Unclaimed Property - The basics of escheatment law for small business
losers weepers. Almost every child is familiar with the sentiment that being in
possession of an item makes it yours. In the real world, especially in a
business setting, it rarely works that way. So although it may seem like a
logical idea on the surface to absorb unclaimed or abandoned property into a
business’ assets, it is likely that doing so is illegal and can put the
business at risk.
Any business that
cuts checks, pays employees, receives security deposits, issues credits, or
handles any one of more than 75 categories of possible unclaimed property, needs to know and understand the basics of
the term used for the process of reporting and turning over all forms of
unclaimed or abandoned property to a state authority. Enacted on a
state-by-state basis, escheatment laws ensure that the individual states become
the legal owners of abandoned property. Congress, in order to control the
deposition of unclaimed property among the states, enacted the Uniform
Disposition of Unclaimed Property Act of 1954, followed by the Uniform
Unclaimed Property Act of 1981, and most recently, the Uniform Unclaimed
Property Act of 1995. Although only a handful of states have adopted the 1995
version of the Uniform Unclaimed Property Act (UUPA), one or more versions of
the UUPA have been enacted by most states. Failure of a business to comply with
UUPA laws could result in criminal charges as well as steep penalties and
Defining Unclaimed Property
Although the factors determining whether or not property is
unclaimed varies greatly from state to state, in general, there are several
commonalities in most state laws. The property in question, with limited
exceptions, is generally an intangible item, such as uncashed checks, bank
accounts, stocks, bonds, benefits from insurance policies, etc.; the holder of
the property must be legally obligated to and unable to locate the property
owner; and the property must remain unclaimed for a period of time referred to
as the “dormancy period”.
Defined by state
law, the dormancy period is determined by the type of property and may range
from one to fifteen years. It is generally measured from the date the holder
comes into possession of the unclaimed property to the date the property must
be reported to the state
required to report and remit unclaimed property to the state annually. As the
requirement to report is based on the property owner’s state of residence,
organizations may need to submit reports to multiple states. The BizFilings.com
website contains a helpful lookup of escheatment laws by state that provides detailed information in
escheatment laws and regulations for each state and the District of Columbia.
Once the property
is turned over to the state, the state holds the property on behalf of the
owner and usually utilizes the property at its will until it is claimed by the
and Consequence for Compliance Failure
property can become a substantial hidden liability for employers. In recent
times, states have turned to an aggressively enforcing unclaimed property laws
as the use of the property helps to relieve the state’s financial burden.
Companies that do not report or underreport unclaimed property to the state may
find themselves subject to an audit.
auditing businesses suspected of noncompliance will examine the company’s
records and verify accuracy of reports filed for the previous 10 to 15 years.
Auditors will request evidence substantiating that the property was abandoned
by its owner, and if the property is unable to be cleared on a bank statement,
refunded, reissued, or adjusted, it may be considered questionable by the
examiner. An informal preliminary audit report will also be prepared to outline
the findings and is the holder’s last chance to provide documented proof that
the questionable property is no longer their obligation.
information on the escheatment process can be found at www.sec.gov. Inquiries about specific laws or rules
should be directed to an attorney who specializes in securities law.
Visit the National
Association of Unclaimed Property Administrators website to discover if your state may be holding
unclaimed funds that belong to you.