Unclaimed funds refer to money and other valuable assets whose rightful owner cannot be located. These funds are usually turned over to governmental authorities after a specific period. To reclaim these funds or assets, the designated owner or beneficiary must file an applicable claim and, if associated with an estate, prove their right to claim the property.
Key Takeaways
- Definition: Unclaimed funds are assets whose rightful owner cannot be found.
- Transfer to Government: Typically, unclaimed funds and property are handed over to the state after a dormancy period.
- Tax Implications: These funds may become taxable once reclaimed.
- Reclaim Process: States have established procedures through which legal owners can reclaim their assets.
Understanding Unclaimed Funds
Reasons for Unclaimed Funds
A myriad of factors can lead to funds and assets going unclaimed:
- A taxpayer owed a refund might move without updating their address with the tax authority.
- A customer may be unaware of their bank’s failure and not know who to contact for their funds.
- Employees of a folded company might lack information about pension collection.
- Account holders might pass away without the institution being informed.
- People might simply forget about old accounts.
The Dormancy Period
Unclaimed property becomes labeled as such once it exceeds a set dormancy period—usually between three to five years in most states—following inactivity. Once deemed abandoned, it goes through a legal process called escheatment, where the state assumes ownership until a rightful owner steps forward.
Potential for Taxes
Unclaimed property generally is not taxed in its unclaimed state. However, once reclaimed, it may be taxable income leading to possible tax obligations for the claimant. Some unclaimed assets, such as certain retirement accounts (e.g., 401(k) or IRA), may be reclaimed without tax consequences.
The range of unclaimed assets isn’t limited to government-controlled funds. It includes uncollected items like unused gift card balances, positive bank balances, uncollected sales commissions, and insurance benefits. Companies and institutional holders must attempt to contact owners, failing which the property may be turned over to the government under escheat laws.
Unclaimed Funds Example
Let’s illustrate with an example. Imagine an individual pays estimated federal taxes, files their return, and requests any refund to be mailed to their home. They move without updating their address with the tax authority. The refund check gets mailed to their last known address but is returned as undeliverable due to non-forwarding policies to prevent fraud.
Thus, the refund turns into unclaimed funds. It then falls on the taxpayer to claim their funds from the government with a corrected address. In 2023, New York state reported $18.4 billion in unclaimed funds, evidencing this issue’s scale.
Verifying Unclaimed Funds
Governments at state and federal levels offer various methods for verifying unclaimed funds. For example, the IRS allows taxpayers to check the status of federal refunds online. However, there is no centralized federal database for unclaimed funds.
People and businesses usually need to contact the relevant state agencies to trace unclaimed funds and can also search various databases for assets, like bank accounts, investments, and unpaid earnings.
Potential for Scams
Be aware: Most government agencies are prohibited from contacting individuals by phone regarding unclaimed funds or assets. Scammers exploit this loophole by contacting individuals with offers to help reclaim funds for a fee, often also requesting sensitive information—a key indicator of fraud.
What Happens If Money Is Unclaimed?
When assets in accounts remain unclaimed after a set period, state authorities typically take over, turning over funds to their unclaimed property departments.
Do Banks Try to Contact Customers About Inactive Accounts?
Banks are usually legally required to try to contact customers about the inactivity of their accounts. If unable to reach the owner, the bank transfers the assets to the state government.
How Long Before an Account Is Considered Abandoned?
This varies based on state laws but generally falls between three to five years of account inactivity.
The Bottom Line
Unclaimed funds can arise from various sources, including bank accounts, pensions, wages, and securities. After a designated period of inactivity, these funds become government property. Individuals can reclaim their assets by contacting state offices and searching relevant databases like Missing Money and the National Association of Unclaimed Property Administrators.
Related Terms: escheatment, dormancy period, unclaimed property, tax refunds, abandoned accounts
References
- USA.gov. “How To Find Unclaimed Money From the Government”.
- National Association of Unclaimed Property Administrators. “What Is Unclaimed Property?”
- HelpWithMyBank.gov. “When Is a Deposit Account Considered Abandoned or Unclaimed”.
- Investor.gov. “Escheatment by Financial Institutions.”
- U.S. Government Accountability Office. “Retirement Accounts: Federal Action Needed To Clarify Tax Treatment of Unclaimed 401(k) Plan Savings Transferred to States”.
- U.S. Securities and Exchange Commission. “Investor Bulletin: The Escheatment Process”.
- New York State Comptroller. “Office of Unclaimed Funds Fact Sheet.”
- Texas Comptroller of Public Accounts. “Texas Comptroller Glenn Hegar Announces Record $344 Million in Unclaimed Property Returned in Fiscal 2023.”
- PressConnects. “Unclaimed Funds: Most Less Than $100, but One Connecticut Resident Got Missing $32.8 Million.”
- Internal Revenue Service. “Refunds”.
- New Jersey Department of the Treasury. “Treasury Alerts N.J. Residents to Unclaimed Property Scam”.
