Escheatment: A Financial Overview

Escheatment, often pronounced “es-cheat-ment,” is a legal process whereby property belonging to an individual or entity reverts to a state authority when there are no identifiable owners or heirs to claim it. In simpler terms, it’s the transfer of unclaimed assets to the state government. The principle behind escheatment is that property should not remain indefinitely without ownership; the state acts as the custodian of last resort to ensure that unclaimed assets are managed responsibly.

Types of Property Subject to Escheatment

A wide variety of property can be subject to escheatment. Common examples include:

• Bank Accounts: Dormant checking, savings, and certificate of deposit (CD) accounts that have been inactive for a specified period (typically several years).
• Uncashed Checks: Payroll checks, vendor payments, refund checks, and other negotiable instruments that have not been cashed.
• Stocks and Bonds: Unclaimed dividends, stock splits, and bond interest payments. Securities held in brokerage accounts without owner contact.
• Insurance Benefits: Life insurance policy proceeds that have not been claimed by beneficiaries.
• Safe Deposit Box Contents: The contents of safe deposit boxes that have been abandoned.
• Mineral Rights: Unclaimed royalties from oil, gas, and mineral extraction.
• Other Intangible Property: This can include gift cards, rebates, and other forms of unclaimed value.

The Escheatment Process

The escheatment process typically involves several key steps:

1. Dormancy Period: A statutory period of inactivity, often ranging from one to five years, must elapse before property is considered abandoned.
2. Due Diligence: Holders of the property (banks, corporations, etc.) are required to make reasonable efforts to contact the owner and verify their current address. This may include sending letters or making phone calls.
3. Reporting: If the property remains unclaimed, the holder must report it to the state’s unclaimed property office, providing details such as the owner’s name, last known address, and the type and value of the property.
4. Custody Transfer: The holder then transfers the property to the state.
5. Public Notification: The state publishes a list of unclaimed property owners, often online, to allow individuals to search for and claim their assets.
6. Claims Process: Individuals who believe they are entitled to unclaimed property can file a claim with the state, providing documentation to prove their ownership.

Why Escheatment Matters

Escheatment serves several important functions. First, it protects consumers by providing a central repository for unclaimed assets. Second, it provides a source of revenue for state governments, which can use these funds to support public services. Finally, it helps prevent fraud and mismanagement of unclaimed property.

Compliance and Best Practices

Businesses that hold property belonging to others must comply with escheatment laws, which vary by state. Failure to comply can result in penalties and fines. Companies should have robust policies and procedures in place to identify, report, and remit unclaimed property in a timely and accurate manner. This includes maintaining accurate records, conducting regular due diligence, and staying up-to-date on state escheatment laws.