Category: Unclaimed Property

What Does Escheat Mean?

In the unclaimed property world we toss the word escheat around freely, to the befuddlement of the uninitiated. Further complicating matters, we often use it incorrectly!

The word escheat comes from the Old French word escheoir, meaning “to fall” and entered into the English language during the Norman Conquest. When William the Conqueror took over England, he owned all the land, and gave his vassals the right to use certain plots of land as tenants. If ever a tenant ran afoul of the crown, or died without an heir, the land would “escheat” back to the king.

In the present day United States, escheatment refers to the legal transfer of property to the state. If a person dies intestate, and no heirs are around to claim their property, that land will eventually escheat to the state.

But when we are talking about unclaimed savings accounts or payroll checks, we are rarely talking about true escheatment. When money is considered abandoned after a given dormancy period, it is remitted to a State, which becomes the custodian of the property until the rightful owner comes to claim it. There is almost never a time-limit, meaning your great-great-great-granddaughter could recover that check you never cashed—provided she has the proper documentation.

That said, be aware that there are certain jurisdictions that have provisions for the “true escheat” of unclaimed monies.

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Unclaimed Retirement Accounts in Pennsylvania

Tax-deferred savings accounts such as IRAs are different than most other forms of unclaimed property because their raison d’être is to be saved for decades, until the owner is ready to retire. For this reason almost all jurisdictions have laws requiring that retirement accounts not be reported until the owner has reached the age at which distributions are required to avoid a tax penalty. For a traditional IRA, the IRS has set this age at seventy and a half. (The April 1st following the year the owner reaches age seventy and a half, to be precise.)

Except for Pennsylvania.

In 2016, Pennsylvania adopted a new unclaimed property law that, to the confusion of all, neglected to include any mention of the seventy-and-a-half rule. As written, the law treats retirement accounts the same way it treats any other piece of unclaimed property—if the holder hasn’t had contact with the owner for three years, the holder must report that property to the state.

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Filing Deadlines

As you embark on creating an unclaimed property program, one of the most important elements is simply knowing when to file. It would be so convenient if all states and territories required the same deadline (say, April 15th), but that is not the case. Further complicating matters is the fact that some jurisdictions require different filing dates for different property types. To top it off, states are free to change their policies at any time, as Tennessee just did, switching from a May to November filing date. Keeping all of this straight can be a headache, and filing at the wrong time gives governments the opportunity to assess penalties and interest.

The deadlines do follow some general patterns. A majority of states have filing dates at the end of October or the beginning of November. The states that require life insurance property to be filed separately generally set the deadline at the end of April or the first of May. Here are some notable exceptions:

  • New York has nine separate deadlines depending on the business or property type.
  • In California a business organization’s end of year may vary, but the report due date will always be June 15th, except for life insurance property, which is due December 15th.
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Dormancy Periods

Being familiar with the applicable dormancy periods is crucial for a successful unclaimed property program. A dormancy period is the length of time that you must hold a property before escheating it to the state, and it typically begins on the date that the funds were first payable. Of course every state has a different set of dormancy periods, and of course they are all subject to change.

The standard dormancy period is three years for most states, but over a third use a five-year standard. Certain property types often have longer or shorter dormancy periods. For example, government-related funds and utility deposits often have shorter periods, typically a year. The majority of states also use a one-year dormancy for payroll and commissions. Money orders and travelers checks almost always have longer dormancy periods.

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IL S 1813 Enacted

Credit Unions in Illinois may deduct dormancy charges and escheat fees under the new law effective August 23, 2019. Here’s the relevant section:

Sec. 44.1.
Unclaimed property; dormancy or escheat fee.
A credit union may deduct a dormancy charge or an escheat fee from property required to be paid or delivered to the administrator under the Revised Uniform Unclaimed Property Act, provided the amount of the deduction is consistent with the standards set forth in subsection (b) of Section 15-602 of that Act. In making the deduction, a credit union may allocate, classify, and record all or a portion of the deduction, as applicable, as the minimum share amount required to preserve the member’s status as a member of the credit union.

Go to the Illinois General Assembly site for the full text.