What is unclaimed property?
Back to Top

Unclaimed property (also called "abandoned property" or "escheatment") is tangible or intangible property that has not been claimed by its rightful owner or apparent owner for a specific period of time ("dormancy period"). An "owner" is the person entitled to receive the property such as a payee on a check or a shareholder. A "holder" is the party (such as a corporation) from whom the owner has not made a claim.

Each state plus some U.S. (i.e. Puerto Rico, Virgin Islands, etc.) and Canadian jurisdictions has a statute that specifies how long property may be retained by a holder before it is reportable (the dormancy period) as well as the what types of property must be reported.

The most typical dormancy periods are 1 year (for payroll) and 3 or 5 years for most other property types. However, depending on the property type and the state to which it is reportable, the legally prescribed dormancy periods may be 7 years.

Property falls into two broad categories: Securities-Related Property and General Ledger ("non-securities") Property. Securities-related property includes equity securities and related dividends, debt obligations and related interest and dividend reinvestment accounts. General Ledger property most typically includes uncashed payroll and vendor checks, customer credits, gift certificates, insurance policies and financial accounts.

However, there is no hard and fast rule for all states. For that reason, filers of unclaimed property reports must consult state statues for guidance on what to report and when.

Am I required to report unclaimed property?
Back to Top

If your legal entity is a business association (corporation, partnership, etc.), governmental agency or non-profit you are probably required to file annual reports of unclaimed property.

Which states do I report to?
Back to Top

In 1954, the U.S. Supreme Court ruled in Texas vs. New Jersey that the last known address of the owner determines the state to which unclaimed property is reportable. Furthermore, where the owner address is missing or incomplete, the U.S. Supreme Court ruled in Delaware vs. New York that the asset is reportable to the state of incorporation of the holder. In addition, if the last known address is in a foreign country, the asset is reportable to the state of incorporation of the holder.

Based on these rules, the addresses contained in a holder's database of dormant property determine which states should receive a filing. In addition, some states require reports to be filed even if there is nothing reportable to them for the current year. The practical effect of these rules is that property can be reportable to many more states than those in which the company has a presence or does business.

When do I report?
Back to Top

Each state has an annual filing date to which holders are expected to comply. A majority of states have the November 1st annual reporting deadline. These are called the Fall filing states. The remaining states have Spring reporting deadlines ranging from March 1 to May 1. Each state has the right to assess interest and penalties for non-compliance.

What do I report?
Back to Top

The first annual filing with a state is called "initial compliance". Thereafter, reporting falls under Annual Compliance. Initial compliance should take into account all property types held by a corporation. In other words, if a company asks its Stock Transfer Agent to commence reporting of Capital Stock and Dividends, the company should be prepared to analyze their books for other property such as payroll checks, vendor checks and customer credits and report them as well.

To encourage first time filers, many states have offered "amnesty" programs that exempt the holder from interest and penalties on reported property. Why the exemption? Typically, the property is being filed late. State unclaimed property reporting requirements have been in existence as far back as 1954. Very few states apply a statute of limitations to unclaimed property—and where they do, it only commences with the reporting of property.

Property is reported based on its dormancy or abandonment period. States are generally known as 3, 5 or 7-year states. After property goes unclaimed for the requisite number of years it is eligible for reporting. Within a given state, there can be different dormancy periods depending on the property type. For example, most 3, 5 and 7-year states have a 1 year dormancy for payroll checks.

Companies that have a history of reporting should be sensitive to changes in business practices that can give rise to new property types. Also, when companies are acquired, an analysis of their operations should be made to identify all reportable property types. The acquiree should conform to the acquirer's reporting rules.

How do I report?
Back to Top

Each state has unique reporting forms and formats that holders are expected to use. There are also industry-specific (i.e. banking and insurance) rules in states. Reports can be filed on paper or diskette depending on the volume of transactions and the requirements of each state. Instructions and forms are available from each state's unclaimed property office or through a state internet site.

There are mainframe and PC-based software packages that can aid large volume reporters. These packages produce reports for each state that meet all statutory requirements.

There are also service companies that perform unclaimed property reporting for clients. These services also produce reports for each state that meet all statutory requirements.

What is due dilligence?
Back to Top

States expect to receive property for the benefit of lost owners. How do they become lost? Addresses change, the property is lost or misplaced, records of amounts owed are destroyed, people pass away without adequate records of assets, etc.

States do not want to receive property where the owner has an on-going relation with the holder or where the last known address in the holder's records is the current address of the owner. For this reason, states require that holders attempt to contact the owner about the property in advance of reporting it. The due diligence requirements for most states can be met by performing a first class mailing to the owner's last known address as shown in the company's records.

Can I be audited?
Back to Top

Yes. States actively enforce the unclaimed property laws. This enforcement looks to non-filers as well as companies with a history of filing timely reports. Some states have their own unclaimed property audit sections. Other states use third-party auditors in lieu of employees. In some cases, states coordinate audits and hire third-party auditors who perform a "multi-state" audit. All states have active programs to educate corporations about the reasons for and need to report unclaimed property.

Is there a Statute of Limitations?
Back to Top

Some state statutes address this subject. Many do not. However, statutes of limitation generally apply only to reported property. If a company has never filed reports, liability for unreported property can extend back many more years than the dormancy period.

Are there special Record Retention Requirements?
Back to Top

Yes, but they vary by state and some state statutes are silent on this subject.

What about our Canadian and other foreign subsidiaries?
Back to Top

Generally speaking, foreign subsidiaries are not subject to U.S. unclaimed property laws. One exception could be dollar denominated disbursing accounts maintained in U.S. banks. However, as foreign governments enact unclaimed property laws, (such as the recently enacted laws in Canadian provinces) additional levels of liability are created.

What if we are a subsidiary of a foreign corporation?
Back to Top

As a U.S. domiciled entity, a company with foreign owners is subject to U.S. unclaimed property laws.

What does it take to manage annual compliance?
Back to Top

The key elements of annual compliance are:

The role of Unclaimed Property Recovery and Reporting
Back to Top

Unclaimed Property Recovery & Reporting (UPRR) specializes in unclaimed property compliance and development of strategies to minimize liability. UPRR's goal is to assist holders of unclaimed property in all industries with understanding the various state laws and voluntarily complying with these laws on an initial and annual basis. Services include estimation of potential liability, policy and procedure development, recovery of unreported and previously reported property, owner location (due diligence) and annual reporting. UPRR associates have expertise in both general ledger and securities-related unclaimed property statutory requirements and provide customized unclaimed property consulting services to clients.

NOTE: The information presented herein is intended for educational purposes only and should not be considered a legal interpretation