re seeing a trend among states to shorten the dormancy period before deeming accounts to be abandoned.” Moreover, many states argue that it is extremely difficult for them to track down the owner of unclaimed property due to their lack of resources. However, critics refer to states’ ability to track down citizens who have failed to pay taxes as evidence that the state chooses not to devote its resources to returning unclaimed property when it is not in its financial interest. According to tax analysts Hollis L. Hyans and Amy F. Nogid, owners are often unaware that their property has been seized by the state due to the increasingly short dormancy periods.
The state is required by law to make unclaimed property public once a year. Most states will do only what is
required by law, so that much of the unclaimed property continues to go unclaimed. However, there are other resources available to track down lost assets, such as hiring a private investigator, visit websites such as missingmoney.com or unclaimed.org or visit the treasury website of the state you currently reside in or previously resided in. In 2011, only $2.25 billion in unclaimed property was returned to the rightful heir. Currently, there is over $40 billion in unclaimed property in the custody of states, some of which may belong to you.
Author – Tiffany Walker, Lauth Investigations.