Escheatment: the balances on your books that are not yours to keep

Escheatment is the process by which property a business holds for someone else, and cannot return to them, passes to the state to hold on the owner’s behalf. It covers far more than forgotten bank accounts: uncashed payroll and vendor cheques, customer credit balances, unused gift certificates in some states, refunds never collected, unclaimed insurance proceeds, and deposits nobody came back for.

The company holding it is the holder, and the obligation is the holder’s. That is the part small and mid-sized businesses miss: the money sits in a liability account or, worse, has been written back to income, and nobody has ever filed a report. The obligation does not lapse — in most states there is no limitations period running in your favour while the property goes unreported, which is why an examination can reach back a decade or more.

How escheatment works

1. Identify the property: outstanding cheques, credit balances, unapplied receipts, dormant accounts, anything owed to somebody who has not collected it.
2. Apply the dormancy period for that property type and that state. Periods vary — wages are commonly shorter than general balances — and the clock runs from the last owner contact, not from the accounting date.
3. Perform due diligence: write to the owner at their last known address within the window the state prescribes, telling them the property exists and how to claim it.
4. Report and remit to the correct state, in its format and by its deadline.
5. Keep the records: the property detail, the due diligence letters and their outcomes, and the filed reports.

Which state gets it

The priority rules are settled and frequently misapplied. The property goes first to the state of the owner’s last known address in your records; where there is no address, it goes to the holder’s state of incorporation. That second rule is why Delaware receives so much of it and why so many companies incorporated there are examined. The practical implication is mundane and important: address quality in your records determines which state you owe, so a book of balances with no addresses is not merely untidy, it moves your entire exposure to your state of incorporation.

Never write unclaimed balances back to income. It is the most common finding, it looks to an examiner like the company kept money belonging to somebody else, and interest and penalties are assessed on the amount that should have been reported. An old outstanding cheque is a liability until it is either cashed or escheated.

Where examinations find money

Third-party auditors work on contingency in this area, and they know where to look: the outstanding cheque list, aged credit balances in accounts receivable, unapplied cash, void and reissue patterns, and payroll. They also use estimation — where records for older years are missing, several states permit an estimated liability based on the years you can document, extrapolated backwards. That estimate is almost always worse than the actual figure would have been, which makes record retention a financial decision rather than an administrative one.

The file that makes this manageable

What keeps this under control is a small amount of routine work: a review each period of what is outstanding, an owner and an address for each item, and the evidence of contact attempts. Ettex Records holds the property file per year with the due diligence letters and their outcomes attached, Ettex Sheets carries the outstanding items with dormancy dates calculated rather than remembered, and the annual filing itself is covered in unclaimed property reporting.

Being direct: this is records and spreadsheets, not unclaimed property software, and none of it is legal or tax advice. Dormancy periods, due diligence thresholds, exemptions and voluntary disclosure programmes are state law and differ substantially; a specialist adviser is the right answer where the balances are material or the back years are unreported.