Investors often receive surprising advice regarding stock ownership: regularly log into your accounts and perform minimal activity, like updating contact information. Without this, the state where you reside might consider your investment abandoned.
Notably, this does not occur due to death or proof of relocation. It can happen even if you still receive statements and automatic dividend deposits.
Changes in Unclaimed Property Laws
In recent years, many states have revised unclaimed-property laws, making securities more easily declared abandoned. Where it once took seven years to declare stock as abandoned, most states now require just three years of inactivity. Additionally, states have transitioned from a ‘lost’ standard, such as returned mail, to an ‘inactivity’ standard, according to Computershare, a major stock transfer agent. This shift sets a lower threshold for states to take control of a person’s investments.
For long-term investors who practice ‘buy and hold’ strategies, this change poses a risk. Merely receiving statements or having automatic deposits might not prevent the state from declaring your accounts dormant. When an account is flagged as such, notifications are sent out. If the account holder does not respond appropriately, the securities can be seized by the state and possibly sold.
Real-World Implications
An example is Jan Peters, a German citizen who owned Amazon shares when California took possession of his shares despite his residency in Munich. California sold his stock for approximately $1.6 million. Peters estimated the shares would have been worth over $4.2 million by June 2025. Though he received the sale proceeds, the opportunity to earn more from holding the shares was lost. His case reached the Supreme Court, but they chose not to hear it.
States often claim consumer protection as their justification. These programs function as large lost-and-found systems. When an asset is unclaimed, the state takes over and allows owners to search for missing assets in a central location. However, states benefit financially since they can use the funds until owners reclaim them. Occasionally, states have candidly acknowledged the budgetary advantages of shorter dormancy periods.
The Financial Motivations
For example, Texas’ Legislative Budget Board projected a one-time gain of $72 million by shortening dormancy periods, while New Jersey anticipated a revenue increase when altering its dormancy rules. This does not suggest nefarious intentions by legislators but highlights strong financial incentives.
Increased oversight involves adherence to varied state laws, which means transfer agents and brokers require cost-effective procedures. Additionally, there are financial incentives for contractors, brokers, and states—each benefiting from the efficient processing and handling of unclaimed properties.
Systemic Errors
History demonstrates that system mistakes are not just hypothetical. The SEC found errors in 2006 when the Bank of New York failed to properly trace lost securityholders, transferring over $11.5 million to states as unclaimed property. In 2023, the SEC identified procedural failures at DST Asset Manager Solutions that risked property being wrongly classified as unclaimed. Mistakes affected a significant number of accounts; Computershare alone processed 51,320 accounts in 2024.
Legislative Review and Reform Efforts
Growing attention brings potential changes. For instance, Massachusetts Sen. Elizabeth Warren queried the organization representing unclaimed-property administrators about the shift from ‘returned mail’ to ‘inactivity’ standards. Meanwhile, Florida reformed its laws, focusing on returned mail and extending inactivity from three years to ten in some cases.
Logical comparisons highlight flaws in current practices. Owning shares but not interacting with them does not equate to abandonment, similar to not visiting a house or using other owned property regularly. Unclaimed-property laws originally aimed at genuinely lost property now risk infringing on rightful ownership.
The principle should remain straightforward: if ownership and contact exist, the state should not claim the stock as abandoned. Ownership rights must be respected and maintained.
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