Unclaimed Funds: Why Time Is of the Essence


If you or a family member are entitled to receive missing money or an unclaimed asset being held by a state -– anything from unused gift cards to life insurance proceeds -– you might want to stake a claim to those funds sooner rather than later.

Otherwise, you could end up missing out on cash and assets that are increasingly being eyed by cash-strapped states across the country.

Currently, state treasurers and other agencies are holding an estimated nearly $50 billion worth of unclaimed funds that belong to millions of consumers. These assets range from uncashed payroll checks and utility deposits to dividends and forgotten bank accounts.

The biggest chunks of money usually come from long-lost insurance policies. But people have also reaped huge windfalls from years-old military benefits or sizable assets discovered in safe deposit boxes.

"A disproportionate share of people have lost track of these assets in times of personal crisis, such as a death in the family, a flood or tornado, or some other disaster," says Mark Tofal, an expert in tracking down missing money who operates the website UnclaimedAssets.com.

Individuals owed unclaimed money all share one common trait: They can't be located by banks, retailers and other businesses that are holders of property. Sometimes, tracking a person down is difficult because the individual has gotten married or divorced and changed names. In other cases, people have moved and their current address isn't known.

Once assets go dormant for a period of time -– typically anywhere from two to five years -– these unclaimed assets are deemed "lost" or "abandoned," and they're turned over by companies to state agencies.

Even though states work to re-connect lost property with owners, their efforts often amount to little more than creating a website, mailing postcards to residents, or publishing newspaper notices listing the names of people owed missing funds.

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Besides, taking custody of forgotten money and unclaimed property can provide an enormous financial boon for states. With billions in unclaimed assets in their coffers, states can and do collect interest, use the money to finance operations and fill budget gaps, and even sell or auction off assets to raise much-needed cash.

"Many states are experiencing significant budgetary challenges. Therefore, it's not surprising that they're looking for additional revenue sources, and it's likely that unclaimed property will be explored as a possible way to increase revenue," says Christa DeOliveira, a senior consultant with Ryan LLC, a tax firm that offers consulting services for entities dealing with abandoned and unclaimed property.

How to Claim Missing Money

To claiming missing money -- or prevent funds from going uncollected -- follow these three tips:

1. Use the Internet. To find unclaimed property, state officials suggest that consumers first visit MissingMoney.com, the site sanctioned by the National Association of Unclaimed Property Administrators (NAUPA), which represents state treasurers.

But not all states are listed on MissingMoney.com. For example, assets from New York and California – which together hold more than $15 billion in unclaimed assets - aren't in MissingMoney.com's database. Therefore, you should also try other search options. To find links to state databases in one location, visit Unclaimed.org, the free site for NAUPA. Search variations or misspellings of your name, and search for relatives' names, too.

For a flat fee of $18, you can also use a paid site like UnclaimedAssets.com, which will hunt down funds on your behalf. But consumers should generally avoid paying expensive "finder's fees" to tracers who offer to locate missing money for you in exchange for a fee of anywhere from 10% to 50% of what they find. Some property tracers are con artists.

2. Get your documents in order. To claim money or assets that are held in your own name, you'll have to prove who you are with photo identification, a Social Security number, and/or proof of address.

If you're claiming money as an heir or beneficiary of someone deceased, you'll have to provide a death certificate, and sometimes letters of administration or letters testamentary indicating that you're the executor of an estate. Local public records offices and sites like Ancestry.com can also help if you need to establish proof of lineage.

3. Communicate with relatives. To prevent money and assets from going unclaimed, keep track of your accounts, deposits and financial information. Let family members and beneficiaries know about your financial assets and specifically where your insurance policies can be found in the event of your death.

Insurance industry experts estimate that as many as 33% of all insurance policy proceeds are never paid. This often happens if family members don't know about the insurance policies, if insurance companies aren't notified about deaths, and because insurers lack the resources to track down beneficiaries.

Changing Laws On Abandoned Property

According to the National Association of Unclaimed Property Administrators, as of June 2006, state agencies held about $33 billion in unclaimed funds. Moreover, in 2006 alone, states collected nearly $5 billion in unclaimed property and paid out just $1.75 billion that year -– about 5% of the total monies held.

Emails to NAUPA seeking comment for this story and more recent data were not returned.

Other sources interviewed indicated that the value of unclaimed property turned over to states in recent years has been growing, not shrinking.

Therefore, even if the $5 billion collected in 2006 held constant for the years 2007 through 2010, state agencies likely added another $20 billion or so to their unclaimed property totals –- bringing the estimated total of unclaimed property to about $53 billion. If roughly $2 billion was paid out annually, as the NAUPA website indicates, states would still be sitting on approximately $45 billion in unclaimed funds.

The good news for consumers is that when the rightful owners of property -– or their beneficiaries or descendants -– finally come forward to collect, states do generally pay out what's owed. Historically, there's been no statute of limitations for property owners or their heirs to collect what's held in state custody.

But even that's changing, as two states now impose time limits on consumers to step forward and claim abandoned assets. In Idaho, any property turned over to the state that's not claimed by owners or their heirs within 10 years becomes the permanent property of the state.

And in Indiana, there's a 25-year statute of limitation to claim property once it's been reported to the state. The exception is court funds, which must be claimed within five years after being turned over to the state.

"I predicts that more states will start to impose statute of limitations," says Tofal. And even if his prediction doesn't pan out, states are clearly increasingly relying on unclaimed funds as a funding source.

