Escheatment: Overview, definition, and example
What is escheatment?
Escheatment is the legal process by which unclaimed or abandoned property is transferred to the state or government. This typically occurs when a person or business fails to claim or take possession of property for a certain period of time, known as the "dormancy period." Escheatment can apply to various types of property, including bank accounts, uncashed checks, insurance proceeds, or even real estate.
The purpose of escheatment is to ensure that abandoned or unclaimed assets do not remain in limbo and are returned to the state for safekeeping until the rightful owner claims them. State laws govern escheatment procedures and vary by jurisdiction.
Why is escheatment important?
Escheatment is important because it ensures that unclaimed property does not remain in the hands of businesses or individuals who have no claim to it. It protects the rights of the true owners by providing a process for returning lost or forgotten property.
For businesses, understanding escheatment laws is crucial to avoid penalties for failing to report or turn over unclaimed property. For consumers, escheatment offers a way to recover assets that may have been forgotten or overlooked, such as an old bank account or uncashed check.
Understanding escheatment through an example
Imagine an individual who has an old bank account they haven't used in several years. The account has a balance, but the individual has forgotten about it or never claimed it. After a certain period (which varies by state), the bank will attempt to contact the account holder. If the individual does not respond or claim the funds, the bank will escheat the money, meaning it will turn the funds over to the state.
The state will hold the funds in a special account, and the account holder (or their heirs) can claim the money later. If the individual never comes forward, the state may ultimately take ownership of the funds, depending on the specific rules in place.
In another example, a person fails to cash a check issued by a company, and the check remains uncashed for several years. The company, in accordance with state law, may escheat the value of the check to the state once the dormancy period expires.
An example of an escheatment clause
Here’s how an escheatment clause might look in a contract:
“The Company agrees to comply with all applicable state escheatment laws, including the reporting and remittance of any unclaimed property, such as uncashed checks or dormant accounts, to the appropriate state agency within the required timeframe. The Company shall make reasonable efforts to notify the rightful owner before escheating the property.”
Conclusion
Escheatment is a legal process that ensures unclaimed or abandoned property is handled properly, with the goal of protecting the rights of the rightful owner. For businesses, understanding and complying with escheatment laws is crucial to avoid penalties and ensure that unclaimed property is returned to the state. For individuals, escheatment provides a way to recover lost or forgotten assets, ensuring that they are not permanently lost.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.