ESCHEATS…



ESCHEATS…

HANDLING UNCLAIMED PROPERTY IN NORTH CAROLINA

A Summary of Information from the State Treasurer

The Escheat Program began when the North Carolina General Assembly adopted the University Act of 1789. The administration of the program was handled by the University of North Carolina and its purpose in the early years was simple, to recover unclaimed property and to utilize it for the benefit of the University System. In 1970, legislation mandated that the North Carolina Department of State Treasurer assume responsibility for the administration of this program. The purpose and scope of the program was broadened, and it is now charged with:

- Recovering unclaimed or forgotten properties belonging to North Carolina citizens.

- Reuniting these properties with the rightful owner.

- Remitting the interest earnings on the funds invested to the North Carolina State Education Assistance Authority to provide loans to worthy and needy North Carolina students in State-supported institutions of higher education.

The program provides a most unusual but extremely beneficial service to the State.

What is an Escheat?

Simply put, an escheat is the succession of abandoned property to the State. It is commonly associated with property that comes from the estate of a person dying without a will and without any known heirs. However, this concept has been broadened to include the recovery of any property that results from the failure of a person legally entitled to that property to make a valid claim against the holder of the property within a prescribed period of time. Consequently, the terms escheat and unclaimed property are used interchangeably.

Holders of escheat and unclaimed property may include companies, retailers, corporations, partnerships, sole proprietorships, State agencies, financial institutions, universities, hospitals, local governments, public utilities, Clerks of Superior Court, and insurance companies. The types of property which are often unclaimed may include checking and savings accounts and even uncashed checks. Altogether there are over 100 different types of property which may become unclaimed or escheatable.

Recovery of Unclaimed Property

The Escheat Program enforces compliance of reporting by utilizing an audit staff, as well as two private vendors who concentrate primarily on out-of-state audits. Funds deposited into the Escheat Account continue to increase substantially as a result of greater holder awareness to report and remit unclaimed property belonging to individuals who cannot be located.

Refunds to Rightful Owners

The efforts to return property to the rightful owner are many and varied. The North Carolina General Statutes provide that a list of names and addresses of rightful owners be sent to each Clerk of Superior Court. To make the public aware of these lists, legal notices are placed in two newspapers of general circulation for two consecutive weeks. As an additional measure, the program also submits a duplicate list to one newspaper in each county, along with a news release and a request that the list be reprinted. Approximately 85% of the State's newspapers reprint the list as a public service. It is this service that generates most of the refund requests from the owners.

Another effective tool utilized to refund property to the rightful owner has been the process of matching Social Security numbers against the database from the tax files of the North Carolina Department of Revenue. The Department of Revenue then provides this office with current address information on the prospective claimant. If this endeavor does not prove to be successful, a similar match is made via Social Security number through a credit bureau that will also provide last known address information.

Remittance to the SEAA

The North Carolina State Education Assistance Authority (SEAA) is an agency of the State of North Carolina and is authorized by the General Assembly to administer post-secondary education programs of student financial assistance created under Federal or State law. North Carolina General Statute 116B-37 provides that the interest earnings from the Escheat Fund, minus administrative expenses, be deposited with the SEAA. The law further provides that this money will be utilized to provide low interest loans to worthy and needy North Carolina students in State-supported schools of higher education. This year $14,530,819 was deposited with the SEAA for this purpose. Interest earnings from last year provided low-interest loans to 5,316 North Carolina students in State-supported schools of higher education.

In the 27 years since the North Carolina Department of State Treasurer assumed responsibility for the administration of the Escheat and Unclaimed Property Program, $125,082,301 has been made available to the SEAA for loans. The loans are made to applicants demonstrating an income based need and are made without regard to race, sex, or national origin.

BACKGROUND

 

A. “Escheat” Defined

 

An escheat is the succession of abandoned property to the State. It is not a tax. It results from the failure of a person legally entitled to the property to make a valid claim against the holder of the property within a prescribed period of time. Property is also escheated from the estate of a person dying intestate or partially intestate without any known or discoverable heirs.

 

The North Carolina escheat statute G.S. 116B became effective January 1, 1981, to replace G.S. 116A which was enacted in 1971. A reprint of General Statute 116B is presented in the following pages. This manual is designed to serve as a general guide to the application of the Escheat Law.

