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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 its 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. Trust amounts are often kept in a firm's Interest on Lawyer Trust Accounts (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 such due diligence. Here are a few tips to demonstrate such due diligence:
- Have written policies and 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 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 and 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. 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 applicable state before the due diligence process starts to remain compliant.
Escheatment
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