What Happens to an Unclaimed Inheritance?

Over the next few decades, Americans are expected to pass along trillions in wealth from one generation to the next. As all these assets change hands, not every transfer will work out smoothly. In fact, unclaimed inheritances — when someone dies and no one receives their property — are surprisingly common.

Here's a look at what happens in this scenario as well as some of the rules around intestate succession.

How Does an Inheritance Work?

When someone passes away, everything they owned is termed their estate. This property is transferred to beneficiaries as an inheritance. Ideally, people write a will while they're alive that establishes their preferences for what will happen to their assets at their passing. This legal document explains which beneficiaries should receive what property. Following the will owner's death, a state court reviews the document and its provisions through a process called probate. The property is then distributed according to the instructions in the will.

On some financial accounts — such as a life insurance policy or retirement savings — the owner can name a beneficiary without using a will. The beneficiary receives the death benefit from a life insurance policy or inherits retirement accounts after the original owner passes away.

What Is an Unclaimed Inheritance?

An unclaimed inheritance is any property that doesn't get transferred to a beneficiary after death. This could include financial assets, such as cash, bank accounts, stocks and real estate. It can even include personal belongings, such as furniture, clothes or jewelry. While relatively rare, there are reasons an inheritance might go unclaimed:

• The deceased didn't leave inheritance instructions. When someone dies without a will, it's called dying intestate. In this case, the courts try to pass on their property according to the state's intestate succession laws. They start by trying to find immediate family members, such as children or a spouse, before moving on to more distant relatives. But if the state government can't find a suitable beneficiary, it can't pass along the property.
• The named beneficiary has already passed away. Another problem comes up if the deceased named a beneficiary, but the beneficiary has also passed away. In this case, the court will follow state laws and the terms of the will to find the next appropriate beneficiary. If it can't find one, the inheritance goes unclaimed.
• The beneficiaries don't know about the account or asset. For businesses and insurance companies to transfer financial accounts or pay out a life insurance death benefit, they first need to know that someone has passed away. If the beneficiaries didn't know about a financial account or life insurance policy, they might never contact the company to claim the proceeds.
• A beneficiary doesn't want the inheritance. Not everyone wants to receive an inheritance, especially if it's a complicated asset such as real estate. If a beneficiary turns down an inheritance and there is no backup beneficiary, the inheritance goes unclaimed.

What Happens to an Unclaimed Inheritance?

The probate court and state government will first try to find an heir. But if they can't, there are a few places where unclaimed money and other inheritances can end up.

First, each state government runs an unclaimed property agency. It holds onto this property until it can find an appropriate heir. Individuals can use their personal information to perform a search and see if they have any unclaimed property.

If a bank, insurance company or other financial institution finds out that their client has passed away and there is no named beneficiary, it would also send the account balance or other property to the state unclaimed property agency.

Most unclaimed property goes to state government agencies. However, there are some situations where property might go to a federal agency. For example, the Department of Veterans Affairs may hold onto an unclaimed life insurance policy for a veteran's life insurance. Additionally, the Internal Revenue Service would hold onto an unclaimed tax refund.

How Much Inheritance Money Goes Unclaimed?

The National Association of Unclaimed Property Administrators estimates that roughly 1 out of 7 Americans is owed some type of unclaimed property, including inheritances.¹ Unclaimed property programs returned roughly $4 billion of property to rightful owners in 2023 fiscal year.

Still, some state governments have billions in unclaimed money and property. New York's state government estimates it's holding onto $355 billion.² While the typical unclaimed inheritance is just a few hundred or thousand dollars, there have been claims over the years where people discovered a lost inheritance worth over six figures and even more.

Four Ways to Find Unclaimed Inheritance

If you think you might be owed an unclaimed inheritance, you need to track the property down first. There are a few strategies you can use to potentially find what is yours. Here are four methods to consider.

1. Search the Deceased's Paperwork for Clues

Find any information about the property and accounts your deceased loved one may have had. You might go through their mail, files or other paperwork. Look for bank statements, bills, a life insurance policy — any information showing that the asset existed as well as what company it's from.

With this information, you can try contacting the companies directly. It's possible that they may still have your unclaimed inheritance if they didn't know your loved one died. If they transferred the property to a government agency, you then know where the inheritance went and where to look.

2. Use a Free Unclaimed Inheritance Search

Several websites allow users to search for unclaimed inheritance free of charge. You simply enter your name and the deceased's name. The service will then see if the deceased owned any property that went to a government agency. You can also perform a search through the unclaimed property office in the state where your loved one lived. They will determine if there's anything on record.

