Every state has rules for how to handle money or property that does not belong to a business. Typically, this will be property that could not be refunded to a customer, client or patient, former tenant, former employee or a vendor. 

A business is not permitted to keep funds that do not belong to the business indefinitely. Each state has a period of time when unclaimed property must be escheated to the state if it is not returned to the rightful owner. This can be complicated when the business is in a different state from the last known location of the individual or business to whom the assets belong. 

Definitions

There are two main definitions to know: 

Unclaimed property refers to property or other assets, typically money, that a business has but that does not belong to the business.

Escheatment refers to the process of transferring the property or other assets to the state when they cannot be returned to the rightful owner. 

Examples

There are many ways a business can end up with unclaimed property in their possession. Here are a few examples: 

• A customer, client or patient is owed a refund, the business issues a check and the check is never cashed. In trying to follow up on the payment, the business is unable to make contact to get the check sent to the correct address or cashed. 
• A business issues gift cards to an individual or business, and they are never used. 
• An employee leaves the company and has uncashed paychecks. 
• A check to a vendor for products or services is never cashed. 
• A tenant or subletter pays a security deposit which the business holds during the lease, and the business is unable to return the security deposit after the end of the lease. 

Process

Most small business owners have never heard of these rules, which makes it seem like a daunting process to figure out. Here are steps you can take as a business owner: 

Step 1 

Reduce the chance of having unclaimed property. Attempt to timely follow up on any uncashed checks to customers, clients, patients, former employees, former tenants, and vendors. Avoiding too much time passing can make it easier to get the money into the correct hands before the escheat rules apply. 

Step 2 

Learn the rules for when and how to escheat unclaimed property. Learn the unclaimed property and escheat rules for your state, and if you end up with cash/assets owed to someone in another state, you also need to learn the rules for that state.

Each state has their own rules so there are no general guide, although every state does have a time frame when unclaimed property needs to be transmitted to the state. The time frame is often a period of years, that if the property cannot be returned to the rightful owner it needs to be sent to the state. 

Consider consulting an attorney to become familiar with the unclaimed property and escheat rules, especially if dealing with rules for multiple states. 

Be careful reading online guides and articles as the rules could have changed since the piece was published. It's best when reading online to focus on .gov sites. These will have .gov in the first part of the web address. For example, www.pa.gov is one of the sites for Pennsylvania. If you come across a site that says www.pa.com/info.gov that is not the state site since it has a .com before the .gov. Many scammers set up fake sites that look just like official sites, and this could be designed to get you to remit the funds to the scammer instead of to the state. 

Step 3 

Remitting unclaimed property. Once you are aware your business is in possession of unclaimed property and it reaches the deadline for the appropriate state, you will send the funds or assets to the required state address with any required forms or documentation. You will provide as much information about the owner of the unclaimed property so that the state may eventually reunite the recipient with the funds. Once it is received by the state you no longer have any requirement to track down the recipient. 

Step 4

Recipient can retrieve property from the state. Each state lists unclaimed property on a searchable public government (.gov) site. You can have unclaimed property in another state if you previously resided there, or if a company had money owed to you but did not know your correct state. Your customer, client, patient, former employee or vendor can search for their company name or individual name to discover the unclaimed property. There is often a period of time the recipient has to claim the property. 

Bottom line

Businesses are not permitted to keep property or funds that belongs to a customer, client, patient, former employee, former tenant or vendor. While many businesses are unaware of these rules, it is possible to navigate them and comply so that unclaimed property ends up in the state hands and is no longer a responsibility of the business. You may need to consult an attorney to learn about the specific rules for your or other relevant states.