 

NOTE: The general term “escheat,” as used functionally in this Manual, refers specifically to the process whereby any unclaimed, abandoned or uninherited property, of any type, passes to the custody of the State. It does not refer to the historical concept of escheat.

 

B. Historical Background

 

The principle of escheat originated in the elaborate feudal landholding system which existed in England during the Middle Ages. The basic premise was that property which remained without an owner or upon failure to make claim by a descendant’s heirs, reverted to the Sovereign from whom all property rights were derived.

 

This concept was brought to the American colonies by the English settlers and was included in the instrument by which the Lords Proprietors governed the Province of Carolina. When North Carolina became a Royal Province in the early Eighteenth Century, the King maintained the right of escheat.

 

Upon the conclusion of the Revolutionary War, the State of North Carolina succeeded to the rights previously held by the Crown, including the right of escheat. The North Carolina Legislature adopted the University Act of 1789 which gave the newly formed University “all the property that has heretofore or shall hereafter escheat to the state.” Throughout the early decades of the University, the escheat collections, though often minimal, provided a vital source of funds for the institution. The Treasurer of the University was responsible for the collection of escheat property under the law. For- the period through June 30, 1971, the University of North Carolina had collected and was maintaining a fund of $4,946,191.02. Inquiries pertaining to funds escheated during this time may be directed to the University of North Carolina, General Administration, P.O. Box 2688, Chapel Hill, North Carolina 27514 or call (919) 962-1000.

NOTE: There was a seven year statute of limitation whereby an owner could claim this property from the University. Since this time period has already lapsed, any funds remitted to the University as unclaimed property are not refundable.

 

Effective July 1, 1971, the State Treasurer was designated the Escheat Officer for the State of North Carolina with the responsibility for collection, management, and investment of moneys in the Escheat Fund. This manual contains the provisions of the law which were adopted through the 1999 Session of the North Carolina General Assembly.

 

C. Purpose of the Escheat Fund

 

The primary purpose of the Escheat Fund is to provide a means by which unclaimed property can be brought under the control of the State and converted to the benefit of the people of North Carolina. The State Treasurer invests the escheated moneys in the same manner that the State retirement funds are invested. The income derived from this investment is distributed annually to the State Education Assistance Authority to be used to make loans to worthy and needy North Carolina resident students who are enrolled in State public institutions offering post-secondary education [G.S. 116B-6].

 

Real or personal property which escheats under North Carolina law is liquidated and is placed in the Escheat Fund along with all other moneys collected or earned. The escheated money is held in trust for the rightful owners. The State then attempts to locate the rightful owner so that the owners may claim their money [G.S. 116B-67].

"§ 116B-59. Notice by holders to apparent owners.

 

(a) A holder of property presumed abandoned shall make a good faith effort to locate an apparent owner.

 

(b) The holder shall send written notice, by first-class mail, to the apparent owner, not more than 120 days or less than 60 days before filing the report required by G.S. 116B-60, to the last known address of the apparent owner as reflected in the holder's records, if the value of the property is fifty dollars ($50.00) or more.

 

(c) The notice must contain:

 

(1) A statement that, according to the records of the holder, property is being held to which the addressee appears entitled and the amount or description of the property;

 

(2) The name and address of the person holding the property and any necessary information regarding changes of name and address of the holder;

 

(3) A statement that, if satisfactory proof of claim is not presented by the owner to the holder by the following October 1 or, if the holder is an insurance company, by the following April 1, the property will be placed in the custody of the Treasurer, to whom all further claims shall be directed.

 

"§ 116B-60. Report of abandoned property; certification by

holders with tax return.

 

(a) A holder of property presumed abandoned shall make a report to the Treasurer concerning the property.

 

(b) The report must be verified and must contain:

 

(1) A description of the property;

 

(2) Except with respect to a traveler's check or money order, the name, if known, and last known address, if any, and the social security number or taxpayer identification number, if readily ascertainable, of the apparent owner of property of the value of fifty dollars ($50.00) or more;

(3) An aggregated amount of items valued under fifty dollars ($50.00) each;

 

(4) In the case of an amount of fifty dollars ($50.00) or more held or owing under an annuity or a life or endowment insurance policy, the full name and last known address of the annuitant or insured and of the beneficiary;

 

(5) The date, if any, on which the property became payable, demandable, or returnable, and the date of the last transaction or communication with the apparent owner with respect to the property; and

 

(6) Other information that the Treasurer by rule prescribes as necessary for the administration of this Chapter.

