Thursday, May 20, 2010

State can keep interest on unclaimed property

By Rachel Wells

As a result of a Supreme Court ruling issued today, Illinoisans can rest assured that, for now, at least one state bank account won’t lose millions of dollars.

After a piece of property – such as money in an abandoned safe deposit box – goes unclaimed for up to seven years, the state takes control of it. While the rightful owner can later reclaim the items, or at least the value of those items, the state gets to keep any interest it earns while keeping in its trust the neglected or abandoned property.

Some owners of reclaimed property argue that the interest should go to them, not the state. But the Supreme Court decided today that the state’s procedure, outlined by law, is constitutional and can continue.

In their decision, justices pointed to Illinois’ system as more “benevolent” than many other states' procedures, which have been upheld by the U.S. Supreme Court, in that it allows owners to reclaim property no matter how long it’s been under state control. Illinois never assumes ownership but holds the property indefinitely or until it’s reclaimed.

“In return for this seemingly advantageous, long-term reclamation service, the state receives the benefit of retaining the interest earned from its management of the property after it is placed in state custody,” Justice Lloyd Karmeier wrote in the Supreme Court opinion. Citing the lower court, which said it was unclear whether the property in question was earning interest prior to the state taking control of it, Karmeier added: “Simply put, the State’s gain did not establish a loss on the part of the plaintiffs.”

According to the treasurer’s office, had the court accepted the argument of property owners who filed the lawsuit, the state could have lost millions of dollars. Right now, the claims trust fund holds a balance of roughly $50 million, which earns interest for the general revenue fund. But the state also, over the last four years, returned an average of $85 million to property owners.

“If we had to pay out interest on all property we return, the numbers would amount to millions,” said Scott Burnham, spokesman for the treasurer’s office. He added that the state is incapable of earning interest on all properties in question, such as a payroll check. “When we return funds, we may have held those funds for six weeks or six years or far more. If we had to calculate interest at a rate determined by the court and pay compound interest to each owner, we would pay millions in interest out each year.”

The legal team arguing against the state is “disappointed” in the court’s decision and will consider appealing to the U.S. Supreme Court, said counselor John Wylie with Chicago firm Donaldson and Guin.


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