What You Don’t Know About Escheatment Can Hurt You

Each month, millions of dollars legitimately pass to your favorite states from uncashed corporate checks, not to mention forgotten stocks, insurance policies, deposits left at utilities, even items in safe-deposit boxes. States are sitting on $11.5 billion and adding $2.5 billion each year. One challenge facing corporate treasurers is to get the money represented by the checks before state government officials do.

A less understood but equally important challenge is determining which assets should not be turned over.

The concepts underlying abandoned property law can be traced back to British common law, when abandoned land was returned to the king as a matter of right. The permanent transfer of property rights to the king was called escheat. In the United States, where the concept has been adapted to apply to intangible personal assets, such as uncashed checks, bank account balances, and corporate securities, the states receive the property instead of the king.

These laws have the goal of reuniting lost owners with the property that is rightfully theirs and protecting the holder of abandoned property from subsequent claims by the owner after the property is transferred to the state; the laws are also supposed to ensure that any economic windfall is for the benefit of the state and its citizens and not for the holder.

Under the Uniform Unclaimed Property Act, every company and banking institution is required to file unclaimed property reports with the states annually and to make a good-faith effort to find the owners of their dormant accounts. As states have come under growing pressure to enhance revenue, such property has taken on a new allure. The states that have the bigger financial problems, such as California, New York, and Massachusetts are most aggressive in seeking out assets to escheat. The failure to report unclaimed property subjects the holder to a maximum penalty of $5,000 for inadvertent failure to report property and up to $25,000 plus 25 percent of the value of the property for willful failure to report property.

In many instances, uncashed checks are the result of duplicate payments and therefore shouldn’t be escheated. Rather than lose money in unnecessary escheatment, RECAP can identify those uncashed checks that would, if cashed, be duplicate payments before they’re turned over to the states.

For information on establishing your own escheatment program and reducing the amount you escheat, contact RECAP, the Accounts Payable Professionals.