10 Things You Should Know About Unclaimed Property
Blog Post by Moyer & Osibodu
1. The states unclaimed property laws originated from old British Common (Escheat) Laws, when in the event of a death without heirs, ownership of the property reverted to the King. Although we still use the phrase escheat in the United States, unclaimed property laws in most of the states are custodial in nature. The states act as custodians of the property and are charged with protecting the interests and property rights of the lost owners.
2. 54 jurisdictions (50 states, District of Columbia, Guam, Puerto Rico and the U.S. Virgin Island) have unclaimed property laws that require companies to file and report their unclaimed property annually, during the Spring and Fall.
3. Unclaimed property is generally defined as intangible (and tangible in limited situations) property that has gone unclaimed by its rightful owner for a specified period of time, usually ranging from one to five years.
4. Unclaimed property tends to arise from those outstanding accounting transactions due to employees, customers, vendors and shareholders (for publicly-traded companies).
5. Two common categories of unclaimed property are uncashed checks (all types, including payroll) and accounts receivable credit balances. Other examples of unclaimed property include unredeemed gift cards, customer and utility deposits, insurance proceeds (including due and unpaid), oil & gas royalties, mineral proceeds or interest, escrow accounts, money orders and travelers checks.
6. The United States Supreme Court established the priority rules in 1965, by their decision in the landmark case (Texas v. New Jersey), which defined the scheme for states to follow when claiming unclaimed property from companies. First priority was granted to the state of owner’s last known address, while the second priority was granted to the company’s state of incorporation, if there is no owner’s last known address. In addition, the second priority was also granted to the company’s state of incorporation, if the owner’s address is in a foreign country and the company is incorporated in the United States.
7. Most states require holders of unclaimed property to perform due diligence (i.e. make a concerted effort to seek out and return the unclaimed property to the rightful owners) before reporting their unclaimed property to the states.
8. Unclaimed property that is past due or not reported may be charged late payment interest from the date property was due until the date paid over to the state. California and Texas are notorious for their hefty interest assessments.
9. All states, especially a company’s state of incorporation, have the authority to examine the company’s books and records to verify compliance with their unclaimed property laws and regulations. In addition, the states have the authority to estimate in order to determine a company’s unclaimed property due, especially when historical records are not available, are incomplete or are voluminous.
10. Some states have voluntary and amnesty programs to promote compliance with their unclaimed property laws.