Children
may be fond of the phrase "finders keepers, losers weepers” but unclaimed
property professionals know this is rarely the case and state escheatment laws
are never as simple as calling "dibs” on abandoned assets.
So,
where did our confusing patchwork of unclaimed property laws originate and how
has it evolved over the years?
Blame Our Forbearers
Like
many time-honored American traditions (whiskey and fried food come to mind immediately),
the concept of unclaimed property was first established in feudal England. The
term "escheat" derives from the Latinex-cadere – meaning "to fall out.” Under English common law, any
lands held "by tenure” (i.e., occupied by someone other than the owner) were
returned to the feudal lord upon the death of an heirless tenant.
The
idea behind escheatment laws was simple: when a landholder died, went to war or
was convicted of a crime and imprisoned, his property reverted to the landowner
in order to ensure its continued productivity and to prevent "squatters”
without inheritance rights from usurping land that did not belong to them.
Following
the Norman Conquest of England, the
monarch became the sole "owner" of all the land in the kingdom, a
position that persists to the present day. The king then granted land to his
favored followers, who became"tenants-in-chief,”
under various contracts of feudal land tenure. Such tenures never conferred ownership of land but merely
ownership of rights over it. This distinction between ownership and stewardship
of unclaimed property would be a hallmark of later U.S. laws.
Seems
logical enough, right? All land belongs to the state (or in this case the
crown) and reverts back to the crown once the holder is dead or otherwise loses
his claim to the property.
Early
common law forms of escheatment applied only to real estate – the concept of bona vacantia ("ownerless goods”) emerged
many years later as a statute provision governing personal property without a
clear heir.
Crossing the Pond
Inspired
by English common law and the Magna Carta, property rights are among the most
uniquely important elements of U.S. law, so important that they were codified
in the Fifth Amendment of the U.S. Constitution.
The
philosophical basis for U.S. escheatment law is not as clear as its feudal
roots, but 19th century writings indicate the principles are
similar, with individual states taking the place of feudal lords and the
monarchy. William Draper Lewis, the dean of the University
of Pennsylvania’s Department of Law in 1898, wrote:
"It is a general principal in
the American law…that when the title to land fails from defect of the heirs and
devisees, it necessarily reverts or escheats to the people, as forming part of
the common stock to which the whole community is entitled…and the lands vest
immediately in the state by operations of law.”
Over
the years, there have been several statutory changes to U.S. unclaimed property
laws, many resulting from court challenges in the 1930s and 1940s. The first
nationwide unclaimed property law debuted in 1954 and
was drafted by the Commission on Uniform State Laws. This
model Act was commonly known as the Uniform Disposition of Unclaimed Property Act (UDUPA), but it soon became apparent that multiple
liabilities (with different escheatment laws being applied to the same property holder
doing business in different states) would be problematic.
Goin’ Through Changes
UDUPA
has since been superseded, first by the Revised Uniform Disposition of
Unclaimed Property Act (RUDUPA – 1966) and later by the 1981 Uniform Unclaimed
Property Act (UUPA) which would be adopted by 26 U.S. states, the District of
Columbia and the U.S. Virgin Islands. The 1981 Act was the most comprehensive
of all in that it not only included various definitions for certain property
types, but this Act also included language that would give the state the right
to create an estimated liability in the absence of records. It also included
penalties, interest and audit cost provisions and a records retention
requirement.
Revised in 1995, the Uniform Act was broadened to include additional property
types (such as gift cards, royalties and mineral interests); and the new Act doubled the penalties and
audit fees for failure to comply with the laws. The 1995 Act also shortened dormancy periods and generally streamlined
the process of escheatment for both holders and state regulatory agencies.
Modern wrinkles continue to challenge unclaimed
property administrators, holders and associated service professionals, such as
lawyers and accountants. The advent of Internet gift cards, paycards and other
newly created forms of intangible personal property has caused many states to
update their escheatment laws. But the primary foundation in which these laws
were drafted has remained unchanged since the 1950s – reversing the old
"finders keepers” adage in favor of a new approach: a virtual, state-by-state
"lost and found” box. For further reading:
Escheatment Laws and
Regulations (from coveringcredit.com)
Unclaimed Property Laws,
Compliance and Enforcement (Adreoli/Spotswood-CCH)
Unclaimed Property Laws and
State Authority (Bureau of National Affairs)
The U.S. Securities and
Exchange Commission (SEC) Escheatment Page
This information is not intended as a substitute for legal advice on compliance or reporting requirements.