Escheatment
What is an Escheatment?
This is the term for the process, in the USA, where assets considered by a company to be dormant, abandoned or unclaimed are reported to the relevant State’s Unclaimed Property Department.
But our shares weren’t “unclaimed”! We have been trying to get them transferred!
Unfortunately, the State may think otherwise. Companies and other asset-holding financial institutions are required by the State in which they incorporate to report assets deemed “inactive” to that State as ‘abandoned’ or ‘unclaimed’ property. They determine inactivity as a period – usually of about three to five years – in which there has been no activity on an account. During this time, if a shareholder, for example, has lost capacity and later dies, assets such as dividends might pile up uncashed because notifications are going to an old address. This might lead a company to determine the account is ‘dormant’.
Sometimes the shareholder, or their estate representative, was actively trying to attend to the disposal of the shares; but with any period of inactivity, an invisible clock has been ticking, and the process of escheatment might have begun without their knowledge, and could only have been stopped by successfully taking an asset out of the deceased person’s ownership before the escheatment process was completed.
There is no set time limit, or a single set of rules, about when an asset escheats: it can be extremely unpredictable and can be triggered, for example, by dividends piling up uncashed (because the shareholder has moved from their address without realising it was necessary to notify the transfer agent).
What is the difference between Bona Vacantia and Escheat?
Bona Vacantia and Escheat are both legal concepts related to unclaimed or ownerless property, but they differ in their scope and processes, depending on the legal system of the country in which the law applies.
Bona Vacantia in the United Kingdom refers to “ownerless” or “vacant” goods, property that has (or appears to have) no rightful owner. This usually includes assets like cash, shares and other assets that have been abandoned or left without heirs or claimants, or when corporation owning assets dissolves. Very few estates advertised by the Government Legal Department or the Duchies of Lancaster and Cornwall are truly ‘bona vacantia’.
On the other hand, the legal doctrine of escheatment is a legal doctrine found in jurisdictions like the USA and Canada, where ownership of property reverts to the relevant State or Province, when a person dies without heirs or the property is considered as abandoned, with no legal claimants.
What does escheatment actually mean?
The term “escheat” has its origins in French and English law, and refers to a process where the property of a person who dies leaving no Will and no heirs, becomes the property of the Crown or State. In the USA, ‘escheatment’ refers to the law, in each US State, allowing the State to take ownership of assets left ‘unclaimed’ for a long period of time. Asset holders have the right, in perpetuity, to reclaim their property from the relevant State.
Commonly Asked Questions
The Executors don’t have access to the deceased shareholder’s dividend cheques or account statements, what happens now?
It’s not uncommon for a shareholder or account holder to move away, and forget to notify the asset-holding institution of their change of address. Transfer agents might continue to send regular dividend cheques or statements out to the address they have on file for a considerable time without knowing, or establishing, whether the account holder is still there. When enough dividends go uncashed or are returned marked “gone away”, this could trigger the escheatment process.
How do we get the shares back?
If escheatment has already taken place, you may not be able to get the shares back as live, traded securities or shares. Most US shares reported to the relevant State’s Unclaimed Property Department are typically liquidated soon afterwards. The cash proceeds and any uncashed dividends will remain with the State in perpetuity or until they are claimed by the entitled parties such as estate representatives. Most US States don’t pay out any interest: they will just send a cheque in the post, without preamble or explanation, following completion of a successful claim.
There is typically a multi-part, opaque claim procedure to claim monies from US States. Claimants must prove their identity and entitlement to claim, and may have to submit numerous documents to support the claim. It’s important to know what has escheated so the viability of a claim can be assessed.
Overseeing claims to completion can be time-consuming and costly. Finders can help estate representatives with claims to recover escheated cash monies from a US State, to bring the monies back into the estate. We use our experience in this field to navigate the State’s requirements, and help assemble all the necessary documentation in support of a claim, staying on board throughout the process to the point where a payment has been issued. Please contact us for a quote, in confidence and without obligation.
The Executors have received a warning that the Deceased shareholder’s account is dormant and at risk of escheatment, what do we do?
One reason that US escheatment occurs so frequently in deceased shareholders’ estates is that their shares can’t be transferred out of the sole name of the Deceased, and their address changed, without a formal transfer process including having a Medallion Guarantee stamp affixed. Finders can help you get the shares transferred out of the Deceased’s name. Please contact us for a quote for this work.