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.
There is a certain logic to all of this: the more likely a property is being held intentionally, the longer the dormancy period, and vice versa. While it may make sense to hold on to a money order or traveler’s check for an extended period of time, waiting more than a year to cash a paycheck is not likely to be intentional.
Similarly, states do not want to interfere with retirement accounts or other investments that may have no activity for extended periods of time. The timing of escheatment for IRAs vary by state: sometimes it is shortly after the mandatory distribution date or the death of the owner, and sometimes it is several years after such an event. Consult the relevant statutes to be sure.
Changes to unclaimed property laws are increasingly common, and in the process state governments favor shorter dormancy periods, arguing that it becomes less and less likely to reunite money with the rightful owner as time goes by. Businesses typically lobby for longer dormancy periods, citing the administrative burden of adhering to tighter time frames. Whatever the outcome, your system must be updated to reflect current laws and regulations to minimize risk.