How Safe Is Your Safe Deposit Box?

I previously asked if your deposits were safe at the bank.  Now I am asking if your items in a safe deposit box are secure.  When I ask that you may be wondering if I’m referring to theives, accidents or even natural disasters.  But no, I am asking if your contents in the safe deposit box are safe from the State of California.

No that is not a typo.  In California there is an Unclaimed Property Law that allows the State of California to . Specifically Section 1514 of the Code of Civil Procedure states:

1514.  The contents of any safe deposit box or any other safekeeping repository, held in this state by a business association, escheat to this state if unclaimed by the owner for more than three years from the date on which the lease or rental period on the box or other repository expired, or from the date of termination of any agreement because of which the box or other repository was furnished  to the owner without cost, whichever last occurs.

It would appear that your contents would be safe as long as your lease doesn’t run out or the agreement with the bank isn’t terminated.  But this is not the case.  California’s State Controller has been aggressive in the past seizing assets of deposit boxes which have not had any activity within the past 3 years.  Even if no such termination occurred.  In one case a couple of years back, a lady stored her grandmother’s jewelry and a file of personal documents at her bank, thinking they would be safe.  Without giving her any notice and with no evidence she forgot about her stuff, the bank under the auspices ofthe State auctioned off the jewelry on Ebay for a fraction of the $80,000 value, and shredded everything else.  She did not find out for another 9 years.

The state was racking up $400 million a year doing this.  They were allowed to deposit these funds into a general account to use for various state expenses.  Now, if the rightful owner ever comes around they can claim the property.  There is a State Controlller’s page for information on unclaimed property.  Because of the publicicty and a class action lawsuit, new laws were put in place and the State Controller implemented some reforms.  They are attempting to increase their efforts in notifing owners of the imminent seizure of their assets, but it is still not perfect.  Even celebrities from London are owed money from the program.

While you can rightfully claim any value of property they seized, it is not always easy to place a dollar value on assets now lost forever.  The state is not in the business of storing mementos and stock certificats and jewelry.  In previous cases they sold jewelry for a fraction of the real value, and that was all you were allowed to recover.  Whether this practice has been eliminated is unclear. What is clear is that if you have a safe deposit box, check at least annually that your bank and the State have not decided on your behalf that you have abandoned it.

Are Your Deposits Safe At The Bank?

Many have wondered whether their bank deposits were safe.  The FDIC traditionally guaranteed up to $100,000 in total deposits at any one institution.  In response to the banking meltdown last year they increased the guarantee up to $250,000 and then introduced the Temporary Liquidity Guarantee Program which temporarily increased protections guarantees further.

Still, when the Chairman of the FDIC says that they may run out of money this year, there is cause for concern.  Indeed, if enough banks fail, the FDIC may run out of funds.  Now, I wouldn’t rush out and pull deposits out.  Save for a very serious meltdown still ahead, I think it unlikely we see an insolvent FDIC.  But you can never rule out the possibility.  But lets say your bank does fail, and the FDIC is almost out of money or close to it.  You might get your money back, but it may take a while if there is a long queue in front of you.  What if you need the money right away or had a big obligation due shortly?

For starters, I suggest at least keeping accounts at two different banks.  If possible, keep a few months worth of expenses in each account.  Also, inquire into the health of your bank.  Finally, for larger amounts a brokerage account may make more sense.  Short-term government funds are quite safe.  Assets at a brokerage are not subject to being “lent against” by the brokerage, meaning your assets are segregated and are not used as capital for the brokerage to make loans.  There is SIPC coverage and usually the broker will purchase additional insurance.