Escheat. It is not optional. It is a requirement. Rule 1.15-2(r) of the Rules of Professional Conduct requires abandoned entrusted property to comply with the requirements of Chapter 116B of the NC General Statues. In my conversations with clients, I have learned that most attorneys know they are required to escheat, but are not sure where to begin. There are two deadlines to meet for the escheat process. Let’s take it step-by-step.
Escheating is the process by which unclaimed or abandoned property is reported, and remitted, to the Division of the NC Department of State Treasurer (NCDST). Although escheating is required for a variety of properties, both tangible and intangible, we will specifically discuss only the requirements related to an attorney trust account.
How to Identify Abandoned Funds
First, we must define what property is considered abandoned. According to the NCDST, property is considered abandoned or unclaimed when there has been no documented transaction or contact with the owner for a period of time known as a “dormancy period,” which is five years for attorney trust accounts.The reporting period is June 30, 2017, so any abandoned, or unclaimed funds dated June 30, 2012 or earlier are required to be examined, and possibly escheated. There are two places you will look to identify whether you are holding abandoned funds: a) the list of uncleared checks included on the bank reconciliation report, and: b) the list of client balances held in trust.
Next, before unclaimed property can be escheated, you are legally required to make a good faith effort to locate the owner of items worth $50 or greater. Written notices must be sent to the owner’s last known address informing them of the funds being held in his or her name. If the last known address is known to be invalid, you need to exercise reasonable care in obtaining the correct address. Notices should be mailed 60 to 120 days before the report due date of November 1st. If the property is worth less than $50, you are not required to contact the owner, even though you are still required to remit those funds to the NCDST.
Relevant Timeline and Amounts:
July 1, 2017 – begin researching uncleared checks written on or before June 30, 2012.
September 1, 2017 – written notice must be mailed to the owner of properties $50 or greater.
November 1, 2017 – Report must be filed and funds remitted to the State Treasurer.
Completing the Forms
Once you have identified abandoned funds and have made a good faith effort to contact the owner, you are then ready to determine the reporting format, complete the forms, and remit funds to the NCDST. There are two reporting formats: electronically if you are reporting 50 or more properties, or paper form (ASD-21 and ASD 159) if you are reporting less than 50 properties. At this point, you will want to separate the properties by whether they were worth $50 and greater or less than $50. Remember the due diligence process. If properties were worth less than $50 you are not required to contact the owner. They can be lumped into one amount called “Aggregate,” and be listed as one property on Form ASD-21.
For properties worth $50 and greater, you will need to submit on Form ASD-21. It is unlikely that you will have all of the information for this form, so just list whatever information you do have to assist the NC State Treasurer in locating the owner of the funds.
If you have failed to escheat funds in the past, you should first submit a Voluntary Disclosure Agreement, which is a one-time waiver for amounts remitted late.
It can be extremely time consuming for your office staff to research a check written five years ago. In addition, the chance of locating the owner has greatly diminished after such a long period of time. As an accountant specializing in attorney trust accounting, and trust compliance, I recommend you review the list of uncleared checks at least twice a year and take the steps then to contact the payee, asking them to cash the check. You should take the same steps for client funds held in trust, but I recommend reviewing this list quarterly because client funds should be disbursed promptly.
Dawn Cash-Salau is the owner of Escrow Consulting and Accounting, LLC, specializing in the field of trust accounting. Realizing an increasing need for experienced accountants versed specifically in trust account compliance, Dawn established ECA in 2010, serving clients throughout North Carolina.
With over 20 years of accounting experience, Dawn is uniquely qualified to provide this specialized service due to her extensive concentration in this area.
A graduate of East Carolina University, Dawn earned a Bachelor of Science in Business Administration in Accounting in 1996. In 2008, Dawn was also recognized as Honorary Alumna at NC Wesleyan College.