Frequently Asked Questions About Lost Property

  • 1. How can my mutual fund be claimed by a state?

    Mutual funds communicate with their shareholders regularly, such as through transaction confirmations and account statements, which are sent via first-class mail. When any first-class mailing sent to a shareholder is returned to the fund as undeliverable, federal law requires the mutual fund to search for the account owner. If the fund cannot find the owner, after a period of time that varies according to state, state “escheatment laws” require that the “lost,” “abandoned,” or “unclaimed” account is turned over to the state in which the shareholder resides.

  • 2. Why are states allowed to claim mutual fund accounts?

    Under federal law, mutual fund companies and broker-dealers have a duty to search for a shareholder (or owner of a brokerage account) if first-class mail sent to the shareholder is returned as undeliverable. U.S. Securities and Exchange Commission (SEC) rules require that the fund attempt to find a valid address for the owner using at least two national databases that meet certain requirements. If the owner cannot be found after a period of time specified by the law of the state where the account owner resides (according to the account documents), the account must be turned over to that state.

    Though these state laws were originally enacted with the purpose of turning individuals’ lost property over to the state to enable the state to use its extensive resources (for example, tax records and property records) to find lost owners and reunite them with their property, today these laws serve as a huge source of revenue for cash-strapped states. Unfortunately, once the states receive the property, they do not necessarily look widely for owners of the property. Instead, they might publish lists of lost owners in a newspaper or host a booth at a state fair, which the owner may never see.

    The result? More than $40 billion is sitting in unclaimed accounts across the country, including “lost” mutual fund accounts.

     

  • 3. How is a mutual fund shareholder deemed a “lost” account holder?

    Laws vary by state, but generally there are two ways that a shareholder may be deemed “lost” and the state can claim the shareholder’s account:

    1. Undeliverable or returned mail. A shareholder may be deemed “lost” because first-class mail sent to the shareholder has been returned as “undeliverable.”
    2. No contact. Under a “no contact” standard, unless an investor proactively contacts the mutual fund company regarding his or her account once every three, five, or seven years (depending on state law), he or she can be considered lost and the state can claim the account. Importantly, automated features on an account (such as regular, ongoing purchases or redemptions, or reinvestment of dividends) do not necessarily count as contact, so such activity might not protect a shareholder’s account from state escheatment laws.
  • 4. How can I protect my accounts from being taken by states?
    • The most important thing you can do is to contact each financial institution—your bank, your broker-dealer, your mutual fund company, your IRA provider—at least once every three years, even if you have no other reason to contact the institution. This will protect you from being deemed a “lost” owner of the property.
    • Consider making contact with your financial firms each year as you gather documentation to file your federal taxes by April 15—this practice will ensure regular contact.
    • Make sure each financial institution you have an account with has your current address.
    • Cash any dividend checks you receive.
    • Open and review all your mail from your financial institutions and pay attention to any notice asking you to contact the institution.
    • Vote any proxy sent to you.
    • Consider keeping a list of all your financial accounts, with the names of the institutions and account numbers, that family members can access if you unexpectedly die or become disabled.
  • 5. Security experts tell us not to give out personal or financial information if someone is asking for it. How do I know whether a contact from my mutual fund company is legitimate or not?

    You should guard your personal and financial information closely. By law, before a state can claim an account, a notice must be sent to a shareholder in an attempt to verify that the address is valid and the shareholder is not deceased. If you receive a letter from a mutual fund or other financial institution alerting you to contact them, do not ignore the request.

    To protect yourself, however, contact the institution through the information provided to you on a previous statement or account document from the institution. Do not open links in any email sent to you by the institution regarding your account. If you have the ability to access your account electronically (through a user name and password previously provided to you by the institution), go to the institution’s website and log on to your account. Alternatively, call the institution through phone number that you know to be valid.

  • 6. Where can I find if I have had any accounts turned over to a state?

    Visit the National Association of Unclaimed Property Administrators, which provides information through a free search engine. You can search nationwide or by individual state.

