Guide to escheating outstanding trust fund checks

Guide to escheating outstanding trust fund checks

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 their 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. Often times, trust amounts are kept in a Firms 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 due diligence. Here are a few tips to demonstrate due diligence:

• Have written policies & procedures in place that represent a timeline of the process (e.g: how often outstanding check listings are reviewed, how old the checks are when the Firm makes first contact to the owner, etc.)
• Have a template to complete in which Firm personnel will complete to notify the rightful owner that there is unclaimed property in their name. This should clearly indicate that your records show you have submitted a check to them on a certain date that has not been cashed.
• Have a plan of action for each different response that may be obtained after sending the template: undeliverable, wrong address, no response, etc.
• Keep the documentation. It is extremely important to keep a trail of your written policies & procedures being implemented (e-mails, correspondence, notes of phone calls, etc.). When companies discard unclaimed property records, state auditors may use estimation techniques to determine a historical liability. To prevent this, the Firm should adopt record-retention policies compatible with unclaimed property laws.
• Know the state in which you are dealing with. The state law that you should follow would correspond to the last known address of the unclaimed property owner. Reporting requirements and due diligence laws vary from state to state and it is important to be familiar with the laws in the state before the due diligence process starts to remain compliant.

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. 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. Failure to follow address your states unclaimed property rules could subject the attorney to disciplinary actions as described within the Rules of Professional Conduct. By not having policies and procedures in place, you are putting yourself and the Firm at risk. Following the few tips discussed above will put your Firm in a position of strength.

Need More Information?

Should you have any questions, please contact:

Bill Sansone, CPA, Partner
Team Leader, Professional Services – Law Firms
732.842.3113
[email protected]

Lauren Taguer, CPA
732.842.3113
[email protected]

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The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your individual facts and circumstances.