Escheatment

Escheatment used to apply when a property owner died without a will or legal heirs. It was the process by which those assets were transferred to the state. Its meaning has since evolved to include theft of property by the state by legal means. So it was that at the Lack home we recently received a letter from a custodian informing us that under New Jersey state law, a brokerage account with no activity for three years could be seized by the state as un-owned property.

The account in question is a trust for one of our children. There are no fees (a rare benefit of being an SL Advisors family member) and dividends are automatically reinvested, so there is no activity. Moreover, we learned that under certain circumstances the state may liquidate any securities positions on seizure, no doubt creating a capital gains tax bill for the claimant assuming they successfully regain their property. We were able to confirm that we’d rather like to retain the assets in the account and not hand them over to the state’s coffers. But the onus was on us to communicate this wish.

This law is common across most states. The Council on State Taxation rates states based on the fairness of their escheatment statute – New Jersey naturally receives a “D” (the lowest).

Three years is obviously a ludicrously short period of time on which to base such a law. The government’s need for revenues has few good outcomes. As a taxpayer, your best bet is to ensure every investment account has some activity or otherwise looks as if you know of its existence. You may also hope fervently that wealthy neighbors whom you dislike suffer regular memory loss.

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