Changes in state unclaimed property laws and regulations, including new legislation, enforcement trends, and administrative guidance affect compliance strategies for multistate holders. Adapting policies and procedures to remain compliant with state-specific developments can help mitigate potential audit activity. Below, read questions we’ve received about emerging trends, and our answers to help you address your unclaimed property issues. Additionally, we invite you to view our recorded webcast on the topic.
Special note on voluntary disclosure agreements (VDAs): We have received many questions related to VDAs. Because of the volume of questions and complexity of VDAs, we will publish a dedicated insight in a future piece.
How should a holder address a situation where an owner has not responded and has failed to cash outstanding checks?
In general, uncashed checks may become reportable unclaimed property once the applicable dormancy period expires, unless state law provides otherwise. Before that occurs, the holder should follow its normal reconciliation and due diligence procedures, including documented outreach to the owner and coordination with the applicable internal department to confirm the owner’s current contact and payment information. If those efforts are unsuccessful, the holder should preserve documentation of its outreach attempts and, if the checks remain outstanding through the applicable dormancy period, report and remit the property to the appropriate state in accordance with its unclaimed property requirements.
How should a holder address a situation in which the owner declines to cash a check, even though the funds are validly owed?
In general, a holder should not assume that the obligation disappears simply because the owner refuses or declines to cash the check. If the amount represents a fixed and valid obligation, it may remain subject to unclaimed property rules until it is either resolved with the owner or reported and remitted to the appropriate state after the applicable dormancy period. The holder should document the circumstances, retain support showing that the funds were in fact owed, and conduct appropriate follow-up or due diligence consistent with its policies and the requirements of the relevant jurisdiction.
Is there a de minimis threshold for unclaimed property? For example, if an amount is below a state’s due diligence threshold, can a holder simply write it off instead of reporting it?
Generally, no. A state’s due diligence threshold is distinct from its reporting threshold. Accordingly, the fact that an item falls below the dollar amount requiring owner outreach — such as a due diligence letter — does not mean the property is exempt from reporting or remittance. In many jurisdictions, even small-dollar amounts (including amounts below the due diligence threshold) remain reportable once the applicable dormancy period has expired. Moreover, small-balance write-offs are a frequent area of state scrutiny in both audits and voluntary disclosure reviews, particularly because many holders maintain a policy or practice of writing off those amounts rather than reporting them. States are aware of that practice and often review general ledger write-off accounts, revenue adjustments, and similar entries to identify potentially reportable property. Importantly, writing off a balance to income or expense does not eliminate the underlying unclaimed property obligation; if the item is otherwise reportable under applicable state law, it may still be required to be reported and remitted.
If a holder has stale customer deposits, does it matter whether those deposits were designated as “non-refundable”?
It may matter, but the label “non-refundable” is not determinative by itself. From an unclaimed property perspective, the key issue is whether the holder has a valid legal basis under the governing contract, applicable state law, and the underlying facts to retain the funds permanently. Simply characterizing a deposit as non-refundable does not automatically remove it from unclaimed property scrutiny, particularly if the funds represent money received from a customer that was not ultimately earned, applied, or otherwise resolved. Rather, states may look beyond the terminology and examine whether the deposit was forfeited in accordance with an enforceable agreement, whether the holder had the right to retain the amount, and whether the books and records support that treatment.
Have you seen companies charge an “escheat fee” before remitting property to the state? For example, can a financial institution deduct a fee from the amount being reported and remitted?
Practices like this do arise, but they should be approached cautiously. From an unclaimed property perspective, the key question is whether the deduction is expressly authorized under applicable state law, the governing contract, and any other relevant regulatory framework. In many cases, a holder may not simply reduce reportable property by imposing an administrative or “escheat” fee, particularly if doing so would diminish the owner’s underlying entitlement without a clear legal basis. States will likely scrutinize these deductions closely, especially where the fee appears designed primarily to reduce the amount remitted. States could even consider this to be a “self-escheat” of the amount deducted, which is typically not permissible.
Can you address the unclaimed property implications for non-U.S. branches, as opposed to separate foreign legal entities?
From an unclaimed property perspective, the distinction between a non-U.S. branch and a separate foreign legal entity can be important. A branch is generally not a separate legal person from its parent, so property arising through a foreign branch may still need to be analyzed as property of the U.S. holder. If the owner’s last known address is in a foreign country, U.S. priority rules may cause that property to be reportable to the holder’s state of incorporation, assuming the property is otherwise subject to U.S. unclaimed property law, and no foreign law displaces that result. By contrast, a full standalone foreign subsidiary may present a different analysis because it is generally treated as a separate legal entity, with its own books, records, and legal obligations. That said, the answer is highly fact-specific and may depend on the entity structure, where the legal obligation resides, the governing contracts, how the books and records are maintained, and whether foreign law applies.
As a general matter, can a holder remit unclaimed property early to avoid the accounting and tracking required during the full dormancy period, and are there penalties or other risks associated with doing so?
Generally, holders should be cautious about remitting property before the applicable dormancy period has expired. Unclaimed property is typically not reportable until the statutory dormancy period is met, and remitting funds early may be inconsistent with state law because the owner’s right to claim the property directly from the holder has not yet lapsed for unclaimed property purposes. In addition, early remittance could interfere with required owner due diligence timing and may create customer, employee, or contractual issues if the holder sends funds to the state before it is legally obligated to do so. While states do not typically impose a formal “penalty” for remitting property early in the same way they penalize late reporting, early reporting can still create legal and operational risk if it results in noncompliance with dormancy, due diligence, or reporting requirements. We have also seen states reject reports with non-dormant property included.