Unclaimed Property. More than likely most every business has unclaimed property. To ignore the rules of unclaimed property could result in steep penalties and result in a higher risk of being audited. This article will walk through unclaimed property rules.
What is Unclaimed Property?
“Unclaimed property consists of abandoned financial assets such as checking and savings accounts, unpaid wages, securities, life insurance payouts, uncashed checks, and the proceeds of safe deposit boxes that are without activity for a certain period of time. It does not include real estate or vehicles,” as defined on the SD Unclaimed Property Division’s website.
How Does Property Become Unclaimed?
There are many ways in which property could become unclaimed. It might be due to a terminated employee forgetting to pick up their final paycheck, an employee or vendor change of address, or an owner simply did not knowing about the property.
Reporting and Deadlines
There are five simple steps to ensure compliance:
- Review records regularly
- Make a reasonable effort to contact the Owner
- Prepare the report
- Submit the report and remit
- Retain records
Review Records Regularly
The easiest way to consistently identify outstanding payables is to review the bank reconciliation monthly, research the outstanding checks, and document the adjustments. It is important to keep up with outstanding payables, as it is easier to make an effort to contact the owner instead of reporting unclaimed property.
When researching, the goal is to determine the date of last contact or activity for each customer account or outstanding amount owed to a client, customer, vendor or employee. Once the research is complete, the next step is determining if the property is considered unclaimed.
Property is Unclaimed if both of the following are true:
- The property has been uncashed for 1-3 years.
- There has been no contact with the Owner during the 1-3 year abandonment period.
Property Categories Number of Years Dormant
Utility Deposits/Refunds 1
Safe Deposit Boxes 3
Checking/Savings/Cashier Check Accounts 3
Traveler’s Checks 15
You can find the complete matrix on the SD Unclaimed Property Division website.
Make a Reasonable Effort to Contact the Owner
Before reporting and remittance, due diligence should be exercised to notify and return the property to the owner. Notices are to be sent via U.S mail no less than 60 days prior to escheatment. The requirement of due diligence only applies to amounts of $50 or more – the State does not have a minimum for the requirement to report. If these attempts do not produce any activity or claim, the property should then be reported to the State.
What to include in the notification(s):
- A statement that the property is being held to which the addressee appears to be entitled.
- Information regarding any changes of the name of the holder.
- A statement that the property will escheat to the state.
- Letters must be sent no less than 60 days prior to escheatment.
An example letter of this notification can be found on the SD Unclaimed Property Division website.
Prepare the Report
All property not previously reported to the Unclaimed Property Division and unclaimed for the applicable period of dormancy should be included in the report. Holders are required to report all available Owner information – including last known address, the date last contacted, and a description of the property. Submitting as much information as possible will reduce the need for further contact by the state.
Submit Report and Remit
Property reports must be submitted to the Unclaimed Property Division via a secure file transfer portal in the NAUPA format via the Unclaimed Property Division’s website under “Submit a Report.” Holders failing to submit a report will be subject to a penalty.
A record of the name and last known address of the Owner must be maintained for ten years after the property becomes reportable. If audited, and this information is unavailable, penalties may be incurred.
The State offers a Voluntary Disclosure Program for those who haven’t been compliant or who have discovered unclaimed property which should have been reported. This program provides a way to report those over-looked properties – without penalty or interest. Further details regarding this program are available on the Unclaimed Property Division’s website under “Voluntary Disclosure Program.”
Government and Public Entities
Government and Public entities have some differing guidelines. The Public Entities Reporting Manual is available in digital form on the Unclaimed Property Division’s website under “Reporting Guidelines.”
SD Unclaimed Property Division Website: https://southdakota.findyourunclaimedproperty.com
NAUPA Website: https://www.unclaimed.org
SD Codified Laws: https://sdlegislature.gov/statutes/Codified_Laws/Default.aspx
Please note that unclaimed property laws vary in each state. The above discussion is specific to South Dakota.