Escheat

Escheat is the reversion of real property to the state where no individuals exist that are entitled to inherit the property.  It is a common law doctrine that operates to ensure that property is not left abandoned and owner-less.  It originally referred to a number of situations where a legal interest in land was destroyed by operation of law so that the ownership of the land reverted to the immediately superior feudal lord.  In a broader sense, escheat includes a situation where a government acquires title to abandoned personal property.

The traditional view of escheat is as an exercise of sovereignty over persons and property owned by persons.  The primary rule flowed from the common law concept of “mobilia sequuntur personam,” according to which intangible personal property is found at the domicile of its owner[i].

Under the ancient common law, there are escheats of two kinds.  The first one is where the owner of land dies without competent heirs to take the property and the king takes the same.  The other form of escheat at common law occurs where the owner of the property has committed felony or treason and as a result forfeits his/her right to hold the same[ii].

Escheat is commonly applied to the transfer of the title to a person’s property to the state when the person dies intestate without any other person capable of taking the property as a heir.  If the intestate leaves no lineal descendants or kindred, such real property will be escheat to the state[iii].  It is to be noted that the primary inquiry and burden in escheat cases rest upon the state[iv].

Generally, there is a presumption that a person who dies leaves his/her heirs as inheritors.  However, in escheat cases, a state can unburden such presumption by proving that after diligent search and inquiry, the state was unable to find that the deceased left any ascertainable heirs[v].

Escheat laws are considered as a source of revenue for the states as it enables a property into active use which can otherwise be dormant.  The passing of possession of property from the holder to the state under unclaimed property acts is generally referred to as a custodial escheat[vi].

At common law, abandoned personal property was not the subject of escheat.  It was subject only to the right of appropriation by the sovereign as bona vacantia.  The underlying principle for application of bona vacantia was that the state, as the sovereign and original owner of all property, had the right to reversion of the property[vii].

There is no chance of any controversy between states seeking to escheat tangible property, real or personal, because it is clear that only the state in which the property is located can escheat. On the other hand, intangible property is not physical matter which can be located on a map and a single state cannot claim an uncontested right to escheat such property[viii].

It is to be noted that there are mainly three steps to resolve disputes among states over the right to escheat intangible personal property[ix]:

  • The court must determine the precise debtor-creditor relationship as defined by the law that creates the property at issue.
  • As the property interest in any debt belongs to the creditor rather than the debtor, the primary rule gives the first opportunity to escheat to the state of the creditor’s last known address as shown by the debtor’s books and records;
  • If the primary rule fails because the debtor’s records disclose no address for a creditor or because the creditor’s last known address is in a state whose laws do not provide for escheat,  then the secondary rule awards the right to escheat to the state in which the debtor is incorporated.

[i] Del. v. New York, 507 U.S. 490 (U.S. 1993).

[ii] State v. Savings Union Bank & Trust Co., 186 Cal. 294 (Cal. 1921).

[iii] In re Norton’s Estate, 177 Ore. 342 (Or. 1945).

[iv] In re Estate of Smith, 179 Wash. 287 (Wash. 1934).

[v] Id

[vi] Fong v. Westly, 12 Cal. Rptr. 3d 76 (Cal. App. 3d Dist. 2004).

[vii] Canel v. Topinka, 212 Ill. 2d 311 (Ill. 2004).

[viii] Del. v. New York, 507 U.S. 490 (U.S. 1993).

[ix] Id


Inside Escheat