Under their abandoned property laws, states claim ownership of dormant accounts at banks and investment firms, as well as unclaimed life insurance death benefits. The usual test is that the owners or beneficiaries have been unreachable for 5 years (in California, 3 years). Eventually 25-40% of the funds turned over to states as abandoned property is returned to the rightful owners.
Budget deficits have made states are more aggressive in pursuing abandoned property. Life insurance companies are now a primary target, with hundreds of millions of dollars in unclaimed payouts at stake.
Life insurers conduct data searches to identify dead clients in order to cut off retirement and annuity payments. These searches also uncover unclaimed death benefits on life insurance policies, but most insurers do not try to notify beneficiaries, a stance being challenged by several state insurance commissioners, notably those in California and Florida. Specialty consulting firms such as Verus Financial LLC, the unclaimed property group of Thomson Reuters and ACS Unclaimed Property Clearinghouse (owned by Xerox) assist both individuals and states in the collection effort. The Pension Benefit Guaranty Corp. tracks unclaimed pension benefits, while the IRS holds unclaimed income tax refunds.
The conversion of many life insurers from mutual companies to stockholder owned corporations in the 1990s brought this problem to light. In these conversions, the companies had to offer shares and/or cash to policyholders, many of whom unexpectedly proved to be dead or unreachable. In the process, the states received a windfall of conversion-related compensation under their abandoned property laws, yet the same insurers often tried to avoid handing over death benefits as well. See "Life Insurers Skimp On Payouts: States," The Wall Street Journal, 4/28/2011.
The process by which a state takes control of abandoned property is called escheatment. Securities positions are normally sold. Should the rightful owner, heir or beneficiary finally step forward at a future date, he or she typically will receive from the state just the principal value at the time of escheatment, without any additional interest or dividends.
