Property rights play an incredibly important role in the American legal system, which is why it is critical to understand who has a claim to what at any given point in time. When there is no clear owner of a specified property — which can include real estate, personal property, financial accounts, and much more — that property might eventually be surrendered to the state.
Failing to identify and turn over unclaimed property can have undesirable financial consequences. Courts, account managers, and other property holding organizations need to pay close attention to the escheatment laws and protocols that apply in the state they are currently operating in.
Let’s take a closer look at what exactly escheatment means, why it matters, and how to prevent potential future problems.
What is escheatment?
Escheatment, according to the SEC, is “the process of turning custody of abandoned assets or accounts over to a state authority.” There are many situations in which property will be held by a particular institution (courts, banks, etc.) without a clearly identifiable owner. When this occurs, the institution does not get to claim the property as their own. Instead, they will be expected to surrender the property to the state, who will then sell, write off, donate, or otherwise manage the property as they see fit.
Once a specific account has been determined to be “abandoned,” the temporary holder of the property must escheat, or turn over, the property within a specific amount of time. For most states, the escheatment cut-off is five years but in others, the timeframe might be as short as three years.
The legal definition of abandonment will vary by state, which is why it is important for all property holders to be familiar with their own state’s laws. However, generally speaking, abandonment occurs when an account has not been interacted with for an extended period of time, components of the accounts have been inactive (for example, corresponding checks are not being cashed), or the owner of the account cannot be clearly identified.
Why does escheatment matter?
Escheatment matters for both the party who might be entitled to claiming the property and the party that is currently holding the property. For the party that has the legal right to claim the property (who may or may not be identified), failing to keep up with certain accounts can cause you to lose your right to claim them. For the party that is currently holding the property, failing to escheat property according to the state’s protocols can result in fines and other legal consequences.
Escheatment: best practices
Luckily, there are several things that can be done to help improve the escheatment process and minimize the likelihood of facing fines from the state:
- Review all property claims on at least an annual basis — flag any property that might be unclaimed
- Try to contact the owner of the property, when possible
- Promptly communicate with the state, property claimants, and other relevant parties
- Understand all escheatment laws and timelines, as they apply in your state
Rapid Financial Solutions is here to help you reduce the number of escheatment incidents that can drain your team’s time monthly and annually. Our digital money platform helps businesses, counties, municipalities, associations, and non-profits make pay disbursements with ease, and eliminates the headaches that come with unclaimed property.