How is property handled under California’s Unclaimed Property Law?

Part Three: The Unclaimed Property Law

The vast majority of the property that escheats to the State of California does so subject to the Unclaimed Property Law. This law is a modern statute which lays out detailed rules governing how and when various types of property escheat to the State, how the property is to be managed while in the State Controller’s custody, and the methods for returning unclaimed property to its rightful owner. The key concept is that property that escheats to the State under this law does not permanently belong to the State – it can always be reclaimed by a person who can establish the right to ownership. However, this law does not apply to property that escheats to the State as part of a probate proceeding, and as such, it does not apply to real property.
 
What does the State Controller do with the unclaimed property in the State’s custody?
When the property is money, it is deposited into an account which is held on behalf of the owner. Property other than money – typically this will be securities, other financial instruments, or personal property not rejected by the Controller – is held by the Controller for around 18 months to two years after it has escheated to the State. Any income generated during this holding period is credited to the owner’s account. Once the holding period is finished, the Controller will sell off the property, with the net proceeds of the sale being retained on the owner’s account. If the Controller determines that the probable cost of the sale exceeds the value of the property, the Controller can decide not to liquidate the property.
 
Does the State pay interest on unclaimed property?
No. Other than the income generated by property other than cash prior to liquidation by the Controller, no interest is paid on unclaimed property. This means that, even if the State holds a large sum of cash for many years, no interest will be paid to the owner if it is ever claimed. For this reason, if the property is an asset that tends to appreciate over time, its owner will lose the opportunity to benefit from that growth once the asset has been converted to cash. This is perhaps the most important reason why a person who is the rightful owner of some unclaimed property should claim it as soon as possible.
 
Can claiming property result in a capital gain?
Yes. If property other than cash appreciates during the period while it is being held by the Controller, the owner will have a capital gain if the net sale price when the Controller liquidates the property is higher than the owner’s tax basis in the property.
 
What is the time limit for bringing a claim?
Because there is no permanent escheat under the Unclaimed Property Law, there is no specific time limit for bringing a claim. However, if the property is an asset other than cash which has been sold or discarded prior to the initiation of the owner’s claim, the owner may only be able to get the proceeds of the sale, or nothing, depending on the situation.
 
Can I claim real estate?
Real estate is not subject to the Unclaimed Property Law, so there is no way to claim real estate under it. If real estate has escheated to the State under another statute (such as in a probate proceeding), claims to reobtain it must be handled through a different statutory scheme. Because those claims can be complicated, most claimants should seek assistance from a competent attorney.
 
When can the State Controller destroy or discard unclaimed property?
If the State Controller determines that property which has escheated to the State under the Unclaimed Property Law has no commercial value, the property is only required to be retained for a period of seven years. Following that, the property may be destroyed or discarded at any time. Once the property has been disposed of, the rightful owner is no longer allowed to make a claim to recover it, and since the property had no commercial value, the owner cannot recover any sale proceeds either. Alternatively, if the Controller determines that it would not be in the interest of the State to take custody of a piece of tangible personal property which would otherwise have escheated to the State, the Controller has the authority to reject the property and prevent it from escheating in the first place.

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This article is intended for informational purposes only and not for the purpose of giving legal advice for a specific person or situation. Nothing in this article should be taken as legal advice, and reading it does not create an attorney-client relationship.