Unclaimed property compliance is a complex process requiring close coordination among legal, operational, and technology groups. Organizations responsible for reporting unclaimed funds must navigate a fragmented regulatory landscape, as each U.S. state, and in some cases territories and municipalities, imposes its own laws, dormancy periods, due diligence requirements, and reporting formats.
These jurisdictional differences present significant administrative and compliance challenges, particularly for entities managing high volumes of unclaimed funds resulting from class action settlements. This article examines key challenges and complexities involved in the unclaimed property compliance lifecycle from data preparation through reporting and remittance. Each step of the process, including data cleansing, technical file formatting, due diligence outreach, preparing the unclaimed property report, and managing audit, presents distinct risks and operational demands. Successfully navigating these challenges requires meticulous planning, specialized expertise, and cross-functional collaboration.
When Does the Property Become Subject to Escheatment?
In class action settlements, administrators distribute funds either by paper check or through digital payments. Paper checks are mailed directly to eligible recipients, and digital payments are delivered via direct deposit, PayPal, Venmo, prepaid cards or other electronic methods. Both distribution types include a deadline by which recipients must claim or use their funds. Paper checks are typically valid for 90 to 180 days from the date printed on the check, and digital payments requiring claim submission are usually valid for 30 to 90 days. Once the distribution deadline has passed and all reasonable efforts to reach class members have been exhausted, any remaining funds become subject to escheatment. If unclaimed, meaning there has been no contact with the owner, no activity during the distribution period, and no identifiable rightful owner, the unclaimed portion may be transferred to the appropriate state unclaimed property authority in accordance with the applicable escheatment laws. A consideration unique to digital payments is breakage, which is the portion of electronics payments that recipients never redeem. How breakage is tracked, disclosed, and remitted has drawn increased scrutiny in settlement administration, and administrators should have a defined plan to remit these funds under the standard escheatment obligations.
Additionally, property may become subject to escheatment upon receipt of a Returned Post Office (RPO) notice, indicating that the payment was undeliverable and no valid forwarding address exists for the intended recipient.
Key Challenges in Unclaimed Property Compliance
Pre-Filing Assessment and Validation
This phase covers all activities that must be completed prior to submitting the unclaimed property report such as gathering owner and property data, conducting due-diligence mailings, validating records, and ensuring the property meets state dormancy and reporting requirements.
i. Property Type and Dormancy Period
Each type of settlement payment or property has a dormancy period, which is the length of time during which no activity or owner-initiated action occurs. The classification of unclaimed property and the applicable dormancy periods vary by state. Each jurisdiction establishes its own criteria, with dormancy periods ranging from one to several years depending on the type of property involved.
Frequently reported property types in class action settlements include: Uncashed checks, Drafts, refunds/rebates, and court-related deposits. Unclaimed funds must be retained until the applicable dormancy period has been satisfied, as defined by the laws of the relevant jurisdiction. Premature escheatment or failure to observe the correct holding period can lead to compliance issues, penalties, and audit exposure.
ii. Due Diligence Requirements
Most states require holders to make a final outreach attempt to the property owner before escheating unclaimed funds. This due diligence process typically involves issuing notification letters and performing follow-up efforts to ensure owners are given a fair opportunity to claim their property. However, this process is labor-intensive, time-consuming, and complex.
Response timeframes vary by state:
- Some states mandate a 120-day notice period prior to reporting.
- Others allow a 90-day notice window.
The complexities of the due diligence process stem from several factors:
- Non-Uniform Letter Requirements: States may require specific language, inclusion of certain statutory references, or precise formatting in due diligence notices.
- Challenges With Verifying Owner Information: Validating accurate and current owner contact information is often challenging, especially when records are outdated or incomplete.
- Returned Mail Tracking: RPO must be monitored and documented, as some jurisdictions may require a secondary outreach attempt. Utilizing skip tracing techniques, such as U.S. Postal Service National Change of Address (NCOA) searches and commercial database inquiries have shown to be highly effective in identifying updated mailing addresses.
- High-Volume Processing: Managing large volumes of unclaimed property includes organized mailings, handling inbound inquiries from property owners, and reconciling reclaims with original records, and ensuring all steps are documented for audit readiness.
For holders (entities such as a business, government, settlement administrators, or nonprofit holding unclaimed funds on behalf of others), conducting due diligence is a critical demonstration of good faith, showing an effort to return property to its rightful owners and maintain regulatory compliance.
