Protecting Your Investments from State Seizures

If you own stocks, occasionally log into your account to ensure your investments remain active. Depending on where you live, inactivity could result in the state declaring your property abandoned.

States have recently been altering unclaimed-property laws, shortening the period before declaring securities abandoned. This change raises concerns, as merely not engaging with your account could allow the state to seize your investments. Receiving statements or having dividends automatically deposited may not suffice as activity under some laws.

Why States are Changing the Rules

Traditionally, states waited seven years before treating stock as abandoned. Now, more than half use a three-year threshold. The shift from a “lost” to an “inactivity” standard means having returned mail or being out of touch can trigger state action. This trend has raised eyebrows among investors and companies like Computershare.

States claim unclaimed-property laws serve to protect consumers, functioning as a central lost-and-found to search for forgotten assets. However, states also benefit financially by gaining access to these assets.

Real-World Consequences

Jan Peters, a former Amazon employee, experienced this firsthand. California seized his shares despite Peters residing in Munich, Germany. Eventually, the state sold his stock, resulting in significant financial loss for Peters. His case reached the Supreme Court but was declined.

Government use of unclaimed assets is not only plausible but intentional. Legislators leverage financial incentives, with states like Texas and New Jersey forecasting revenue gains by shortening dormancy periods.

Impact on Investors

The current system presents challenges for investors. Transfer agents and brokers must navigate numerous state laws, necessitating efficient processes to manage countless accounts. Errors within this system can result in unjust treatment of investor assets, as seen in various SEC investigations.

Massachusetts Senator Elizabeth Warren raised concerns about the shift from returned mail to inactivity standards, questioning the logic behind these changes. Meanwhile, Florida has opted to extend inactivity periods to reflect common-sense ownership.

The core issue remains that inactivity does not equal abandonment. Investors must remain vigilant to ensure their properties aren’t mistakenly classified as unclaimed or lost. The rule should be clear: if the state knows who you are and has evidence of your account’s validity, it’s not abandoned. Your investments should remain yours.