Unclaimed property

Unclaimed property refers to financial assets and valuables held by a company or government agency that have gone unclaimed by their rightful owner for a specified period, known as the dormancy period. This concept falls under the broader financial category of Regulatory Compliance, as states enforce laws requiring entities to report and transfer such assets. Unclaimed property typically includes forgotten bank accounts, uncashed checks, dormant investment accounts, and contents of safe deposit boxes. States act as custodians of these assets, holding them indefinitely until the owner or their heirs come forward to claim them.¹⁰², ¹⁰³, ¹⁰⁴, ¹⁰⁵, ¹⁰⁶

History and Origin

The concept of states taking custody of unclaimed property has roots in the ancient English common law doctrine of escheat, where land would revert to the Crown if an owner died without heirs or committed certain crimes.⁹⁸, ⁹⁹, ¹⁰⁰, ¹⁰¹ Over time, this concept evolved to include personal property. In the United States, the modern framework for unclaimed property laws began to formalize in the mid-20th century.⁹⁶, ⁹⁷

The Uniform Law Commission (ULC), previously known as the National Conference of Commissioners on Uniform State Laws, drafted the first model unclaimed property law, the Uniform Disposition of Unclaimed Property Act (UDUPA), which debuted in 1954.⁹³, ⁹⁴, ⁹⁵ This act and its subsequent revisions (in 1966, 1981, 1995, and the Revised Uniform Unclaimed Property Act (RUUPA) in 2016) aimed to create consistency among state laws.⁸⁹, ⁹⁰, ⁹¹, ⁹² Despite these efforts, significant variations still exist across state regulations concerning dormancy periods and types of property covered.⁸⁷, ⁸⁸ States adopted these laws to protect property owners by ensuring their forgotten assets are safeguarded and to prevent financial institutions and businesses from retaining these windfalls.⁸⁴, ⁸⁵, ⁸⁶

Key Takeaways

• Unclaimed property encompasses a wide range of financial assets that are dormant or have lost contact with their owners for a statutory period.
• States act as custodians of unclaimed property, holding it in perpetuity until the rightful owner or their heirs can claim it.⁸¹, ⁸², ⁸³
• Businesses and financial institutions are legally required to perform due diligence to locate owners before transferring unclaimed property to the state.⁷⁹, ⁸⁰
• The National Association of Unclaimed Property Administrators (NAUPA) and state treasuries provide free resources for individuals to search for their unclaimed property.⁷⁵, ⁷⁶, ⁷⁷, ⁷⁸
• While varying by state, common types of unclaimed property include bank accounts, uncashed checks, stock certificates, and safe deposit box contents.⁷², ⁷³, ⁷⁴

Interpreting Unclaimed Property

Unclaimed property is not a fixed asset for the state but a custodial responsibility. When a financial institution or business identifies an asset as unclaimed property, it reports and transfers it to the relevant state authority, typically the state treasurer or controller.⁶⁸, ⁶⁹, ⁷⁰, ⁷¹ The state then attempts to notify the owner and holds the property indefinitely.⁶⁶, ⁶⁷ This custodial arrangement means the owner retains their right to the property, even if years have passed since it was transferred to the state. The value held by states in unclaimed property programs can be substantial, with billions of dollars awaiting reunion with their owners across the U.S.⁶⁵ For the owner, identifying unclaimed property represents a recovery of a forgotten asset. For holders (the businesses that originally owed the property), it represents the discharge of a liability to the state rather than to the original owner.

Hypothetical Example

Imagine Sarah moved from New York to California five years ago. Before she moved, she had a small checking account with a balance of $300 and a utility deposit of $50 that she forgot to close. She also had a few shares of stock from a company where she previously worked, for which she never received or cashed the dividends for the last three years. She didn't update her address with the bank, the utility company, or the stock transfer agent.

After a statutory dormancy period (often three to five years, depending on the state and property type), the bank, utility company, and stock transfer agent would deem these accounts dormant.⁶², ⁶³, ⁶⁴ They would attempt to contact Sarah at her last known address (her old New York address) as part of their due diligence efforts. Since she no longer lives there, these notices would be returned as undeliverable.⁶⁰, ⁶¹

Following their state's unclaimed property laws, these "holders" would then report and transfer the $300 from her bank account, the $50 utility deposit, and the value of her uncashed dividends and shares to the New York State Comptroller's Office of Unclaimed Funds.⁵⁹ Years later, Sarah might hear about unclaimed property programs. She could visit the National Association of Unclaimed Property Administrators (NAUPA) website or the New York State Comptroller's site, search for her name, and discover the unclaimed property waiting for her.⁵⁸ After verifying her identity and past address, she could successfully claim her money and shares.

Practical Applications

Unclaimed property laws have several practical applications across various sectors:

• Individual Finance and Estate Planning: Individuals can use state unclaimed property databases to search for forgotten accounts, uncashed payroll checks, utility refunds, or even inherited assets from deceased relatives, which can be crucial for estate planning.⁵⁷ Many states, including California, provide online search tools for the public.⁵⁶ The official, multi-state search portal Unclaimed.org (managed by NAUPA) is a primary resource for consumers seeking their assets.⁵⁴, ⁵⁵
• Corporate Compliance: Businesses, including financial institutions, insurance companies, and public corporations, must adhere to strict state regulations for reporting and remitting unclaimed property.⁵¹, ⁵², ⁵³ This involves maintaining accurate records for accounts receivable, accounts payable, customer deposits, and tracking contact with account holders to prevent assets from becoming dormant.⁵⁰
• Government Revenue and Custody: For states, unclaimed property represents a significant source of non-tax revenue that can be used for general funds while held in custody, pending a claim by the rightful owner.⁴⁸, ⁴⁹ State treasuries manage these funds and conduct outreach to reunite owners with their property.⁴⁶, ⁴⁷
• Investor Protection: Regulations surrounding unclaimed securities, such as forgotten stock certificates or mutual fund distributions, aim to protect investors from losing their investments permanently.⁴⁵ Firms are required to attempt contact before deeming assets abandoned.⁴³, ⁴⁴

