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Escheatment laws are voluminous and could appear to be unrealistic to keep up with; however, knowing that they are there can spare you from an unwelcomed unclaimed property audit. Each state has its own unclaimed property division that not only manages the unclaimed property, but also ensures that companies are performing due diligence. Take a look at your firm's outstanding trust checks listing ' how old are the checks on there? Do you have policies and procedures in place to find the rightful owner? If you don't, you are putting your firm at risk for audit, which could result in fines, interest, and penalties.
Law firms in particular struggle with unclaimed property as it relates to outstanding checks in trust accounts due to the nature of the funds. Trust amounts are often kept in a firm's Interest on Lawyer Trust Accounts (IOLTA) account for a long period of time. When it comes time to pay the owner, they may have moved or passed away. Just sending the check, however, does not free you of the responsibilities of finding the respectful owner. Companies must demonstrate that they have exhausted all options to locate the property's rightful owners through a process of such due diligence. Here are a few tips to demonstrate such due diligence:
Escheatment
If the process of due diligence does not result in finding the rightful owner, you may need to report the unclaimed property and turn it over to the state where the owner is last known to have resided through a process called escheatment. State escheatment laws vary as to how old an uncashed check should be before remitting it to the state. For example, New Jersey and New York State laws require uncashed trust fund checks which are three years old to be escheated to the state, while Pennsylvania has a five year threshold. Property cannot be escheated, however, unless due diligence requirements have been met. Specific rules can be found under each state's Rules of Professional Conduct. In New Jersey, for example, Rule 1:21-6(j) covers unclaimed property in attorney trust accounts. In accordance with Rule 1:21-6(j), attorneys may transfer funds to the Clerk of the Superior Court only after the attorney prepares a detailed affidavit that evidences a diligent effort to locate the owner of the funds. The original affidavit and one additional copy must be sent to the Trust Fund Unit of the Superior Court Clerk's Office along with a check in the exact amount of the affidavit along with a self-addressed stamped envelope for mailing the receipt. If the attorney does not explain his/her due diligence in the affidavit, the court may return the check and deny the remittance of unclaimed property.
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