Magazine article Business Credit

The Uniform Unclaimed Property Act (1995)

Magazine article Business Credit

The Uniform Unclaimed Property Act (1995)

Article excerpt

The Uniform Unclaimed Property Act, a model law that embodies the rules and procedures requiring companies to report abandoned property, also known as the escheat laws, was published in early 1996. The new act, the Uniform Unclaimed Property Act (1995), is the result of a two-year effort by the Conference of Commissioners on Uniform State Laws, an organization made up of representatives from each of the states, whose function is to propose model laws for use by the states. The Conference worked with the National Association of Unclaimed Property Administrators (NAUPA), a trade association of state officials, and other interested industry groups to revise the 1981 Uniform Act (which is the basis for more than half of the states' abandoned property statutes) to propose revisions for consideration by the Conference. The 1995 Uniform Act will not become law in any particular state until adopted in part or in whole by that state's legislature. Indiana was the first state to adopt the new 1995 Uniform Act.

When performing an analysis of a company to determine credit risk, issuers of credit may be unaware of the fact that a company could have a significant liability for unreported abandoned property. In addition, acquirers of businesses based upon book value need to know that there could be a significant contingent liability lurking for unreported abandoned property that either has been suspended off balance sheet or taken into income. Although annual abandoned property liability will rarely be material to a company's financial position, the aggregate liability for 10 years or more, plus interest and penalties, oftentimes adds up to millions of dollars. This liability, plus the commencement of a state-initiated audit, can be avoided by conducting proper due diligence.

Abandoned Property Filing Requirements

Every company is required to make annual reports of property owed to third parties. The failure to make such reports subjects the holder of the property to interest and penalties. The Uniform Act has been revised by the Conference about every 10 years, beginning in 1954 with the first Uniform Act publication. A 1981 revision is the basis for the majority of state laws presently in use.

Virtually every company has abandoned property and is required to file reports with the states annually. Industry experts estimate that the $2 billion in abandoned property remitted annually to the states is a small percentage of the actual property considered abandoned and reportable to the states. (see figure 1) Indeed, states already have progressively shortened the dormancy period required to presume that property is abandoned, based on the general acceptance of the notion that it is much easier to locate missing owners after a shorter period subsequent to their becoming "lost." Given the shrinking resources available to state governments and a widespread anti-tax climate, it is likely that non-tax revenue-generating programs like abandoned property will be not only fully embraced by the states but expanded and strengthened.


History and Concepts

The concepts underlying abandoned property law can be traced back to British common law, when abandoned land was returned to the king as a matter of right. The permanent transfer of property rights to the king was called "escheat." In the United States, where the concept has been adapted to apply to such intangible personal assets as salary checks, bank account balances and securities, the states receive abandoned property instead of the king. The states do not take permanent possession as did the king, but act as custodian of the property in perpetuity on behalf of the rightful owner. The abandoned property laws have three goals: to reunite lost owners with the property that is rightfully theirs; to protect the holder of abandoned property from subsequent claims by the owner after the property was transferred to the state; and to ensure that any economic windfall is for the benefit of the state and its citizens and not for the holder. …

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