Moreover, new legislation nationwide shows that states are:

  • Reducing dormancy periods

  • Broadening the scope of assets covered under unclaimed property laws

  • Auditing businesses more aggressively to ensure compliance with unclaimed property laws

  • Imposing interest charges or increasing civil penalties for those not in compliance; and

  • Securitizing unclaimed assets and borrowing against abandoned property

Kendall Houghton is a senior attorney at Alston & Bird LLP in Washington D.C., which advises companies on unclaimed property compliance issues and audit defense. According to Houghton, "The reasons cited for this heightened level of attention to unclaimed property probably depend on the perspective of the person with whom you speak."

Houghton notes that companies often feel that states' increased focus on unclaimed property laws is motivated by the need to generate additional revenues, or to accelerate the receipt of cash that would otherwise be paid over to the states after longer dormancy periods.

Meanwhile, states assert that the laws are designed as consumer protection vehicles, and, according to Houghton, "they appear to feel that many businesses are not in compliance, or worse, are cognizant of but actively disregarding the unclaimed property laws.

"However, it bears noting that some of the largest audit assessments issued by states relate to property that can never be returned to its owner, and therefore there can be no consumer protection purpose," Houghton adds. "Into this category falls all property that's being claimed based on statistical sampling or for which there is no owner address record, such as most gift cards."

Gift Cards – a Gift to Individuals or States?

Speaking of gift cards, these little pieces of plastic have lately become among the more hotly-contested forms of unclaimed property.

New Jersey offers a case of point in the fight over gift cards -– and is illustrative of the general push by states to more aggressively get companies, ranging from insurance firms to retailers, to more quickly relinquish abandoned property to state control.

In June 2010, New Jersey Gov. Chris Christie amended state laws regarding dormancy periods for unclaimed assets. The net effect of the changes would put dormant funds and unclaimed assets into state coffers more quickly.

For example, the state decreased the dormancy period for money orders to three years from seven, requiring companies to turn over unclaimed money orders faster to state officials. Likewise, New Jersey cut the dormancy period for traveler's checks to three years from 15 years. Also, after previously having no legislation concerning gift cards, the state created a two-year dormancy period for gift cards.

The $90 billion-a-year gift card industry is big business -– and gift cards offer a huge potential revenue source for states. TowerGroup calculates that consumers failed to cash in $2.5 billion worth of gift cards in 2010. Other experts say as much as $6 billion to $8 billion in gift cards go unused annually.

The Christie administration estimated that New Jersey would reap as much as $80 million by seizing unused balances on gift cards, as well as retroactively seizing unclaimed travelers checks dating back as far as 1994. In November 2010, however, a federal judge issued a temporary injunction against the state, halting New Jersey's plans regarding gift cards. The legal wrangling over the issue is ongoing.

And it's not just gift cards being squabbled over either. Unclaimed insurance proceeds are also up for grabs.

Numerous states are believed to be auditing life insurance companies to make certain that insurers work harder to find beneficiaries after a policyholder has passed away, or to turn over to state authorities uncollected death benefits in accordance with unclaimed property laws.

California, for instance, recently settled with John Hancock over life insurance premiums that hadn't been paid to beneficiaries of policyholders.

For its part, New Jersey, too has recently entered into a settlement with a big insurer – though it won't yet say which one. Bill Quinn, a spokesman for the state of New Jersey, confirms that "New Jersey recently signed a settlement agreement with a major life insurance company that deals with unclaimed property." However, he adds, "until all the details of that settlement have worked out, Treasury will have no comment on this issue."

New Jersey now holds $3 billion in unclaimed assets, according to Quinn. In the past three years, the Garden State has had approximately $255 million turned over to it annually by companies that were holding abandoned property. During the same time period, the state returned about $83 million annually to property owners, Quinn adds.

Raising Revenues Without Raising Taxes

New Jersey isn't alone in going after holders of unclaimed property to make sure those funds make their way into state custody after a designated period of time.

The state of Delaware is also known to aggressively audit businesses to ensure compliance with unclaimed and abandoned property laws. According to the Delaware Economic and Financial Advisory Council, Delaware is expected to generate $380 million in 2011 from abandoned property. In 2010, that figure was $400 million and in 2009, the tally was $392 million.

Thus, unclaimed property brings in more than 12% of Delaware's revenues and is the state's third-largest funding source, ranking only behind monies the state takes in from personal income tax and incorporation revenue.

"Unclaimed property is a non-tax source of revenue, so there's not the same stigma associated with increasing collections of unclaimed property as there is associated with raising taxes," notes tax firm's Ryan's DeOliveira, who is based in Sandy, Utah.

In other words, seizing unclaimed money as a way to boost state funding is more palatable –- and less likely to raise the ire of voters -– than is slapping residents with yet another tax hike.

Still, more should be done to put unclaimed property into the hands of its proper owners.

When insurers hold onto money that should rightfully be paid out to beneficiaries, that artificially strengthens their balance sheets. When states hang on to these assets, they get to use the money interest-free, borrow against it or spend the funds on public purposes.

Either way, the money isn't serving its intended purpose: to directly benefit the original property owners and their heirs. Should those dollars be swiftly returned to the rightful owners, it would provide a much-needed financial boost to millions of individuals and families.

And that would be a $50 billion stimulus plan all Americans could support. Tags:missing money, unclaimed assets, uncl