Posted on 11/09/2003 5:06:22 PM PST by Justice
States make 'unclaimed' asset grab
Idle accounts target of cash-hungry treasuries
By Brendan January, CBS.MarketWatch.com
Last Update: 6:55 PM ET Nov. 9, 2003
NEW YORK (CBS.MW) -- Have you ever had that sudden feeling that you've lost touch with someone for a long time? If that someone is a mutual fund or a bank, it's best to reestablish contact.
In the past two years, states have been aggressively pursuing "unclaimed property" -- savings accounts, stocks, insurance policies, safety deposit boxes, retirement accounts -- that can be seized if an account is unused for several years or the owner cannot be located.
Traditionally, the company holding the account must inform the state if it can't find the owner. The state then conducts its own search. If that search fails, the state assumes control of the asset in a process known as escheatment. The period of time before a company must tell a state about idle accounts is the dormancy period.
States currently hold about $22 billion in unclaimed assets, with another $2 billion to $3 billion added each year.
To get their hands on those unclaimed assets more quickly, states have been lowering dormancy periods from an average of five years to three years, mostly because treasuries are awash in deficits. States have been pressuring companies to turn over unclaimed assets and threatening them with penalties if they don't.
"In order for a big company to comply with different laws and different statutes, it's a nightmare," said Doug Johnson, president of Keane, an unclaimed-property management firm based in West Conshohocken, Pa., whose business has been booming.
FleetBoston, for instance, has expanded its staff to find dormant accounts and track down the owners, said Jim Schepker, spokesperson for FleetBoston.
"It's time consuming and expensive, but it's an undertaking we have to support because we do not want our customers to be surprised," he said. And many customers, he added, "were surprised in several markets. They said 'we were not aware of state changes.'"
Too passive an investor?
This aggressive campaign comes at a time when millions of Americans have invested with a long-term "buy and hold strategy." They have been encouraged to passively watch their accounts grow, assured that staying in the market over several decades will lead to higher returns.
But being too passive, and losing track of your accounts, can add up to enormous potential losses. While most states pay some kind of interest, it is generally low, and many states will not honor the splits, dividends or appreciation that can be garnered by stocks.
States have also lowered the standards that define an unclaimed asset. Five states -- Illinois, Idaho, Pennsylvania, Kentucky, and Maine -- have even stipulated that simply receiving mail at an address is no longer considered sufficient contact with an account.
Moreover, states appear to be looking to pursue retirement accounts, such as 401k and 403b plans and private company pension funds. These accounts are currently not reportable as unclaimed because they are protected by federal guidelines.
"We're seeing a trend that properties that were designed to be left alone for years and years and years -- IRAs, Keoughs -- some of the states are initiating plans to take them over," said Johnson.
Just because a state seizes an unclaimed asset doesn't mean it is lost to the owner or owner's heirs. But the chances of recovery are not good: States locate the owners of just 20 to 25 percent of unclaimed assets.
"We can't fault them for not finding more, they do what they can with their resources," Johnson said.
Lost and found
The states, for their part, say they do everything they can. States publish lists of owners of unclaimed assets in local newspapers every year. Most states maintain lists on their Web sites and do outreach programs at fairs, business meetings and gatherings of senior citizens.
Johnson said that many investors are shocked to learn that they have gone missing.
Keane tracked down a "lost" employee in Ireland, where his own company had transferred to join a research facility. The employee's company stock -- worth $125,000 -- was about to be escheated to the state.
Some property owners might even find their assets being auctioned on EBay. Pennsylvania State Treasurer Barbara Hafer auctioned off more than 12,000 items on EBay this summer for a take of $650,000.
Among the items, which were seized from unclaimed safe deposit boxes, were a 1925 $20 gold coin valued at $425, a 2.59-carat diamond engagement ring worth $1,560 and an 18K gold watch worth $1,200.
The proceeds of the auction went into the state treasury. Owners who come forward after the item has been auctioned off receive only the selling price.
In May 2002, Pennsylvania lowered its dormancy period from seven years to five years. It has taken in $311 million in cash alone so far in 2003 and has dispersed about $15 million. The state has almost $1 billion in unclaimed assets recorded, affecting one in six residents.
How to prevent your assets from becoming "unclaimed?"
That can be tricky. But in general an account is deemed active if money is deposited or withdrawn, or if official contact is made with the company before the dormancy limit.
Simply logging onto an account via the Internet, though, is not enough. Even speaking to a customer service representative may not be sufficient if the representative doesn't make an official note of the call.
Here are some steps you can take.
Make sure you cash your dividend checks, even if they are issued for absurdly low amounts. Two uncashed dividend checks can lead a company to label your account "inactive."
Keep good records of your account. Make sure you change your address when you move. Be especially prudent during a life-changing event, such as divorce. Keep companies informed of name and address changes.
Let your family members know about your accounts and maintain records of assets that can be easily found. This will ensure that your assets go to those who deserve them.
Regularly check your state list for unclaimed assets. States have posted thousands of names, in alphabetical order, on their treasury Web sites. States usually add new names once or twice year, so check back.
If you spot your or a relative's name on the list, it can be exhausting to reclaim the property. Simply being a child or grandchild of the owner is not enough. Potential inheritors must also legally prove they are executors of the estate. It can cost several thousand dollars in legal fees to recover an asset worth less than $100, so you might think twice before starting,
Brendan January is a reporter for CBS MarketWatch in New York
Big Brother's at it again!
Not just surprised but fined by the state if they are not in compliance with the changes after a certain period specified by the law. Just another hidden tax the government levies on business.
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