Escheatment is one of those legal terms you may not know much about. But be it could cost your corporation substantial interest, fines or penalties.
The word means turning over to your state any abandoned, lost or unclaimed property, both tangible and intangible. This property is often transferred to the government because a person died without a will, legal heirs or claimants.
The principle falls under unclaimed property laws that have been adopted in every state. They are based on the Uniform Unclaimed Property Act of 1995, which was passed into law to rectify conflicting state legislation. The 1995 Act reinforces and clarifies the intentions of earlier acts where the state does not take legal title to the forfeited property but only acts as custodian and holds the property for the legal owners in perpetuity.
If your corporation is required to comply with the laws, review your accounts annually to determine whether you are holding any abandoned property. (For most businesses, this comes into play with employee paychecks.) Every state has its own calculation of the time that must pass before property is considered abandoned or unclaimed.
However, the Uniform Unclaimed Property Act states that the contents of safe deposit boxes are considered abandoned five years after the last rental period expired.
The courts have given states sound legal footing in this area, upholding states’ rights to demand unclaimed property. In one case, the court upheld the state’s enforcement of custody not only in its own court but in the courts of other jurisdictions as well.
Companies that haven’t complied with state escheat laws have been subject to major criminal charges and civil fines.
Consult with your attorney to make sure your business is complying with the law. Some states may, because of ignorance or apathy on the part of companies, offer amnesty to encourage businesses to comply with the law.
Unclaimed property includes any financial asset that has been abandoned by its owner for an extended period of time. Examples:
- Dormant bank accounts;
- Lost or forgotten uncashed checks, including payroll checks;
- Security deposits;
- Credit balances;
- Stock or bonds, dividends and bond interest;
- Insurance proceeds;
- Utility deposit refunds;
- Safe deposit box contents;
- Unused gift certificates;
- Unclaimed pension or other employee benefits.