Most businesses have unclaimed property obligations and do not know it. Unclaimed property — also called escheat — is the legal requirement to transfer dormant financial assets to the state after a defined period of inactivity. The obligation is not limited to banks and financial institutions. Any business that holds funds belonging to someone else — vendor overpayments, outstanding payroll checks, customer deposits, unredeemed gift cards, uncashed dividends, dormant accounts receivable credits — potentially has unclaimed property obligations in every state where its customers, employees, and vendors are located.
Unclaimed property is one of the most underappreciated compliance obligations in corporate law. States aggressively audit holders — the companies that hold dormant property — and the potential liability from an unclaimed property audit can be staggering, particularly when states use statistical sampling to estimate unreported liabilities over a multi-decade lookback period. Understanding what unclaimed property law requires, building a compliance program that addresses those requirements, and knowing how to respond if an audit begins are essential for any business with meaningful financial operations.
How Unclaimed Property Works
Unclaimed property law operates on a simple principle with complex implementation: if a business holds money that belongs to someone else and cannot locate that person after a dormancy period, the money must be reported and remitted to the state. The dormancy period — the amount of time that must pass before property is considered abandoned — varies by property type and by state, ranging from one year for certain payroll items to five years or more for general creditor balances. Before reporting and remitting, holders are typically required to make a due diligence effort to locate the apparent owner, usually by sending a first-class mail notice to the last known address.
The priority rules that determine which state receives unclaimed property were established by the U.S. Supreme Court and allocate property first to the state of the owner’s last known address and second, if no address is known, to the state of the holder’s incorporation. These rules create particular complexity for Delaware-incorporated companies, which may owe property to Delaware even when they have no other connection to the state.
What Property Types Are Covered
The range of property types subject to unclaimed property law is broader than most business owners expect. Payroll checks that employees never cashed, vendor overpayments that were never reclaimed, customer refunds that were never collected, security deposits that were never returned, gift card balances that were never redeemed, stock dividends that shareholders never received, and accounts receivable credits that vendors never requested are all potentially reportable. Financial services companies have additional obligations covering dormant bank accounts, uncashed insurance proceeds, and securities held for lost shareholders. The applicable property type determines the dormancy period and the specific due diligence requirements.
Audits and Voluntary Disclosure
States conduct unclaimed property audits through their own revenue departments or through third-party audit firms, which are often compensated on a contingency basis — meaning they are paid a percentage of what they collect. This compensation structure creates an incentive for aggressive audit techniques, including statistical sampling methodologies that extrapolate liability from a sample of records over a long lookback period. The resulting assessments can be much larger than the actual property the holder failed to report.
Businesses with historical reporting gaps have an important alternative to waiting for an audit: voluntary disclosure agreements, or VDAs. Most states offer VDA programs that allow holders to come into compliance proactively in exchange for a limited lookback period — typically three to five years rather than the full audit lookback — and a waiver of interest and penalties. For companies that have not been reporting or have been under-reporting, a voluntary disclosure agreement is almost always preferable to an audit, and the window to enter a VDA typically closes once an audit notice is received.
Special Situations
Unclaimed property obligations do not disappear in corporate transactions. In mergers and acquisitions, the acquiring company typically inherits the target’s unclaimed property liabilities — including liabilities for periods before the acquisition and including liabilities that the target itself did not know about. Due diligence that fails to assess unclaimed property exposure can leave an acquirer with unexpected liability. Restructurings, spin-offs, and bankruptcies create their own unclaimed property complications, as do foreign operations and multinational companies that hold property subject to both U.S. and foreign escheat laws.
What This Section Covers
The pages in this section address unclaimed property law across the full range of compliance and enforcement issues: the constitutional framework, the Uniform Unclaimed Property Acts and state-by-state variations, dormancy periods and triggering events, property types including payroll, accounts payable, gift cards, securities, insurance, and mineral proceeds, due diligence requirements, voluntary disclosure agreements, audit defense strategies, statistical sampling methodologies, the Delaware unclaimed property controversy, business-to-business exemptions, interest and penalties, unclaimed property in M&A transactions, cryptocurrency and digital asset issues, and building a compliance program. Each page explains what the law requires and what businesses actually need to do to comply.