When does property escheat to the State?

Part Two: Common Escheat Situations

There are many possible situations in which the law provides for property to escheat to the State, but the basic principle common to all is that property goes to the State either when its rightful owner cannot be identified or when the party holding the property has been unable to contact the owner over an extended period. This post will introduce several of the more common situations in which property escheats to the State under California law.

When do assets escheat to the State under California’s Unclaimed Property Law?
In the vast majority of cases, assets escheat to the State when the party holding the property reports it to the State Controller as escheated under California’s Unclaimed Property Law. The rules governing when, whether, and how different types of property escheat to the State depend on factors including the type of property, how it is held, and the party who is holding it.

Since real estate ownership is usually based on who holds a deed to a piece of property, rather than who is in physical possession, real estate is not a type of property that can be “held” on behalf of its rightful owner within the meaning of California’s Unclaimed Property Law. For that reason, real property does not escheat to the State merely because its owner cannot be contacted. (Of course, if the owner is totally absent and property taxes are not paid, the government could foreclose on the property to satisfy a tax lien, but foreclosure is different from escheatment.) However, even though real property is excluded from the Unclaimed Property Law, there are still situations in which it can escheat to the State, as discussed below.

What are the general notice requirements for escheat?
When some piece of property is at risk of escheat, the holder of the property has a statutory duty to attempt to notify its owner. The exact timing requirements vary depending on the type of property and where it is held, but in general, the holder must make reasonable efforts, by mail or electronically, to establish contact with the property’s owner no less than six months before the property escheats to the State. For this reason, it is important for a person who owns property – including money – that is held at a financial institution or other business to carefully read communications that come from the property holder, because it is nearly always easier to prevent property from escheating than to recover it once it has gone to the State Controller.

What happens to funds in a dormant financial account?
​In general, if the owner of a financial account leaves it dormant for a period of three years, the account escheats to the State. This means that, if the owner of an account does not conduct any transactions on the account (that is, no withdrawals or deposits), does not communicate in writing (or electronically) with the institution concerning the account, does not present a passbook or similar instrument to the institution for the crediting of interest, and does not otherwise indicate an interest in the account for three full years, the account will escheat. However, an important exception to this general rule is that if the owner has multiple accounts at the same institution, activity or communication regarding any one of the accounts prevents the others from escheating. For example, if a person has a checking account and a savings account at the same institution, the savings account will not escheat to the State, even after many years of inactivity, as long as the checking account remains active.

When can the contents of a safe deposit box escheat to the State?
A safe deposit box at a financial institution, bank, or other business is treated differently from a financial account, because safe deposit boxes are provided pursuant to an agreement between the box user and the institution. The contents of a safe deposit box only escheats to the State if they remain unclaimed by the owner for a period of three years after the end of the lease or rental period, or after the termination of the agreement by which the box was provided to the owner free of charge. In simple terms, that means that if a person leases or rents a safe deposit box, the contents of the box do not escheat to the State for as long as the owner keeps paying rent. Similarly, if a business agrees to provide a customer a free safe deposit box for a defined period, such as for as long as the customer maintains a checking account, the contents of the box do not escheat to the State for as long as that agreement exists. Also, as long as the owner of the box has another financial account at the same institution which has not escheated to the State, the contents of the box are typically safe from escheat.

Importantly, subject to certain rules, the contents of a safe deposit box may be sold by the holder before being turned over to the State, so even if the rightful owner later files a claim with the State Controller, they may only receive the net proceeds of a sale, rather than the original contents of the box.

When is other personal property subject to escheat?
All personal property worth over $50.00, if it is held for or owed to its rightful owner in the ordinary course of the holder’s business, escheats to the State if it is left unclaimed for more than three years.

When can a piece of real estate escheat to the State?
Real estate typically only escheats to the State when its owner cannot be identified in a probate proceeding. If a person dies leaving California probate property, but does not provide for the distribution of that property to any person, whether by will or under the rules of intestate succession, the property escheats to the State. The California Probate Code provides that, in a probate proceeding, when property – including real estate – cannot be distributed to a known beneficiary, it shall be distributed to the State. When real property escheats to the State in this manner, subject to some public notice requirements, it can be sold off immediately. The proceeds of the sale, together with any cash or other personal property that escheated to the State through the probate proceeding, are then held for a period of five years, during which time a rightful heir may claim the property. After that, outside of a few very narrow exceptions, the property permanently escheats to the State, and will not be returned, even if a rightful owner later comes forward with a claim.

If you are interested in learning more about how to protect your property, contact us today to schedule a consultation.

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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.