You’ve Heard of Escheat…But What Exactly Is It?

Simply put, escheat is a legal process whereby ownership of abandoned (or “unclaimed”) property is transferred to the State.  All states have escheat laws and, while they have many similarities, the laws do vary.  In California, businesses that hold unclaimed property are required to report to the State annually.

Property of others is considered “unclaimed” and reportable after specific periods of time of inactivity (called “dormancy”), which is generally three years; however, wages and commissions are only one year.  Some examples of property included in the escheat process are monetary assets such as customer account overpayments, uncashed checks and expired deposits, and tangible property.  And, while the holder of the unclaimed property must perform statutory due diligence procedures to locate the property owner before reporting it to the State, the State will also send out notices to the owner within about six months of receiving the annual report.  If the owner still has not been found, the holder is then required to remit the property to the State and is relieved of any further asset custody obligations.

The California State controller’s Office maintains resources, including required forms and instructions, calendars, and sample letters, on its website to assist holders of unclaimed property to comply with California’s escheat laws. These resources and additional information can be found at http://sco.ca.gov/upd_msg.html.

A quick summary of the requirements can be found here:

http://sco.ca.gov/Files-UPD/outreach_rptg_hol_genrptinfo.pdf

And… if you are interested in finding out whether YOU are the owner of unclaimed property in possession of the State, check here:  http://scoweb.sco.ca.gov/UCP/

By some estimates, full compliance with escheat laws nationwide is only 15 to 35 percent.  States have been stepping up efforts to enforce these escheat laws with the depressed economic conditions of late.  Parties that fail to comply are subject to penalties, but the larger focus is on the property itself.  After statutory time limits, the State Controller can sell the property, with proceeds used to fund the escheat program and other governmental activities and, ultimately, transferred to the State’s General Fund.