Many of us have financial accounts that we don’t check regularly—maybe a forgotten retirement account from a past employer, or a college savings account opened when a first child was born. Not checking in on these accounts may seem harmless, but that neglect may have a cost, sometimes a big one. In Massachusetts alone, it is estimated that one out of every 10 people has unclaimed property.1
Consider the real-life case of a client whose forgotten IRA helped to save her home. The woman was facing foreclosure when she received a letter from Fidelity advising her to update her IRA account information to avoid having it deemed unclaimed property and turned over to the state, a process known as escheatment. When she called the number listed in the letter, she discovered that she had an IRA she didn’t recall. Updating her email address, phone number, and street address was enough to prevent the account from being turned over to the state—and her renewed access to these funds made it possible for her to keep her house.
Other less extreme examples may be a refund from an airline ticket that you were never able to use. Perhaps you had a flight delayed by a day due to mechanical issues and received a voucher, but it slipped your mind. Or, you opened an online bank account, to receive some cash incentive, but failed to close the account. Both of these instances may also lead to a state’s unclaimed property office holding the asset.
Failing to regularly update your account information may lead to a wide range of problems:
- The investments may no longer represent a risk level that is consistent with your time horizon, risk tolerance, and financial situation.
- Beneficiaries listed on the account may no longer be people to whom you want to leave money (a former spouse, for example).
- The assets in many types of inactive accounts may eventually be required by state law to be turned over to state unclaimed property offices.
Avoiding those costly mistakes doesn’t have to be difficult or time consuming, however. Consider the four strategies below to make sure you stay in control of your money.
|1.||Don’t let your assets be declared abandoned.|
Financial institutions typically will try to contact you if your accounts are at risk of escheatment, so they can alert you to the steps you need to follow to prevent your assets from becoming officially abandoned. The assets may be considered abandoned property if the asset owner has not contacted the financial institution within a three- to five-year period, depending on state law. In that case the assets go to the state’s office of unclaimed property. Property may also be considered abandoned if U.S. mail sent to your address is returned as undeliverable, if distribution checks issued from the account haven’t been cashed, or if the account is inactive for many years.
If you discover that your assets have been declared abandoned property, contact your state’s Treasury department to learn the specific procedures you need to follow. You also can visit the website of the National Association of Unclaimed Property Administrators.
|2.||Make checking your accounts a habit.|
There are many reasons to keep your financial accounts current. In many cases, simply logging in to an account can be enough to identify it as current. Make a habit of checking accounts regularly—perhaps by logging in to each of your financial accounts on a routine basis, such as the last Sunday of every month. While you’re logged in, make sure all your information is up to date, including your contact information. That simple act can prevent major headaches, and may make it easier for you to achieve your financial goals.
- Read Viewpoints: “Five things to review annually.”
|3.||Make sure you name the right heirs.|
When you set up an account, you often have the opportunity to select a beneficiary who would inherit the assets in the event of your death. Many people never think about their account beneficiaries after that initial decision. That’s a mistake: Your personal circumstances may shift considerably over time in ways that call for changes to your beneficiary designations. For example, you may want to put a new person or people in line to inherit your account if you marry, have children, divorce, or remarry. Not periodically reviewing your accounts and updating as necessary may put you at risk that you’ll leave some of your hard-earned money to unintended beneficiaries. To help protect against that kind of scenario, check your account beneficiaries at least once a year.
If you don’t name a beneficiary, your heir may be determined by federal or state law, or in certain cases by a retirement plan’s governing rules. For example, rules may dictate that the plan account automatically will be left to a surviving spouse, or to an unmarried person’s general estate. To avoid confusion, make sure your beneficiary designations are clear. In general, the assets in any retirement account, life insurance policy, or annuity will pass to the beneficiary named on that asset, regardless of the terms of a will.
Similarly, having a well thought out and up-to-date estate plan, including a will, helps ensure that your assets will go to the right place. State probate laws may dictate who receives the assets if a person dies without a will, called intestacy. Designating a will’s beneficiaries and keeping them current will help prevent the possibility that the state will find no beneficiary and designate your assets as unclaimed property. Like retirement accounts, wills and estate plans should also be updated after major life events.
- Read Viewpoints: “An all-in-one wealth transfer checklist.”
|4.||Consider consolidating accounts.|
Diversifying investments generally is a good idea. The same isn’t necessarily true about accounts. Having many accounts spread between multiple financial institutions can make it too easy to lose track of your investments. (Consider the case of the woman with the forgotten IRA.)
If you find that it’s a hassle to keep tabs on all your investment accounts, consider consolidating them with one firm. Consolidation can make it simple and quick to keep track of your accounts. What’s more, having your assets with a single firm makes it easier for you to manage.
- Read Viewpoints: “Four reasons to consolidate accounts.”
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917