As you try to find unclaimed property, consider whether the deceased lived at different addresses or used different names. You may need to run multiple searches.

3. Try National Organizations

Most unclaimed property and inheritances go to state property offices. However, there are situations where property goes to a federal agency.

The federal government provides a list of all the different national organizations you may want to search.³ Use the one that best fits the type of unclaimed inheritance you are looking for, such as the Internal Revenue Service for a missing tax refund or TreasuryHunt.gov for a savings bond.

4. Consider Hiring a Professional

If you cannot find your inheritance using the free government services, you can also try hiring a professional. Many services and attorneys handle this type of work. You'll likely need to pay them a fee regardless of whether they find any property for you. Generally, you should only consider this approach if you think your loved one had enough in missing money and other assets to justify paying a fee.

How Can I Claim a Missing Inheritance?

If you find lost money and property from your deceased loved one, you should contact the state agency or other company holding the property about their claims process. They will tell you what forms to fill out. You will need to provide proof of your ID, such as your Social Security number, as well as why you are entitled to the property as the heir.

If you have a copy of the deceased's will showing they wanted you to inherit their property, that would verify your claim. If the deceased died without a will, you would need to show how you meet your state's intestate succession laws, such as being the next in line to have the property as a child or a spouse. If you aren't in the family succession line — for instance, if the person who died was your friend — you wouldn't be able to claim the property without a will. There's no legal right.

Once you file the claim and submit the necessary evidence, the government or company will review it. If your claim is approved, they'll transfer the property and money owed to you.

Is There a Time Limit?

The amount of time you have to claim an inheritance depends on the laws of the state. For example, California's government waits three years for individuals to pursue unclaimed property they're owed. At that point, they consider the property abandoned and absorb the missing money into the state coffers. They would also sell physical property, such as real estate and jewelry.

Your claim for the inheritance wouldn't end, though. If you can prove you should have received the inheritance, the state government would pay the money owed to you. The earlier you can settle this process, the less complicated it's likely to be.

What If I Don't Want the Inheritance?

If you find property from your deceased loved one that you don't want to inherit, you have a few options. First, you can disclaim the inheritance — formally refuse to accept it. It then would legally go to the next beneficiary in line. If the deceased named a backup beneficiary in their will or a secondary beneficiary for insurance, those individuals would receive the property. If there is no named backup, the state government would follow the intestate succession line for the next beneficiary.

You also could accept the inheritance and then give it away to another family member or to a charity. This would let you decide who receives the inheritance. One drawback is that it could lead to estate or gift taxes (though these generally only apply when you inherit a very large amount).

How Can My Estate Plan Avoid Problems?

A well-designed estate plan can help prevent inheritances from getting lost. Here's what you can do to make life easier and less stressful for your loved ones:

• Make a will with clear instructions. A will can help avoid many of the issues related to lost inheritances. With this document, you can lay out what property you have as well as the beneficiaries who should take it over. Consider listing backup beneficiaries as well. For instance, if you are married, you could note that if your spouse is no longer alive, the property should go to someone else, such as a sibling.
• Use beneficiary instructions where applicable. Many life insurance policies, retirement plans and brokerage accounts allow you to name a beneficiary. This can speed up how quickly the inheritance goes to your beneficiaries because payments made to them don't have to go through probate court. These instructions make it clear what you want to happen with the money.
• Keep your instructions up to date. Consider reviewing your estate plan regularly, preferably once a year or so. Make sure you're still happy with the listed beneficiaries — and that none of them has passed away — and that the instructions are still valid. Also think about whether you have any new property that should be added to the estate plan.
• Let your loved ones know about your assets, will and estate plan. Your beneficiaries should know where they can find your will. They should also know where they can locate your main financial accounts, life insurance policies, property deeds and other valuable assets. This helps ensure they don't lose any of the inheritance.
• Consider a fund. A trust is a legal entity that can hold property. You could set up a trust to start taking over your valuable property and assets while you're alive. You can then set up instructions for how the trust should pay everything out after you die. Trusts do cost money to set up and maintain. However, they make it easier to transfer property after death and prevent lost inheritances.

For more advice on tracking down an unclaimed an inheritance, making a claim for property or setting up your own estate plan, consider meeting with a financial professional.

Sources

1. Unclaimed Property Day 2023 – February 1st. https://unclaimed.org/unclaimed-property-day/.
2. Unclaimed funds. https://www.osc.state.ny.us/unclaimed-funds.
3. Unclaimed money from the government. https://www.usa.gov/unclaimed-money.