Have you ever considered whether it's possible to lose your investment accounts?
Believe it or not, some people completely forget they own an individual retirement account. There is currently more than $15.5 billion in unclaimed funds in New York State alone. Here's how unclaimed financial assets end up with a state authority and how you can recover them.
The most common way financial assets are forgotten, and then "escheated" by the state, is by not organizing your financial affairs and leaving investment accounts at multiple financial institutions. Escheat occurs when unclaimed financial assets, such as those in a bank or investment account, have been dormant for a long period of time. These assets are transferred to the state by financial institutions that have been unable to locate the owners of the accounts.
This can happen when you leave an employer and change jobs. For example, you might leave your 401(k) plan account at a previous employer and then open multiple IRA accounts in the future with different banks and brokerage firms. When you change jobs again, you might leave another 401(k) plan account with a different employer. At this point, you might have more accounts than you can keep track of and realize you have.
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The financial institutions will send you statements, but if your address changes and the financial institution is no longer able to find you, it can't send you a statement. You are also risking what happens if the financial institution has some sort of glitch in its database and you no longer receive your statements. Once you stop receiving statements on multiple accounts, it is entirely possible to forget about the investments you own.
Another example is one that actually happened to me. I was keeping a close eye on the activity in a checking account I was closing. Because I had set up so many auto deductions to pay various bills, I took my time closing the account so it wouldn't be overdrawn and generate overdraft fees.
As I was going through this process, I noticed that the account was being debited for a small amount of money every month by a company called Penn Mutual. I had never heard of Penn Mutual, so how was it possible that they were taking money out of my checking account every month?
After doing a few internet searches and making some phone calls, I learned that the debit had been authorized by me and that the money was in fact being used to pay for a life insurance policy that I had completely forgotten about. I wonder what would have happened if I had never changed banks and never discovered that I owned this policy. Would my family have known to file a death claim? Even worse, they might never have received the life insurance proceeds I had bought and paid for.
Don't let this happen to you. To help you get your financial accounts in order, my firm has created a personal financial inventory document. This document will help you identify the important information you should be keeping track of, as well as provide a centralized location to store this information. Since it is very comprehensive, I suggest completing a couple of pages every week and then reviewing and updating it every couple of years so it remains up to date. Your loved ones should have access to this document, too.
If you suspect that some of your assets have been escheated and you live in the state of New York, you can visit the New York State Unclaimed Funds website. Every state has a similar site where residents can find out if they have any lost assets. All you have to do is enter your name and address. If you've had a loved one pass away recently, it's also a good idea to visit this website and see if they have had any lost assets.
Most importantly, be diligent about your financial accounts. Make sure you know where they are and consolidate small accounts into larger ones. You've worked hard for your money. Make sure you're the one who gets to spend it.
(Editor's Note: This column originally appeared on Investopedia.com.)
— By Peter Hafner, founder and owner of Hafner Financial Group
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