For many of us, any type of financial help is greatly appreciated. That’s why the idea of losing track of money or property might seem unfathomable. It might surprise you to find out that billions of dollars of unclaimed money is circulating in our economy at any given moment.
So how does this happen? In this guide, we’ll explain what constitutes an unclaimed inheritance in a trust, what happens to such assets, and how you can avoid such a scenario. We’ll also address some common questions you might have in case you ever encounter this tricky situation.
What is Unclaimed Inheritance in a Trust?
When someone passes away, determining the distribution of their estate becomes the major task at hand. Families are in luck when the decedent had the senses to set up a clear and concise Estate Plan. They set up a Trust and/or Will that clearly designates who should receive what from their estate.
However, it’s entirely possible that some inheritances could go unclaimed. Here are some examples of unclaimed property and assets:
Contents of a safety deposit box
Assets held in an investment account
A retirement account without a named beneficiary
An insurance policy without a named beneficiary
Cryptocurrency and other digital assets that no one has access to
Uncashed checks
Refund credits provided by utility companies
Physical items that were lost or stored in an unknown location
Unclaimed funds in bank and savings accounts
What Happens If a Trust Inheritance is Not Claimed?
There are a number ways in which a Trust inheritance could go unclaimed. First and foremost, the decedent could have simply forgotten or overlooked an asset or property that should have been placed under ownership of the Trust.
Beneficiary Designation Error
For instance, there are a few types of assets that are associated with a beneficiary designation. These bypass any wishes written in a Will or Trust, as they pass directly to the named beneficiary. Common examples include life insurance policies and retirement savings. It’s quite possible that the Trustor could leave out these assets from a Trust with intention, but then fail to designate a beneficiary. This could be due to human error or system error. That’s why it’s so important to make sure that all of your applicable beneficiary designations are completed and updated. We’re human after all, and these mistakes can happen.
Lost Assets
There could also be assets that no one in the family knew about, and wouldn’t even begin to know how to access. Cryptocurrency is a large asset class that we at Trust & Will often worry about. That’s because leaving this digital asset in a Trust is somewhat uncharted territory, and the laws have yet to catch up with it. Further, cryptocurrency has no physical manifestation to pass on and requires a highly sophisticated private key to access. So many people invest in cryptocurrency without having a contingency plan in the case that they pass away without having left any instructions on how to access their assets. The New York Times cites that over $140 billion in Bitcoin alone stands lost or stranded.
Inheritance Refusal
It might surprise you, but there are also scenarios in which an individual will choose to refuse their inheritance, even if they were clearly specified as the recipient in a Trust. One might disclaim their inheritance for deep-rooted personal reasons, but there are also practical reasons to do so. For example, they might need to avoid subjecting assets to creditors because they are currently going through a bankruptcy. In another example, they might want the assets passed to another beneficiary who has a lower income tax bracket. When this happens, the assets automatically pass on to the contingent beneficiary. This highlights the importance of naming contingent beneficiaries in your Trust; otherwise, state law will determine the next beneficiary in line.
Unlocatable Heir
Last but not least, a scenario could arise in which the named beneficiary simply cannot be found. When it comes to a Trust, the Trustee is given the responsibility to execute the terms written in the Trust. However, there could be a case in which the Trustee made every reasonable effort to locate the heir but could not. Perhaps the heir has reasons why they don’t want to be found, or had predeceased the decedent before the Trust terms could be updated.
If a Trust inheritance goes unclaimed, there are a couple of things that can happen. First and foremost, every effort will be made to pass unclaimed inheritance to the next beneficiary in line. The Trustee has the authority to pass the assets to any named contingency beneficiaries. If the Trust failed to name any contingent beneficiaries, then the administrator would make their best effort to distribute the assets in a manner that is in line with other terms laid out in the estate plan. If an individual happened to die intestate, meaning that they had no Trust or Will, then state law dictates how assets should be passed. Each state has different rules regarding the line of intestate succession.
If all other options are exhausted and there still remains unclaimed inheritance in a Trust, then the assets in question would be turned over to the state. This process is called “escheat,” and each state determines how early or late in the line of succession escheatment takes place. Although timelines vary from state to state, escheated assets will be held for a number of years before they are liquidated by the state. Rightful heirs have the opportunity to find out whether or not they have unclaimed property and file to claim it. Each state has unclaimed property laws to help protect consumers as much as possible. You can conduct your own search for free by visiting the National Association of Unclaimed Property Administrators (NAUPA) website, unclaimed.org. Some will even go to the extent of hiring an unclaimed property investigator if they deem a search worthwhile.
How to Avoid Unclaimed Inheritance in a Trust
While reading this guide, you may have picked up on some ways to avoid unclaimed inheritance in a Trust altogether. First and foremost, always keep an organized and concise account of all of your personal administration and bookkeeping. This good habit will enable you to name all of your property and assets in your estate plan. Don’t forget to keep your legal name and address updated with all of your accounts and public records. By doing so, surprise assets, such as an inheritance from a relative, lawsuit proceedings, or utility refunds, are more likely to make their way to you.
Next, always include contingent beneficiaries in your Trust, and be sure to keep all of your beneficiaries updated. There are cases in which a beneficiary could predecease you, and if this happens, updating your list of beneficiaries is critical. This will make it much easier for your Trust administrator to distribute assets per your wishes.
Last but not least, don’t hesitate to establish an estate plan. If you die without a Trust or Will of any kind, your estate will enter intestacy and will be subject to your state’s probate and succession rules. This means that your assets could be distributed in a way that goes against your wishes. This is also the perfect opportunity to talk to your family members about the importance of establishing and updating estate plans of their own. That way, you can establish a family practice of maintaining ironclad estate plans so that an unclaimed inheritance is out of the question.
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