Unclaimed Property Laws

BY NICHOLAS FIORE

ll 50 states (as well as the District of Columbia, Puerto Rico and Guam) have laws that apply to unclaimed property. Unclaimed property typically is intangible property—held, issued and owed to another in the ordinary course of the holder’s business—that the owner has not used or made an ownership claim on within a certain period of time (such as a bank account that has been dormant). Under these laws, when the applicable period has passed, the holder of the property is required to turn it (or its cash value) over to the state, which then holds it until claimed by its rightful owner. If the true owner is never found, the property then belongs to the state.

THE UNCLAIMED PROPERTY PROCESS

The laws dealing with unclaimed property are straightforward. Once an item of property has remained on a holder’s books and records for a certain period of time without any activity or claim being made by the owner, the property is deemed abandoned. (The time period within which this occurs varies by jurisdiction and type of property.) On abandonment, a holder must remit the property to the appropriate state, which in theory takes possession of it for the rightful owner; should the true owner be located, the state legally is obligated to return the property to him or her.

TYPES OF PROPERTY

Traditionally, unclaimed property laws came into play from the banking, insurance and securities industries; these laws applied to bank accounts that had not had any activity within a specified period of time or insurance policies for which the beneficiaries could not be found. Nowadays, however, these laws have been expanded to cover gift certificates, uncashed dividends, payroll checks, electronic gift cards, unrefunded security deposits and mineral rights and royalties.

With all these new types of property and because individuals are much more mobile, questions often arise as to which of several states may have the stronger claim to the same (unclaimed) property.

PRIORITY OF CLAIMS

The 1954 Uniform Disposition of Unclaimed Property Act, as interpreted by the U.S. Supreme Court, has provided some answers when there are competing claims.

First priority rule. The state or jurisdiction of the owner’s last-known address, as shown on the holder’s books and records, is entitled to custody of the unclaimed property.

Second priority rule. When the owner’s address is unknown, the state in which the holder is incorporated becomes the custodian of the property. (When the holder is not a corporation, the state of the holder’s principal place of business is determinative.) That state also is entitled to the property when the state of the owner’s last-known address does not provide for claiming such property. In addition, a state claiming property under the second priority rule may retain the property for itself only until some other jurisdiction comes forward with proof that it has a superior claim under the first priority rule.

EXEMPTIONS

In recent years, some states have amended their unclaimed property laws to exempt certain types of property, such as gift certificates, credit memos and business-to-business transactions. However, many of these exemptions apply only in very specific situations, and are therefore available to very few companies.

For a detailed discussion of this subject, see “Exemptions in Unclaimed Property—Fact or Fiction?” by Noel Hall, Matthew Chenowth and Garth Jensen in the July 2001 issue of The Tax Adviser.

—Nicholas Fiore, editor
The Tax Adviser

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