What is Escheat and Why Should I Care About it?

Everyone knows it’s generally a good idea to invest money, but there are risks with all investments. If you think you’re about to get some insider trading knowledge, you’re right, but it might not be the kind you had in mind. As an investor, it’s important to know all the different things that could happen to your money, including the right of the state to take it. That’s right. Read it again. The government can (and in some cases will) take your investment from you if your investment is deemed “inactive.” This is the practice of Escheat.

Let’s take a look at an example, shall we? Once upon a time, back in the 1990s, there was a guy named Walter Schramm. He had an online business but was getting left in the dust of a more successful company: Amazon. He’s a smart enough investor to know that Amazon was going to get huge, so he invested a few thousand dollars in Amazon stock. He intentionally let it marinate for 20 years, never touching it, a true set it and forget it type mindset. However, when he went to cash out, what he expected to be something to the tune of $100,000 in $AMZN, had disappeared. What happened?

Walter’s assets were deemed “inactive” since he never logged in to take a gander at how things were going. Different states have different laws regarding how long something has to sit to be considered inactive. In Walter’s case, the state of Delaware seized his funds in 2008, when they were only worth $8,000. They liquidated his stocks immediately so his estimated $100,000 of Amazon stock wasn’t even in their possession anymore. He recovered the $8,000, but as you could imagine, he was sorely disappointed.      

There are two lessons that we can learn from Walter’s story. The first is that if you have an investment, you need to periodically check on it to see how it’s doing. Many investment platforms send you a quarterly statement with a summary of your portfolio, either in the mail or electronically. Take a look at it! If someone else has seized those funds, then you won’t get a statement anymore! To keep your account active might look different depending on how you’ve invested. If you have a financial advisor through a company such as Edward Jones, then keep in touch with them (even if they’re irritating sometimes). If you’ve invested with an app, such as CashApp, Voyager, Acorns, Bumped, etc., then it’s pretty easy to just check from your phone how things are going with your investments. This doesn’t have to be every day, but it may be a good monthly routine to get yourself into.

The second lesson is the fact that there are databases for each state where you can periodically search for unclaimed property. Just Google “Unclaimed property” and whatever state you live/lived in. This is actually kind of fun. You can search by name, so you can type in yours, your spouse, your mom, that weird cousin of yours…it’s somewhat entertaining. And hey, if you end up finding some unclaimed property of yours, that’s a plus! This includes uncashed checks and other financial assets that never quite reached you. In South Carolina there seems to be a lot of outstanding Bellsouth refunds, for example. Give it a try!

Last lesson, is that with most blockchain-based wallets, this will not be an issue if you have your private keys. Robinhood and others allow you to purchase cryptocurrencies but do not give you access to your keys so the mantra “not your keys, not your crypto” applies here. Having your own private keys comes at an operational and personal risk if you lose them because, as most of us know, there is no “Forgot Personal Keys” help.

To read more about Walter Schramm’s story, visit: https://www.npr.org/2020/02/13/805760508/when-your-abandoned-estate-is-possessed-by-a-state-thats-escheat/

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