Limitations and Criticisms

Despite its consumer protection goals, the system of unclaimed property has faced some limitations and criticisms:

• Complexity and Lack of Uniformity: With each U.S. state having its own distinct unclaimed property laws, including varying dormancy periods and reporting requirements, compliance becomes a complex burden for businesses operating across multiple jurisdictions.⁴¹, ⁴² This patchwork of laws can also make it challenging for owners to track their property if they have moved frequently.
• Revenue Generation Focus: Critics argue that some states increasingly view unclaimed property as a revenue-generating tool rather than solely a consumer protection program, especially during fiscal challenges.³⁸, ³⁹, ⁴⁰ States may implement more aggressive audit tactics or shorten dormancy periods, which can lead to disputes with "holders" (businesses).³⁵, ³⁶, ³⁷ A Reuters article from August 2023 highlighted how states are increasing enforcement and audits on companies regarding unclaimed property, leading to challenges for businesses.³⁴
• Loss of Value for Owners: While states act as custodians, some policies, such as the immediate liquidation of escheated securities into cash, mean owners may lose potential capital appreciation or income that the asset would have generated if it had remained invested.³², ³³ Also, states typically do not pay interest on unclaimed property, except in specific cases.³¹
• Audit Practices: Unclaimed property audits can be extensive, sometimes looking back 15 years or more, exceeding typical business record retention policies.²⁹, ³⁰ This can create significant administrative and financial burdens for audited companies.²⁸

Unclaimed Property vs. Escheat

While the terms "unclaimed property" and "escheat" are often used interchangeably, particularly in common parlance, there is a distinct legal difference, reflecting their historical origins and modern application.²⁷

• Unclaimed Property: This refers to assets that a business or entity holds for an owner who has not had contact with the property for a specified dormancy period. The state takes custody of this property, acting as a perpetual custodian for the benefit of the owner. The original owner or their legal beneficiary retains a permanent right to claim the property. It is a protective measure to ensure assets are not permanently lost or absorbed by the holder.²⁴, ²⁵, ²⁶ Common examples include uncashed payroll checks, dormant bank accounts, or unredeemed stock certificates.²², ²³

• Escheat: Historically, escheat referred to the process by which land reverted to the sovereign if a tenant died without legal heirs.¹⁹, ²⁰, ²¹ In modern legal contexts, true escheat implies that the state takes ownership (title) of property, often when there are absolutely no legal heirs or claimants, and the owner's rights are permanently extinguished after a definitive period. While modern unclaimed property laws are rooted in the concept of escheat, they primarily operate under a custodial model, meaning the state holds the property in trust for the owner indefinitely, rather than permanently taking title to it.¹⁷, ¹⁸ The U.S. Supreme Court has established rules to determine which state has the jurisdiction to "escheat" (i.e., take custody of) unclaimed intangible property.¹⁵, ¹⁶

The key distinction lies in the state's role: with unclaimed property, it's a custodian; with true escheat, it's an owner. While the term "escheatment" is frequently used when a holder remits unclaimed property to the state, it technically describes the act of transferring property to the state's custody, not necessarily a permanent change of ownership.

FAQs

What types of assets are considered unclaimed property?

Unclaimed property can include a wide variety of financial assets. Common examples are forgotten savings and checking accounts, uncashed payroll checks or refunds, dormant stock certificates and dividends, contents of safe deposit boxes, matured life insurance policies, utility deposits, and money orders.¹², ¹³, ¹⁴

How long does it take for property to become unclaimed?

The period of inactivity before property is considered "unclaimed" is called the dormancy period, and it varies by state and by the type of asset. While the 1954 Uniform Act suggested a seven-year dormancy period, many states now have shorter periods, often three or five years, and some as little as one or two years for certain items like payroll checks.¹⁰, ¹¹

How can I search for my unclaimed property?

You can search for unclaimed property for free through official state government websites, typically operated by the state's treasurer or controller. The National Association of Unclaimed Property Administrators (NAUPA) also operates Unclaimed.org, a free, multi-state search portal where you can search many participating states' databases simultaneously.⁸, ⁹ It is important to avoid third-party services that charge a fee to find your property, as official state resources are always free.⁶, ⁷

What happens to unclaimed property after it is turned over to the state?

Once unclaimed property is turned over to the state, the state becomes its custodian. It holds the property indefinitely and attempts to locate the rightful owner or their heirs. If the property is in the form of securities, states often liquidate them into cash, which is then held for the owner.⁴, ⁵ The state uses these funds for public purposes while they are in custody but is obligated to return the property or its monetary equivalent to the owner upon a valid claim.³

Do states pay interest on unclaimed property?

Generally, states do not pay interest on unclaimed property, except in specific instances or for certain types of property. If the property was interest-bearing when it was delivered to the state, or if it generates additional dividends or proceeds from liquidation, some states may include those amounts in the claim payment.² However, the primary goal of the state is to return the original value of the property, not to act as an investment vehicle.¹