The days of stashing money in a savings account and not thinking about it for years has ended. The treasuries and unclaimed property departments of US States, under mounting financial strain, have leveraged increasingly aggressive tactics to seek out and reap potentially unclaimed assets as a remedy to decreased federal funding and dwindling tax revenues. And unmonitored accounts, opened with long term intentions, are more at risk than ever of being abandoned to the state due to alleged inactivity.
At one time, accounts could sit inactive for as long as 7 years before qualifying as legally dormant. Today, in New York State, that law has been amended so that an account’s dormancy occurs after just 3 years. The result is a huge uptick in the volume of accounts that banks are turning over to the state to stay in compliance with unclaimed property law, and consequently, a corresponding uptick in customers who are blindsided by their accounts being closed and surrendered to the State.
The mantra of “set it and forget it” tends to apply with much greater frequency to accounts opened up for the benefit of a minor. UGMA (Uniform Gift to Minor) accounts are often the product of spontaneity. In many instances, a parent comes into a momentary cash surplus, and takes the opportunity to open a custodial account for a child, understanding the money will accrue interest in the safety of a bank until the minor reaches adulthood.
Unfortunately, UGMA accounts do not enjoy any special protection or consideration when it comes to unclaimed property law. Any bank account, regardless of nature, is subject to abandonment after a period of 3 years of inactivity. So often, the adult custodian of an UGMA is unable to continue making contributions to the account after the first one made at the account’s inception. With savings accounts, deposits or withdrawals are generally the only types of activity that would keep an account in active status. This means that in the absence of ongoing deposits, a gift account is vulnerable to abandonment in as little as 3 years, often well before the child is old enough to take custody of his/her money.
Fletcher routinely assists people in recovering lost custodial accounts. Many were genuinely forgotten, but a concerning number of customers express their outrage at their bank failing them on such a fundamental level by allowing the money they had entrusted them to safeguard for their child to be quietly abandoned to the state government in the name of compliance.
The growing consensus among these custodial account holders who have lost their accounts to escheatment before their child’s 18th birthday, is that their bank did not act in their best interest. The notion of a bank being a safe haven to place money is being upended, and a lot of people feel betrayed by the lack of communication leading up to these abandonment events. It begs the question as to why UGMA accounts do not have legal protection, or enjoy a special status as being ineligible for abandonment before the named child reaches the age of majority?
In truth, the pressure that states are placing on banks to comply with unclaimed property law is tremendous. The aggressive tactics include multi-million dollar contracts with auditing firms tasked with going into banks to sniff out any accounts that meet the requirements for abandonment. Faced with stiff penalties for non-compliance or failure to report qualifying accounts, banks are essentially being disincentivized from acting in their customers’ best interest and taking the path of least resistance.
Any efforts to combat the states’ current laws and methods would require sweeping cooperation, lobbying and the pooling of resources dedicated to this. This is certainly not outside of what is possible for the banking industry. But in consideration of the cost of such an endeavor, an uncertain outcome and the question of what the banks would quantifiably gain by getting to keep more of these dormant accounts, there is probably not of enough consequence to get such an undertaking off the ground. The state, who makes and enforces the law, holds the high ground and will not willingly cede anything previously established and working in their favor.
In light of this new reality, one in which the banks are limited in their ability to protect our accounts from being taken by the unclaimed property tactics employed by state governments, owners need to be proactive. Fletcher recommends the following measures to keep your money safe:
1.) Keep Good Records – Everyone should keep records of all their accounts. This could be keeping a paper file with bank statements or maintaining a spreadsheet with account numbers and relevant bank information. Knowing what you have, and having a record of it, is essential.
2.) Stay In Touch with Your Bank – No one should assume that their bank will be diligent in staying in touch with you. If you have a savings account, or any account for that matter, where you haven’t made any deposits or withdrawals for a while, get in touch with your bank to make sure the account is in active standing. If it isn’t, simply ask them what needs to be done to ensure that it stays active. In most instances, making that contact alone is sufficient to bring a dormant account up to date.
3.) If You Move, Let Your Bank Know – A vast amount of accounts are lost each year because of address changes. If banks aren’t notified of an address change, they will continue to send correspondence to an old address. Often times a bank attempts to reach a customer to notify them of an account’s pending escheatment, but the message is not received because they’re sending mail to an old address. Sometimes, a bank letter that is returned by the post office because of a bad address is enough for the bank to classify the account as dormant. Making the effort to keep accounts current with address and contact details is a highly effective preventative measure.
4.) Electronic Communication Is Not Enough – Just because you are receiving emails, and logging in to your account, you are not guaranteed protection from abandonment. You must make a conscious effort to transact in the account or communicate with the bank.