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Worth Considering: Take steps to avoid having abandoned investments

wc_peartreeAdopting what is loosely referred to as a “buy-and-hold” approach to investing can make great sense for a long-term investor so long as it is properly understood and does not turn into “set-it-and-forget-it.” The “forget it” part can be problematic.

Buy-and-hold investing really should be called “buy-and-manage.” Sound portfolio management includes tasks such as routinely checking statements, assessing performance, periodically rebalancing back to a target allocation and, when appropriate, harvesting tax losses. Those actions all require active engagement with one’s investments as opposed to tuning them out. Investors ought to tune out most of the daily noise from the financial markets, but they should not tune out what is happening on their investment statements. Apart from sound portfolio management, there is the overlooked risk of having those assets escheat to the state.

All 50 states, including New York, have statutes governing the treatment of unclaimed or abandoned property. The stated purpose of these statutes is to facilitate the return of assets to their rightful owners. That may have been the original intent, but abandoned property increasingly has become a welcome source of revenue for states with voracious appetites for spending other people’s money.

Abandoned property laws are based on the concept of custodial escheatment. That means that while the state may take possession of abandoned property it does not take title to the property. Title remains vested in the rightful owner. The benign statutory purpose of uniting property owners with their property is undercut by the fact that while the state is waiting for the true owner to step forward, it can sell the property and use the proceeds for its own purposes.

New York is at least candid about its intent. The statute’s declaration of policy states: “It is hereby declared to be the policy of the state, while protecting the interests of the owners thereof, to utilize escheated land and unclaimed property for the benefit of all the people of the state, and this chapter will be liberally construed to accomplish such purpose.”

The state is conflicted, it seems, about finding the rightful owners. In 2016, the state paid out $452 million to claimants of abandoned property, a record payout. In absolute terms that is a lot of money. In relative terms, it is a mere 3.5% of the $13 billion of unclaimed property it currently holds. During the same time, New York took in another $741 million. There are millions of unclaimed accounts nationwide. Most unclaimed accounts are quite small, but the largest claim paid out in New York was for a $4 million stock account. The largest unclaimed account as of 2016 was $1.7 million.

Investment accounts may be considered abandoned if they had been dormant for a prescribed period. Thirty years ago, most states stipulated that property must have lain dormant for at least seven years to be subject to escheatment. Over time most states have shortened that requirement. In New York, property can be deemed dormant after only three years.

The specific criteria for determining dormancy can vary from state to state, but the test generally revolves around either lack of account activity or lack of contact with the owner. Some states deem property to have been dormant if there has been no activity by the owner during the statutory period. For a brokerage account the absence of any trades, deposits or withdrawals may be enough to trigger escheatment. Other states, such as New York, will only deem property to have been abandoned if, in the case of a brokerage account, mail to the owner has been returned as “undeliverable.”

Broker-dealers and custodians are supposed to apply the law of the state where the owner resides. The following true story demonstrates, however, that custodians can be loose in their application of the law and that investors cannot assume that their custodian will apply the state statute correctly. In this case, the investor opened two brokerage accounts with the same custodian over 10 years ago. One account was worth over $400,000, the other account was worth less than $5,000. The larger account held multiple funds and was periodically rebalanced. The smaller account was a tax-free Roth IRA that held a single fund over the entire 10-year period.

The investor took a prudent long-term approach to the smaller account. She invested in a single stock fund, she placed no trades, she made no subsequent deposits and she took no withdrawals. She lived in a state whose laws triggered escheatment only if the owner’s mail was returned as undeliverable. She received monthly statements with no problems. Nonetheless, her account was flagged for inactivity and the custodian was beginning the process of turning the funds over to the state before the process was caught and stopped in time.

Investors can take a few sensible precautions to avoid this situation or, at least, catch it as soon as possible:

  1. Review account statements promptly upon receipt and confirm account balances.
  2. To avoid losing track of accounts, consolidate like-kind accounts and consolidate all accounts with one or two custodians for easier tracking.
  3. Consider using aggregation software to track multiple investment accounts, or work with an advisor who can provide that service.
  4. Check for abandoned assets in your name. A good resource is This is a database hosted by the National Association of Unclaimed Property Administrators. Or go directly to the New York State site at:

Warren Buffet has observed that one of the keys to investment success is to avoid losing money. He was referring to market losses, but the principle applies here. Be vigilant.

David Peartree, JD, CFP® is the principal of Worth Considering, Inc., a registered investment advisor offering fee-only investment and financial advice to individuals and families.  Offices are located at 160 Linden Oaks, Rochester, NY 14625, [email protected]