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5/19/16 5:06 PM

Where Do States Receive Authority to Enact Abandoned and Unclaimed Property Laws?

by Greg VerMulm

states-unclaimed-property-rights.pngIf you believe state unclaimed property laws are backed by federal law, you would be in good company. When someone first becomes involved in unclaimed property, it’s common to assume the protection of property owners would be something the federal government would want to govern.

In fact, the precursor to modern unclaimed property laws—English Common Law—was all about the rights of the kingdom to claim abandoned property. But if you believe there is federal law backing state unclaimed property laws, you would be wrong. The United States federal government hasn’t passed unclaimed property laws.

Question: If that’s the case, then where does state jurisdiction in this matter come from?

Answer: From the states themselves. Before modern unclaimed property laws came along in the 1950s as the result of the first unclaimed property act passed by the Uniform Law Commission (ULC--not a federal lawmaking body), the country followed the basic tenets of English Common Law. If someone died without heirs, the property reverted to the government for disposition.

In 1954, the ULC published the Disposition of Unclaimed Property Act, which was modified or rewritten in each of the years 1966, 1981 and 1995. Currently, the ULC is in the process of preparing a brand new version. The ULC is a non-governmental body consisting of volunteer judges, lawyers and others who research laws and look for ways to make them more uniform throughout the land. You can learn more about the ULC and unclaimed property acts at www.uniformlaws.org.

Reasons States Pass Unclaimed Property Laws Based on ULC Acts

The states are not required by law to pass any legislation that follows the ULC acts. So, why do they? There may be many reasons, including:

  • To keep from having to take the time and do the research and consensus building to create their own unclaimed property laws from scratch
  • To receive backing by the ULC acts to guide lawmakers and confirm and justify what they’ve drafted in their own laws
  • To enjoy the support of other states with similar laws

Many states pass laws mirroring one or more ULC act, but many only pass portions of the acts—or they draft completely new laws governing abandoned and unclaimed property. Other countries across the globe, including Canada, are beginning to pass similar laws.

State Unclaimed Property Laws Don’t Stand Alone

Even though the states have a right to create and pass state unclaimed property laws, the laws themselves must be based on legal precedents or they could be challenged in court and overturned. As a result, the strength of a state’s right to pass the laws is somewhat dependent on other laws. Contract law or statutes of limitations, for example, can sometimes supersede unclaimed property considerations.

Occasionally, conflicts over the way unclaimed property law is dispensed escalate until one party brings suit. We now have a number of precedents that have to be taken into consideration by state legislatures when they pass unclaimed property laws.

Rules related to applicable jurisdictions for unclaimed property were solidly determined in the Supreme Court case Texas v. New Jersey, 379 U.S. 674 in 1965. The states were both claiming the right to escheatment of certain properties based on conflicting state laws. The court decision resulted in what the industry now calls “The First Priority Rule.” After a dormancy period has been exhausted, a company must report property to the state where the owner was last known to have lived (as shown in the company records).

If an address isn’t known or the applicable state doesn’t have a governing rule, the company must report the property to the company’s state of incorporation. That’s considered “The Second Priority Rule.”

So, there you have it—background explaining why states have the right to pass unclaimed property laws. The precedents continue to evolve, as is the case with all other laws. Our checks and balances are alive and well, and we can expect to see many ongoing evolutions of abandoned and unclaimed property law in years to come.

Topics: ULC, U.P. Law