States increase enforcement of unclaimed property laws.

• Author: Heroux, Mark S.

Unclaimed property laws have existed for decades. Until relatively recently, however, states were either unable or unwilling to devote significant resources to enforcing these laws. Many states have now taken a variety of measures to promote compliance with unclaimed property laws, including increasing the number of audits, engaging third-party auditors, and offering voluntary disclosure programs (VDPs).

While unclaimed property laws are not a tax, per se, in many ways they are similar to a tax. States looking for revenue are enforcing unclaimed property laws, just as they are looking for more tax revenue, and holders of unclaimed property that fail to comply with reporting requirements may be subject to a variety of harsh penalties. As such, now is the time for businesses with unclaimed property to take proactive measures to comply with state filing requirements.

Unclaimed Property: An Overview

Unclaimed property is property held by a person for the account of, and deliverable or payable to, its apparent owner, where payment or delivery has remained outstanding for a specified period and the property is presumed abandoned. The property would then escheat to the state, which assumes custody of the property. Unclaimed property includes financial assets that have no activity generated by, or contact by the holder with the owner for a fixed period, generally between one and five years. Some common forms of unclaimed property are refunds, checks, stocks, savings and checking accounts, insurance payments, life insurance benefits, unredeemed money orders, uncashed dividend checks, certificates of deposit, customer overpayments, security deposits, and contents of safety deposit boxes.

States require holders of unclaimed property to conduct due diligence to contact the property's owners. Holders must generally send a letter to the owner, listing information sufficient to identify the unclaimed property and notifying the owner of its property rights. Holders must also file annual unclaimed property reports and escheat property to the state if they cannot contact the owner.

Most holders are required to file unclaimed property reports in states outside where they hold the property, in part because of the priority of escheat laws established in Texas v. New Jersey, 379 U.S. 674 (1965). In that case, the U.S. Supreme Court established that the state of the owner's last known address (the primary state) has primary authority over the owner's unclaimed...