 

(c) If a holder of property presumed abandoned is a successor to another person who previously held the property for the apparent owner or the holder has changed its name while holding the property, the holder shall file with the report its former names, if any, and the known names and addresses of all previous holders of the property.

 

(d) The report must be filed before November 1 of each year and cover the 12 months next preceding July 1 of that year, but a report with respect to a life insurance company must be filed before May 1 of each year for the calendar year next preceding.

 

(e) Before the date for filing the report, the holder of property presumed abandoned may request the Treasurer to extend the time for filing the report. A request for an extension for filing a report shall be accompanied by an extension processing fee of ten dollars ($10.00). The Treasurer may grant the extension for good cause. The holder, upon receipt of the extension, may make an interim payment on the amount the holder estimates will ultimately be due, which terminates the accrual of additional interest on the amount paid.

 

(f) The holder of property presumed abandoned shall file with the report an affidavit stating that the holder has complied with G.S. 116B-59.

 

(g) Every business association holding property presumed abandoned under this Chapter shall certify the holding in the income tax return required by Chapter 105 of the General Statutes. The certification shall be a part of the tax return with which it is filed. If the business association is not required to file an income tax return under Chapter 105, the certification shall be made in the form and manner required by the Secretary of Revenue. The information appearing on the certification is not privileged or confidential, and this information shall be furnished by the Secretary of Revenue to the Escheat Fund on October 1 of each year, or if this date shall fall on a weekend or holiday, on the next regular business day.

 

"§ 116B-61. Payment or delivery of abandoned property.

 

(a) Upon filing the report required by G.S. 116B-60, the holder of property presumed abandoned shall pay, deliver, or cause to be paid or delivered to the Treasurer the property described in the report, but if the property is an automatically renewable deposit, and a penalty or forfeiture in the payment of interest would result, the time for compliance is extended to the next filing and delivery date at which a penalty or forfeiture would no longer result.

 

(b) If the property reported to the Treasurer is a security or security entitlement under Article 8 of Chapter 25 of the General Statutes, the Treasurer is an appropriate person to make an indorsement, instruction, or entitlement order on behalf of the apparent owner to invoke the duty of the issuer or its transfer agent or the securities intermediary to transfer or dispose of the security or the security entitlement in accordance with Article 8 of Chapter 25 of the General Statutes.

 

(c) If the holder of property reported to the Treasurer is the issuer of a certificated security, the Treasurer has the right to obtain a replacement certificate pursuant to G.S. 25-8-405, but an indemnity bond is not required.

 

(d) An issuer, the holder, and any transfer agent or other person acting pursuant to the instructions of and on behalf of the issuer or holder in accordance with this section is not liable to the apparent owner and must be indemnified against claims of any person in accordance with G.S. 116B-63.

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"§ 116B-72. Requests for reports and examination of records.

 

(a) The Treasurer may require a person who has not filed a report, or a person who the Treasurer believes has filed an inaccurate, incomplete, or false report, to file a verified report in a form specified by the Treasurer. The report must state whether the person is holding property reportable under this Chapter, describe property not previously reported or as to which the Treasurer has made inquiry, and specifically identify and state the value of property that may be in issue.

 

(b) The Treasurer, at reasonable times and upon reasonable notice, may examine the records of any person to determine whether the person has complied with this Chapter. The Treasurer may conduct the examination even if the person believes it is not in possession of any property that must be reported, paid, or delivered under this Chapter. The Treasurer may contract with any other person to conduct the examination on behalf of the Treasurer.

 

(c) The Treasurer at reasonable times may examine the records of an agent, including a dividend disbursing agent or transfer agent, of a business association that is the holder of property presumed abandoned if the Treasurer has given the notice required by subsection (b) of this section to both the association and the agent at least 90 days before the examination.

 

(d) Documents and working papers obtained or compiled by the Treasurer, or the Treasurer's agents, employees, or designated representatives, in the course of conducting an examination are confidential, but the documents and papers may be:

 

(1) Used by the Treasurer in the course of an action to collect unclaimed property or otherwise enforce this Chapter;

 

(2) Used in joint examinations conducted with or pursuant to an agreement with another state, the federal government, or any other governmental subdivision, agency, or instrumentality;

 

(3) Produced pursuant to subpoena or court order; or

 

(4) Disclosed to the abandoned property office of another state for that state's use in circumstances equivalent to those described in this subsection, if the other state is bound to keep the documents and papers confidential.

