Unclaimed Assets Can Be Boon for Cash-Strapped States
As it hunted for cash to balance this year’s state budget, New York tapped into one of its fastest-growing revenue sources -- bank accounts, stocks and other assets that owners have, for one reason or another, left behind.
New York’s budget includes $408 million in abandoned property to be scooped up in its current fiscal year, as well as $300 million from selling unclaimed securities.
None of this money technically belongs to New York. But, like other states, it becomes custodian through laws requiring businesses to relinquish assets that haven’t been touched for years by the rightful owners.
Unclaimed property includes a variety of idle assets -- bank and stock brokerage accounts, uncashed paychecks, life insurance proceeds and even gift certificates that were never redeemed.
Depending on what it is, personal property is considered abandoned by states after a specific period of inactivity, ranging from one to 15 years.
People leave behind money for a range of reasons, but forgetfulness and apathy are probably the most common causes, said Clive Cohen, senior vice president for the National Abandoned Property Processing Corp., which helps 47 states and the District of Columbia find unclaimed assets.
When people move, they often neglect to close bank accounts with small balances or don’t bother to pick up a final paycheck from some menial job, Cohen said. Banks typically turn over the most unclaimed property, partly because they are among the country’s most regulated businesses.
States can use the cash until the rightful owners or their heirs reclaim these assets -- and, in most instances, no one ever does, even though there aren’t any statutes of limitations.
“Unclaimed property is an easy target for [state governments] when they are under pressure” for revenue, said John Coalson, an Atlanta attorney specializing in unclaimed property issues. “They see it as low-hanging fruit because it doesn’t involve raising taxes.”
About $15.6 billion is being held by 42 states that reported to the National Assn. of Unclaimed Property Administrators. California alone holds $2.9 billion.
Administrators of collection programs say they’re better than the alternative -- letting businesses use the cash to pad their profits.
“We want to reunite the individual owners with their money, but if that doesn’t happen, at least it’s back in the hands of the state treasury to benefit the citizenry,” Cohen said.
Knowing that most of the money will never be claimed, some states have dedicated unclaimed property revenue for special purposes. North Carolina finances scholarships with the money; Virginia funds state libraries.
The money search has enriched independent contractors like New York-based National Abandoned Property, which pockets a commission, typically 12% of the assets it finds.
Not surprisingly, the biggest bundles of unclaimed property land in big states like California, New York and Texas.
But tiny Delaware, where many companies incorporate, gets a huge chunk for a state whose population of about 800,000 ranks 45th in the nation.
Delaware took in $154 million in abandoned assets during its most recent fiscal year and expects to collect another $115 million this year. That’s about $144 per resident. New York is counting on about $21 per resident this year.
Delaware is the last stop for unclaimed property from all over the country because of rules that send the money to a company’s state of incorporation when the home address of the rightful owner is unknown.
More than 300,000 companies are incorporated in Delaware, including many of the nation’s largest businesses.
A 10-year agreement establishing the turf rights for unclaimed property expires in March 2004, opening the door for Congress to change the rules. And several of the most populous states want the unclaimed property rights to be based on physical location of a company’s headquarters, which would result in a big financial hit for Delaware.
Delaware balances its desire for the revenue against the knowledge that an overzealous push would threaten its business-friendly reputation and prompt companies to incorporate elsewhere, said Bill Remington, the state’s director of revenue.
“We don’t act any differently in prosperous times or hard times,” he said.
Other states are “really ratcheting up their [collection] efforts,” said Steve Wlodychak, who follows unclaimed property issues for Ernst & Young’s western office.
Some states are reducing the time before an unclaimed asset is considered abandoned. Some offer amnesty programs to encourage businesses to voluntarily turn over the assets and avoid state penalties for holding on to the property for too long. In some states, the penalties can reach as high as 25% of the asset’s value.
California decided to extend its amnesty program another year after it helped increase unclaimed property revenue by 42%, to $461 million in the fiscal year that ended in June.
The state expects the amnesty extension to help raise $393 million in unclaimed property revenue during its current fiscal year while it pays out $195.5 million to the rightful owners.
State governments insist that their ultimate goal is to return the money to the rightful owners. They place ads in local papers, set up information booths in shopping malls and provide online search engines.
California credits the Internet for helping it do a better job of returning abandoned assets. The state returned $191 million in unclaimed property held in 204,621 accounts last year, up from $86 million held in 62,800 accounts in the fiscal year that ended in June 1996.
National Abandoned Property has an Internet search engine for property hunters at www.missingmoney.com, which is certified by the National Assn. of Unclaimed Property Administrators, a government group representing all 50 states and the District of Columbia. The trade group also runs its own Web site, www.unclaimed.org, that provides links to individual states’ programs.
After seeing a TV news segment about Missingmoney.com last year, Melbourne, Fla., firefighter Jim Wilson entered his name into the search engine and discovered $1,400 in annuities left behind by his dead parents in Virginia.
Wilson received a check in less than six weeks -- money he used to visit Colorado and re-establish a bond with his older brother.
“It was like getting one final gift from my parents,” Wilson said.
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