What are unclaimed funds?
Unclaimed funds are money and other assets whose rightful owners cannot be found. Unclaimed funds are usually turned over to the government after a certain time has elapsed. To claim funds or assets, the named owner or beneficiary must file a claim; in the case of an estate, it can require the claimant to prove their rights to the unclaimed property or funds.
Understanding Unclaimed Funds
Funds and assets go unclaimed for a variety of reasons. For example, a taxpayer may be owed a tax refund, but the refund check goes unclaimed because the taxpayer did not update his/her address with the tax authority when he moved. Bank failures can create a pool of unclaimed funds when customers don’t know the bank has failed or who to contact to get their funds back. Unclaimed pensions are a common unclaimed fund, especially when a company is closed and there is no immediate information about its pension management.
Unclaimed property is essentially property that is unclaimed after a period of dormancy. Dormancy is the amount of time between when a financial institution reports an account or asset as unclaimed and when the government considers the account or asset to be abandoned.For most states, the dormancy period is five years. When a property is officially designated by the state as abandoned or unclaimed, it undergoes a process known as looting, in which the state assumes ownership of the property until the rightful owner files a claim.
Unclaimed property types include uncashed paychecks, idle stock, court funds, dividends, checking and savings accounts, and estate proceeds. When property accounts go unclaimed, they are turned over to the state, which could include the death of the account holder, failure to register a forwarding address after changing residence, or simply forgetting the account.
Unclaimed property is not taxed when declared unclaimed; however, the property may be officially recognized as taxable income when it is repossessed. Some unclaimed funds, such as investments from a 401(k) or IRA, can be recovered tax-free.
- Unclaimed funds are those assets whose rightful owners cannot be found.
- Often, unclaimed funds and property are transferred to the state where the assets are located after the dormant period has passed.
- When claiming unclaimed funds that have risen in value, taxes may be assessed as ordinary income at the time.
- States have established procedures by which the legal owners of assets can recover unclaimed funds.
Example of Unclaimed Funds
Consider an example in which an individual pays estimated federal taxes within a year, files taxes, and requests that any refunds be mailed to his home address; he moved without disclosing his new address to the tax authorities before the tax refunds were processed . The refund will later be processed and mailed to his last known address. To deter fraud, letters and payments from tax authorities are often not forwarded. As a result of this policy, his undeliverable refund checks were returned to the issuer and became unclaimed funds. The onus is now on the taxpayer to contact the government to have the cheque reissued to the correct address.
In 2018, New York State earned $932 million from unclaimed property.While that number is above average, according to news reports, states could earn between $6 billion and $80 billion in total from dislocation accounts.. New York State data shows that 70% of unclaimed accounts hold less than $100, but there is no limit to account size.In 2019, Texas returned more than $308 million to owners of previously unclaimed properties.Many claims are over $100, but according to a 2017 article, the $32.8 million that Connecticut residents claimed in 2012 came from proceeds from stock sales, and not much could be related to the press connect.
Verify Unclaimed Funds
The government offers several ways to check unclaimed funds. For example, the Internal Revenue Service (IRS) allows taxpayers to check the status of their refunds online and provides a hotline that taxpayers can call. Because online refund portals are easier and less expensive to maintain than phone systems, the government may stress that customers should only call if a refund payment is beyond a reasonable time (eg 21 days after receipt).
In the United States, the federal government does not yet have a system for people to check unclaimed funds or property. It also does not maintain a central database to monitor unclaimed funds at the federal level, nor does it have information on unclaimed funds in each state. Individuals and businesses looking for unclaimed funds may have to contact the appropriate state agency where unclaimed funds or property may exist.
What many people don’t know is that most (if not all) government agencies are prohibited from contacting the owners of unclaimed funds/assets over the phone. Since scammers are aware of this limitation, they may try to deceive the public. In some cases, such as unclaimed pensions administered by the Pension Benefit Guarantee Corporation (PBGC), the names of individuals who owe money are publicly listed. Scammers may contact these posing as government employees and may offer to help secure unclaimed funds for a fee. It is important to know which official agency to contact to verify funds and understand that most people are prohibited from calling individuals about their property. A key indicator of someone trying to defraud is the fee, Social Security Number (SSN) or banking information they are asking for.
Not all unclaimed funds come from the government. Individuals may leave unused money on gift cards, positive account balances with banks and other financial institutions, and uncollected sales commissions with former employers. Additionally, the beneficiaries of life insurance policies and other investments are co-claimants of unclaimed funds. Businesses holding unclaimed property are often legally required to try to find the owner of the asset, but if unsuccessful, may need to transfer it to a state or local government.