What is escheatment?

Escheatment is the legal process requiring businesses to turn over unclaimed property, including uncashed payroll checks and outstanding vendor payments, to the state after a specified dormancy period. For professional service firms, escheatment requires tracking and reporting unclaimed items to avoid penalties.

Key characteristics

• Unclaimed property transfer

• State law requirement

• Dormancy periods vary

• Annual reporting required

• Includes uncashed checks

• Penalties for non-compliance

Why it matters for professional service firms

Holding unclaimed property beyond dormancy periods violates state law. States actively audit for escheatment compliance with significant penalties. Professional service firms should track outstanding checks and payments, attempting contact before escheating to the state.

Real-world example

Michelle's records showed 3 payroll checks uncashed for 14 months. State dormancy period: 12 months. Escheatment process: attempted to contact former employees (documented efforts), filed the required state report, and remitted $2,840 to the state unclaimed property division. Checks written off the books. Proper escheatment avoided audit penalties.