Have you ever forgotten your wallet somewhere and rushed back in a panic to find that it was (thankfully) placed in the lost and found? Every day people across the country forget their wallets, purses, keys, phones, and other personal items and usually return to find a good Samaritan has returned their items to the appropriate place. But what happens on a larger scale, when you “forget” money in a decades-old bank account, or misplace the login information for an investment account that holds a portion of your retirement portfolio? Well, forgotten personal property like that goes through a process few people have ever heard of. It’s known as “escheat,” and it can cheat you out of your money if you’re not careful.
What Is Escheatment?
Escheatment is the legal term for the right of a state to take ownership of unclaimed property. This is a common law doctrine that first began in feudal England. Though it is no longer used in England, it is a thriving practice in the United States.
Each year, states collect over $8 billion in unclaimed property. They hold this property, much like a lost and found box, hoping that the rightful owner will come to claim it. But in reality, two thirds of the property is never claimed, creating a steady income stream that states have come to rely on as funding for many public programs and services.
According to the Planet Money podcast, escheated property accounts for the fifth largest source of revenue stream for California and the third largest for Delaware!
How Does it Work?
Each state has its own process for escheatment. Generally, after a certain length of time, a corporation, bank, or other entity will alert the state government that certain property has gone unclaimed. It can range from a lost paycheck to an investment account.
Next, the State will mail a letter to the owner informing them about the unclaimed nature of their property. If the letter is returned to the State without a forwarding address, the State is legally allowed to claim the property and liquidate it.
What Does This Mean for You?
For bank accounts and lost paychecks, this process isn’t such a bad thing. The State keeps detailed records about who lost the property and everything is posted on a government website. If you search your name, you can find your abandoned property and submit a claim to get it back.
The trouble comes in when you lose property other than cash. In Walter Schramm’s case, as discussed in the podcast, he left hundreds of shares of Amazon stock in an investment account for over 20 years. The State of Delaware took control of his account and liquidated his shares, costing him more than $100,000 in lost profits.
The general rule of thumb is that investment accounts that are inactive for three years are subject to the escheat process. As many investors know, it’s not uncommon for weeks, months, or even years to go by without looking at your account, especially if you are utilizing a buy-and-hold strategy or don’t want to subject yourself to the stress of keeping tabs on a volatile market.
Don’t Let Escheat Happen to You
The best way to prevent escheat from happening to you and your property is to periodically log in to all of your online accounts, both your savings accounts and investment accounts. If you suspect you may have unclaimed property already, go online to your state’s unclaimed property website and search your name. It’s recommended that everyone search themselves at least once a year to ensure they are not missing out on property that rightfully belongs to them.
Working with a financial advisor is another way to stay on top of your financial accounts. They can help you organize and access your accounts with enough regularity to avoid escheatment. If you have questions about your financial accounts, or want to discuss how escheatment may affect you, call our office today at 909-981-1720 or simply click here to schedule a free 15-minute introductory phone call!
About 1on1 Financial
1on1 Financial is an independent financial advisory firm specializing in guiding working and retired professionals, executives, and business owners along the path to financial well-being. Founded in 1997, we use a team approach to help our clients accumulate wealth, generate income, preserve their life savings, and strategically plan for the distribution of their estate. With more than 50 years of combined experience in the financial services industry, we remain true to our fundamental mission: to provide personalized guidance, treatment, care, and service so our clients can gain control of their future and feel confident in their financial life.
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(1) https://www.npr.org/2020/01/24/799345159/episode-967-escheat-show?utm_source=Talking+Points+Newsletter&utm_campaign=3694aeb08b-Talking_Points_September_22_2017_SafeHav9_22_2017_&utm_medium=email&utm_term=0_81a82d963f-3694aeb08b-71822533&mc_cid=3694aeb08b&mc_eid=bdb78a0600
(2) https://www.npr.org/2020/01/24/799345159/episode-967-escheat-show?utm_source=Talking+Points+Newsletter&utm_campaign=3694aeb08b-Talking_Points_September_22_2017_SafeHav9_22_2017_&utm_medium=email&utm_term=0_81a82d963f-3694aeb08b-71822533&mc_cid=3694aeb08b&mc_eid=bdb78a0600
(3) https://www.npr.org/2020/01/24/799345159/episode-967-escheat-show?utm_source=Talking+Points+Newsletter&utm_campaign=3694aeb08b-Talking_Points_September_22_2017_SafeHav9_22_2017_&utm_medium=email&utm_term=0_81a82d963f-3694aeb08b-71822533&mc_cid=3694aeb08b&mc_eid=bdb78a0600
(4) https://www.npr.org/2020/01/24/799345159/episode-967-escheat-show?utm_source=Talking+Points+Newsletter&utm_campaign=3694aeb08b-Talking_Points_September_22_2017_SafeHav9_22_2017_&utm_medium=email&utm_term=0_81a82d963f-3694aeb08b-71822533&mc_cid=3694aeb08b&mc_eid=bdb78a0600