This story appears in the June 29, 2015 issue of Forbes.
Last year, after her husband’s death, an 82-year-old Pennsylvania widow started tracking down the jointly owned certificates of deposit he had set up at half a dozen banks in his quest for higher interest rates. Two were at Stonebridge Bank, a local institution with only two locations and an emphasis on online and telephone services. The bank told her the CDs were about to be transferred to the state because she had failed to take sufficient steps to show she was alive and interested in the account.
Huh? Part of the appeal of a CD is that you don’t have to do anything. You can let interest compound until the CD matures, and even then you can ignore it and allow it to be renewed. Yet the bank insisted that she had to contact it at least once every three years to keep her CDs from being deemed abandoned and “escheated” to Pennsylvania.
Escheat laws have been around in their current form since the 1950s. Supposedly they protect consumers. The idea is that it’s safer for heirs if abandoned property is held by the state. Bank and brokerage accounts, unclaimed life insurance policies, uncashed paychecks and traveler’s checks, gift cards and even the contents of long-neglected safe-deposit boxes can be escheated.
Originally accounts were typically considered abandoned only if they went untouched for decades. But revenue-hungry states have been dramatically shortening that “dormancy” period to get their hands on this booty. Twenty-seven states and the District of Columbia now hijack some accounts after just three years. Pennsylvania was the most recent to join this dishonor roll, reducing its dormancy period from five years to three for most assets (not traveler’s checks or money orders) last July. The change helped plug a budget hole. The Keystone State has booked $655 million from escheat so far this fiscal year, $390 million more than in the year before the change, reports Christopher Craig, the Executive Deputy State Treasurer.
Yes, you can get your money back by filing a claim—in most states you have forever to do it. But states immediately liquidate some assets such as stock, with potentially expensive tax consequences for you. Plus, it’s likely they won’t pay you interest while making use of your money.
Get this: Some states even subject Individual Retirement Accounts to escheat once the IRA owner turns 70 1⁄2 and is required to take minimum distributions. And when an IRA is sent to the state, it may be taken out of its tax-deferred wrapper, making the whole balance immediately taxable.
In January an 89-year-old Philadelphia woman received a letter from Wells Fargo warning her that her IRA would be escheated if she didn’t contact the bank. When she called, a bank rep informed her that merely cashing her annual RMD check—which she had been doing every year—was not considered proof by Pennsylvania that she was still alive, since someone else could have cashed those checks. Craig insists under Pennsylvania law a cashed RMD check counts as activity. A Wells Fargo spokesman, after some investigation, agreed, saying the notice shouldn’t have been sent.
So what can you do to protect your assets from sticky-fingered states and bank mistakes? Consolidate your accounts. Every few years contact the bank to say “hi” to your CD or IRA. Check your balance online—a growing number of states, including Pennsylvania, consider this evidence your account is active. Cash checks as soon as possible.
And do open your mail, even what looks like generic notices, since financial institutions must generally inform you in writing before escheating your account. If despite these efforts your property escheats, you may have to file a notarized claim with the state to get it back.
Meanwhile, search for already escheated assets in your name at www.naupa.org, a website maintained by the National Association for Unclaimed Property Administrators. Who knows? You might actually have forgotten an account.