    You should search the state where you currently reside, any state in which you have previously lived, the state in which your financial institution is incorporated or organized (which is not necessarily the state where the institution has its principal place of business or the state where you opened your account). Most mutual funds are incorporated or organized under the laws of Maryland, Massachusetts, or Delaware—so you should also check for property in those states.

  • 7. Which state can claim my mutual fund account?

    Based on states’ laws and U.S. Supreme Court decisions, “lost” property must be turned over to the state where, according to the account records, the owner of the account maintains his or her primary residence. However, if the financial institution does not know in which state the property owner lives, the property is instead turned over to the state where the financial institution is incorporated or organized—which may not be the state where it maintains its principal place of business or the state where the account was opened. Financial institutions often do not know where the owner of the account resides if the original owner of the account has died, because the new owner may be a beneficiary of the original owner, and live in another state.

  • 8. Which states should I search to look for my “lost” accounts?

    You should search for property in every state in which you’ve ever lived. Though ICI’s focus is on mutual fund accounts, you might have other types of unclaimed financial property in states where you live or have lived. For example, while in college you may have put down a deposit for a utility or telephone account. After you left college, the utility company may have sent you a check for the amount of your deposit—but if you never received or cashed the check, it could have been claimed by the state. In addition, you should search the abandoned-property rolls in those states where your financial institution is incorporated or organized—which is not necessarily the state where the institution has its principal place of business or the state where you opened your account. Most mutual funds are incorporated or organized under the laws of Maryland, Massachusetts, or Delaware, so you should also check for property in those states.

  • 9. What do states do with the money?

    Whenever “lost” property is turned over to a state, the state maintains the value of the account until the owner (or the owner’s beneficiaries) claim it. For mutual fund accounts, the account is liquidated and the state holds the proceeds of the liquidated account. When an owner discovers the account and seeks to reclaim it, they must verify their identity and their ownership interest in the property. Once this is done, the value of the account (as of the date it was liquidated) will be returned to the rightful owner. Until that time, the states have full use of those funds to use as permitted by state law. Any earnings on the account proceeds inure to the benefit of the state—not the owner of the account.

  • 10. How much money are we talking about here?

    According to the National Association of Unclaimed Property Administrators, 2.5 million claims totaling $2.25 billion were returned to Americans in FY2011 and $41.6 billion is waiting to be reclaimed from states. “Lost” mutual fund accounts are part of these amounts.

  • 11.  Are my retirement accounts in jeopardy of being taken by states?

    Generally, retirement accounts that are governed by the Employee Retirement Income Security Act (ERISA)—primarily employment-based plans—are protected from escheatment. However, if you roll your money into an individual retirement account (IRA), or are taking required minimum distributions from an ERISA-governed account (as you are required to do once you turn 70½), your retirement accounts could be subject to state escheatment claims if you do not affirmatively contact your financial institution on a regular basis. It is important to remember that automated account features, such as automatic redemptions from the account (for example, as retirement income) may not be viewed as a contact that would protect the account from being deemed “lost.”

  • 12. What’s being done to address this issue and protect mutual fund shareholders?

    ICI has been working with its members to develop industry protocols to track shareholder contact on mutual fund accounts. Mutual funds are voluntarily contacting shareholders who have not had recent contact with the fund. Through this outreach, mutual funds are alerting their shareholders of the need to affirmatively contact the fund company because such contact will protect the account from being claimed by a state. In addition, ICI is working with the states to address our concerns with state abandoned property laws in order to better protect mutual fund shareholders.

  • 13. Why haven’t I heard of this before? Is this a new issue?

    State laws governing abandoned property are not new—they have been around for decades. What is new, however, is the aggressive positions states are taking on deeming accounts abandoned or shareholders “lost.” In particular, more states are adopting the no-contact trigger to deem an account abandoned, rather than the traditional undeliverable-mail standard. Also, though previously financial institutions would not have to turn accounts over to the states until seven years after an owner of property was deemed to be “lost,” today many states are shortening that period to three years, which gives mutual fund companies less time to find the owner and puts a greater burden on the owner to maintain regular contact with the mutual fund company.