What Are Unclaimed Funds?

What Are Unclaimed Funds?

Let me explain unclaimed funds directly: these are money and other assets owed to you that you haven't collected yet, and if the rightful owner can't be found, they're turned over to the government after a set time.

To get them back, you as the owner or beneficiary need to file a claim. If it's part of an estate, you might have to prove your right to it.

Key Takeaways

You should know that unclaimed funds are assets without a located owner, usually handed to the state where they're held after a dormancy period. When their value increases, taxes might apply, but states have processes for you to reclaim them as the legal owner.

Understanding Unclaimed Funds

I want to break this down for you. There are several reasons why funds go unclaimed. For instance, you might be owed a tax refund but moved without updating your address. Or a bank fails, and you don't know how to retrieve your money. Companies can fold, leaving employees clueless about pensions. If someone dies, the bank might not know, or people simply forget accounts.

Dormancy Period

Unclaimed property stays that way past a dormancy period, which is the time from when an account goes inactive until the government calls it abandoned. In most states, that's three to five years. Once designated as abandoned, it goes through escheatment, where the state takes ownership until you claim it.

Potential for Taxes

While unclaimed, the property isn't taxed, but when you reclaim it, it could become taxable income, leading to a bill. Some like 401(k)s or IRAs can be reclaimed without taxes. Not all come from government; think gift cards, bank balances, or sales commissions. Beneficiaries of life insurance often claim these. Businesses must try to find owners, but if not, they escheat to the state.

Important Types of Unclaimed Property

You need to be aware of types like uncashed payroll checks, inactive brokerage securities, court funds, dividends, checking and savings accounts, and estate proceeds.

Unclaimed Funds Example

Picture this: you pay estimated taxes, file, and ask for a refund mailed home. Then you move without telling the tax authority. The check goes to the old address, gets returned, and becomes unclaimed. It's on you to contact them for reissue to the right address.

Verifying Unclaimed Funds

Governments provide ways to check. The IRS has the Where’s My Refund? portal online and a hotline, but they prefer you use the portal first. There's no single federal system or database for all unclaimed funds; you have to contact state agencies where the funds might be.

Tip for Searching

You can search databases for tax refunds, unpaid earnings, bank accounts, and investments.

Potential for Scams

Most government agencies won't call about unclaimed funds, but scammers do. They might use public lists like from the PBGC and pose as officials, asking for fees, SSNs, or bank info—that's a red flag.

What Happens If Money Is Unclaimed?

After time with no claim, like in a bank account, it's turned to state authorities.

Do Banks Try to Contact Customers About Inactive Accounts?

Yes, they're usually required to. If they can't find you, they contact the state's unclaimed property office.

How Long Before a Bank Account Is Considered Abandoned?

It varies by state laws, but typically three to five years of inactivity.

The Bottom Line

Unclaimed funds are those not collected by owners, from bank accounts to pensions and more. After years, they're turned to the state's unclaimed property office. You can locate them by contacting states or using databases like Missing Money or the National Association of Unclaimed Property Administrators.