 

(e) If an examination results in the disclosure of property reportable under this Chapter, the Treasurer may assess, against a holder who made a fraudulent report, the cost of the examination at the rate of two hundred dollars ($200.00) a day for each examiner, or a greater amount that is reasonable and was incurred, but the assessment may not exceed the value of the property found to be reportable. The cost of an examination made pursuant to subsection (c) of this section may be assessed only against the business association.

 

(f) If a holder does not maintain the records required by G.S. 116B-73 and the records of the holder available for the periods subject to this Chapter are insufficient to permit the preparation of a report, the Treasurer may require the holder to report and pay to the Treasurer the amount the Treasurer reasonably estimates, on the basis of any available records of the holder or by any other reasonable method of estimation, should have been, but was not reported.

 

"§ 116B-73. Retention of records.

 

(a) Except as otherwise provided in subsection (b) of this section, a holder required to file a report under G.S. 116B-60 shall maintain the records containing the information required to be included in the report for 10 years after the holder files the report, unless a shorter period is provided by rule of the Treasurer.

 

(b) A business association that sells, issues, or provides to others for sale or issue in this State, traveler's checks, money orders, or similar instruments other than third-party bank checks, on which the business association is directly liable, shall maintain a record of the instruments while they remain outstanding, indicating the state and date of issue, for three years after the holder files the report.

"§ 116B-74. Discretionary precompliance review.

 

A holder may request the Treasurer to conduct a precompliance review of the holder's compliance program to educate the holder's employees on the unclaimed property laws and filing procedures and to recommend ways to facilitate the holder's compliance with the law. Subject to the availability of staff, the Treasurer may conduct a precompliance review upon request. The Treasurer may charge the holder a precompliance review fee of up to five hundred dollars ($500.00) per day for conducting this review.

 

"§ 116B-75. Enforcement.

 

(a) The Treasurer may maintain an action in this or another state to enforce this Chapter.

 

The Treasurer may order a person required to report, pay, or deliver property under this Chapter, or an officer or employee of the person, or a person having possession, custody, care, or control of records relevant to the matter under inquiry, or any other person having knowledge of the property or records, to appear before the Treasurer, at a time and place named in the order, and to produce the records and to give such testimony under oath or affirmation relevant to the inquiry. For purposes of this subsection, the Treasurer may administer oaths or affirmations. If a person refuses to obey an order of the Treasurer, the Treasurer may apply to the Superior Court of Wake County for an order requiring the person to obey the order of the Treasurer. Failure to comply with the court order is punishable for contempt.

"§ 116B-77. Interest and penalties; waiver.

 

(a) A holder who fails to report, pay, or deliver property within the time prescribed by this Chapter shall pay to the Treasurer interest at the rate established pursuant to this subsection on the property or value of the property from the date the property should have been reported, paid, or delivered. On or before June 1 and December 1 of each year, the Treasurer shall establish the interest rate to be in effect during the six-month period beginning on the next succeeding July 1 and January 1, respectively, after giving due consideration to current market conditions. If no new rate is established, the rate in effect during the preceding six-month period shall continue in effect. The rate established by the Treasurer may not be less than five percent (5%) per year and may not exceed sixteen percent (16%) per year.

 

(b) A holder who willfully fails to report, pay, or deliver property within the time prescribed by this Chapter, or willfully fails to perform other duties imposed by this Chapter, shall pay to the Treasurer, in addition to interest as provided in subsection (a) of this section, a civil penalty of one thousand dollars ($1,000) for each day the report, payment, or delivery is withheld, or the duty is not performed, up to a maximum of twenty-five thousand dollars ($25,000), plus twenty-five percent (25%) of the value of any property that should have been but was not reported.

 

(c) A holder who makes a fraudulent report shall pay to the Treasurer, in addition to interest as provided in subsection (a) of this section, a civil penalty of one thousand dollars ($1,000) for each day from the date a report under this Chapter was due, up to a maximum of twenty-five thousand dollars ($25,000), plus twenty-five percent (25%) of the value of any property that should have been but was not reported.

 

(d) The Treasurer for good cause may waive, in whole or in part, interest under subsection (a) of this section and penalties under subsection (b) of this section.

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