What would you do if you looked at your quarterly statement and the stocks in your account were gone -- simply gone?
That happened to Eileen, a 90-year-old retiree who had worked for a large and respected public company for many years, accumulating shares through stock splits and dividends, which were automatically reinvested. The account, held at the company's transfer agent, had grown to a six-figure value.
Then one day Eileen opened her statement to find a ZERO balance! Where had the shares gone? And thus began a strange and frightening saga of tracking down the stock and getting the shares returned to her.
Eileen contacted me in a panic. She hadn't moved, and she always opened all her mail and checked her statements. She had immediately called Computershare, the huge stock transfer agent that holds employee stock plans. They told her the account was turned over -- escheated -- to the State of Illinois because of "inactivity."
Apparently, the one letter of warning -- a due diligence letter -- had been sent, not by registered mail, but had not reached Eileen. And so the stock was taken from her "inactive" account.
The dictionary defines "escheat" as: The power of a state to acquire title to property for which there is no owner. But defining "no owner" is a tricky proposition, and determined by individual state laws.
Cynthia Nisley, an executive with Computershare, says: "States should adopt a proposed uniform standard to determine when stock accounts are deemed abandoned."
Computershare and other financial firms support a proposal in state legislatures only to escheat securities when shareholders cannot be located, as opposed to merely being inactive. The proposal would also prevent a state from selling the shares for three years, preserving the potential for capital gains or dividends owed to the shareholder.
Currently in Illinois, where Eileen resides, the time period to determine inactivity is five years. Because Eileen hadn't initiated any activity during the previous five years, the shares were turned over to the state.
It was tough to untangle this mess. The company said it couldn't do anything because the shares had already been given to the state. Computershare said it had been given a directive by Eileen's former employer, and it had complied by turning the shares over to the state. And when I contacted the Illinois Office of the Treasurer, they said it could take six months to "find" the stock, given the financial mess of the state!
Even worse, if the state sold the shares, which is common practice, and held the money, there could be huge tax consequences. If Eileen dies while owning the shares, under current law her heirs get a "step-up" in value to the date of death. That means the heirs' new cost basis would be the value on date of death, avoiding capital gains taxes on that stock -- except for any potential additional gains after her death.
There is a happy ending to this particular story. Everyone involved went into action get things fixed, and after several weeks all of the original shares were returned to Eileen's account. I think it helped that the media were involved!
This could happen to you if you're a patient, long-term investor and simply automatically reinvest your dividends. It could happen to you if you file your bank statements but don't make a deposit or withdrawal. Or if you fail to use a gift certificate or to cash a dividend check. Pensions and 401(k) plans are not escheated, but an inactive IRA might be given over to the state. So it's up to you to stay in touch. Here's some advice:
--Contact all financial companies at least once every three years, even to change something simple, like the wording of your address from "St" to "Street." Or simply vote your proxy each year. That will prove that you are in touch.
--Contact the company or transfer agent or bank directly at the phone number or address on your statement (use registered mail) to make these changes.
--Cash your dividend checks by personally endorsing them. If reinvesting, contact the company periodically to renew those instructions.
And if you think you might already have lost money to escheatment, here's where to begin your search no matter where you live. Go to Unclaimed.org and use the site's interactive map, as well as the "other sources" link for everything from insurance benefits to savings bonds.
It's would be a shame to let your inattention result in the loss of your money. That's The Savage Truth.