Image: Last will and testament © Tetra Images, Getty Images

Cary Douglas Piper of Castleberry, Ala., died at 52 after a short illness. He apparently left no will or any known relatives. But Piper did have heirs – unfortunately for the probate judge who stole $1.8 million from his estate.

A year after his death, a so-called "heir finder" firm turned up six first cousins. When the cousins came forward to make a claim on the $3.2 million estate, the theft was discovered.

Covington County Probate Judge Sherrie Reid Phillips was sentenced in 2008 to three years in prison for theft by deception and intentionally using her official position for unlawful personal gain. The Alabama attorney general's office said Phillips used money from the estate to open a personal money-market account. Phillips spent more than $516,000 of the money buying two vehicles, repairing her home, paying personal debt and loaning money to two relatives.

In the secretive, shadowy world of heir finding, this case had an unusually public denouement. Typically, heir-finding firms shun the limelight. The companies I contacted for this column either failed to return my calls or refused to comment on the record, citing fierce competition in this field or the potential for a negative public reaction to what they do.

That is because what they typically do is scour court filings for apparently heirless estates. Then they try to turn up distant relatives, some who may not have even known the deceased, usually in exchange for a cut of the estate.

People who sign up with these firms may get a windfall – or they could give up a big chunk of an inheritance that might have found them anyway.

A reader named Esther emailed me after being contacted by one such firm, concerned it was a scam.

Image: Liz Weston

Liz Weston

"I got a call from (from an heir-finding company) stating they specialize in locating missing heirs to estates," Esther wrote. "They would take 1/4 of whatever assets (the) beneficiary receives from said estates. Is this company (legitimate)?"

There are several ways you can get ripped off:

  • Con artists may pose as heir finders or asset locators to get you to pay a big upfront fee – supposedly their "commission" – and then disappear without a trace.
  • Scammers may present you with a fat check and ask you to write a smaller one to them. By the time the big check bounces, they're long gone.
  • Another common scam is to reveal a supposed inheritance and demand that you "prove" who you are with private personal information, such as Social Security numbers and other data that can be used to commit identity theft.

Other companies avoid outright fraud but engage in questionable practices, such as charging fees to help you locate lost assets you could easily find yourself.

To limit profiteering, some states limit how much heir finders can charge. In Washington state, the limit is 5%. In Arizona, it's 30%. In many other states, the limit is 10%.

Some states also limit inheritance rights for distant relatives in what are called "laughing heir" statutes, essentially ruling that if you had no reason to feel bereaved, you shouldn't inherit. The Uniform Probate Code, which has been adopted by many states, limits inheritance rights to direct descendants, parents, grandparents, aunts, uncles and first cousins. If no heirs within the limits are found, the estate is turned over, or "escheated," to the state.

In some states, including California, an apparently heirless estate can remain in limbo indefinitely, said Elizabeth Pierson, a Santa Monica, Calif., estate and probate attorney.

So what should you do if you're contacted by someone purporting to be an heir finder? Take the following steps before you sign up:

  • If you know a relative who recently died, you can do some of your own research. The first step would be to contact the courthouse in the county where the person lived to see if a probate case has been opened. If it has, you can contact the attorney or administrator representing the estate.
  • Check http://www.unclaimed.org/, run by the National Association of Unclaimed Property Administrators, which represents the escheat offices run by state treasurers. Another site to check is http://www.missingmoney.com/, which allows you to check all state databases at once. Check for your own name in all the states where you resided; do the same for any recently deceased relatives.
  • Finding life insurance proceeds is tougher, since unclaimed benefits typically aren't escheated or turned over to state unclaimed-property offices. You can learn more about finding lost policies by reading "Don't take policies to the grave."
  • If you have no luck and are considering signing up with the heir finder, get the company's business and investigator license numbers and check them with your state. Not all state states require these licenses, but many do. Check the company's reputation with the Better Business Bureau. Insist on a written agreement that spells out the nature and the value of the property you stand to inherit, along with the fee or commission you will pay – which is negotiable, by the way – after the claim has been paid.

Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.

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