Investors often overlook a crucial detail: consistently engaging with their stock holdings. Depending on your location, inactivity may lead state authorities to consider your investments abandoned.
It’s not about dying or relocating. You might still get statements and your dividends might deposit automatically. Despite this, not actively engaging with your accounts could lead to unfortunate consequences.
Changing Unclaimed-Property Laws
States have revised unclaimed-property laws, shortening the window before they deem securities abandoned. Many states now consider stocks abandoned after three years of inactivity, compared to the seven years used previously. This shift increases the risk of the government seizing accounts due to inactivity.
Computershare, a major stock transfer agent, criticized this change. The standard now often revolves around inactivity rather than being deemed ‘lost’ through measures like returned mail.
The Investor’s Dilemma
For those following long-term investment strategies, this presents challenges. Simply receiving statements or automatic dividend deposits may not suffice under some state laws. This discrepancy can trigger processes that lead to the state taking custody of stocks.
Jan Peters experienced this firsthand. As a German citizen, his Amazon stock was seized by California and sold for $1.6 million. The stock’s value could have reached $4.2 million by 2025. Although Peters got the sale proceeds, he lost significant potential gains. His case reached the Supreme Court, which declined to hear it.
The Financial Incentive
Though states claim consumer protection as their motive, taking custody of unclaimed property allows them to use the funds until owners reclaim them. For example, Texas projected a $72 million boost to its revenue through shorter dormancy periods. New Jersey also expected substantial increases when it reduced its dormancy periods.
While not every legislative change aims to generate state revenue, financial incentives are evident. Companies involved in managing and selling these assets have their own reasons for supporting shorter dormancy periods.
Systemic Errors
History shows the system isn’t foolproof. In 2006, the SEC accused Bank of New York of inadequate searches for lost securityholders, leading to $11.5 million in assets going unclaimed. DST Asset Manager Solutions faced similar scrutiny in 2023 over their procedures, threatening investors’ assets.
Computershare reported 51,320 lost-securityholder accounts remitted to states in 2024, highlighting the issue’s scale.
The Legislative Response
Senator Elizabeth Warren recently questioned the trend towards inactivity standards and shorter dormancy periods. However, Florida has taken steps to counter this approach, requiring returned mail or failed communication to trigger claims and extending certain inactivity periods to 10 years.
This move better aligns with common sense. Ownership should not be questioned due to inactivity. Unclaimed-property laws need to protect genuinely lost property, not assume ownership cessation.
If authorities know who owns the account and the correspondence is ongoing, ownership should remain intact. Ownership shouldn’t be questioned over inactivity alone.