High-Level Framework: Dormancy and Due Diligence by State (Selected Examples)
iii. Data Scrubbing Efforts
Before initiating escheatment, thorough data scrubbing is essential to ensure the accuracy, completeness, and compliance of the information being submitted. These efforts play a critical role in minimizing reporting errors, reducing the risk of file rejections, and ensuring the rightful owners are given every reasonable opportunity to recover their property.
Key data scrubbing activities include:
- Standardizing Data Fields: Ensuring consistency and compliance with each state’s reporting format requirements — such as proper formatting of names, addresses, property types, and relationship codes.
- Validating Owner Information: Correcting misspelled names, verifying addresses using USPS tools, and updating or confirming current contact details where possible.
- Identifying and Resolving Duplicates or Exceptions: Detecting duplicate records, reconciling multiple entries for the same owner, and resolving exceptions such as incomplete or invalid data that may cause submission errors.
Reporting and Remittance
At this stage, holders finalize their unclaimed property records and submit the official report to the appropriate state or jurisdiction. It involves formatting the report to meet state requirements, submitting it through the filing portal, remitting all funds or securities, and addressing any inquiries from the state.
i. Reporting Complexities
The unclaimed property reporting process lacks full standardization across jurisdictions, creating substantial compliance challenges.
Below are some of the key reporting complexities commonly encountered by a holder:
- Reciprocal Reporting: A process that allows holders to report small, out-of-state unclaimed assets to their domiciliary state. The domiciliary state then forwards the funds and reporting information to the appropriate states. This reporting demands careful coordination, strict adherence to varying state rules, and an effective tracking system. Mismanagement raises audit and operational risks, making it a key challenge in unclaimed property compliance.
- Format Inconsistencies: While National Association of Unclaimed Property Administrators’ (NAUPA) and HRS format are widely accepted, states often require electronic submissions in various formats, including position-based files, fixed-length data files, and custom templates with state-specific field requirements.
- Manual Data Entry Dependencies: Despite advancement in reporting technology, many organizations continue to rely on manual spreadsheets or legacy systems for the final transfers of residual balances.
- File Size Limitations: Several state portals have file size caps, requiring files to be split into multiple parts. This significantly increases the time and effort needed to reconcile totals and verify accuracy across multiple files.
- Jurisdiction-Specific Allocations: When the state, or jurisdictions or cities within the state, serve as the refunding authority, any unclaimed fund remaining after distribution will be returned to each participating jurisdiction or city based on its original contribution to the settlement fund.
- Additional Reporting Requirements: Some states request aggregate reports, statistical summaries, and segmented data differentiating individual and business owners, in-state vs. out-of-state claimants. While these requirements support interstate reciprocity agreements, they significantly increase the complexity and workload associated with compliance.
ii. Timeline for Transferring Funds
When the holder is prepared to remit the unclaimed property, they must coordinate directly with the appropriate state unclaimed property department to initiate the transfer, either through a wire transfer or by issuing a physical check, as required by the jurisdiction. Holders also work closely with the escrow agent or bank to ensure the transaction is completed accurately.
In states where data file submission is not required, or is handled separately, the remittance process typically takes a few days to several weeks, depending on the state’s internal procedures and how quickly it can determine the appropriate account or fund allocation for the received property.
Post-Filing Compliance Oversight
After submitting the unclaimed property report, holders carry out activities to ensure ongoing compliance and readiness for potential audits. This includes retaining required documentation, reconciling reported property, monitoring for state inquiries, and storing records according to mandated retention schedules. Beyond responding to state inquiries, holders can also demonstrate accountability proactively through the engagement of a third-party to conduct an independent audit.
i. Verification of Claimant Data Post-Remittance
Following the remittance of unclaimed property to the state, jurisdictions may continue to request verification of the claimant data — particularly when a claimant comes forward to recover the funds. In certain instances, holders may be asked to verify details pertaining to remittances made over several years ago.
ii. Look-Back Audits
States may conduct audits that review the entire lifecycle of unclaimed property — from the establishment of disbursement account, through disbursement of funds to class members, up to the final remittance of unclaimed balances.
These audits often cover all transactions within the relevant period, ensuring that all unclaimed property was properly identified, documented, and reported in compliance with applicable state law.
iii. Record Retention Requirements
Most states require holders to retain unclaimed property for at least 10 years after the report is filed. Proper retention supports audit readiness and post-remittance inquiries.
Documents to be retained are:
- The Original Obligation: Documentation of the initial liability, such as uncashed checks, credits, refunds, or outstanding payments.
- Owner Information: Full details of the property owner, including name, last known address, taxpayer identification number (if available), and account unique identifiers.
- Reporting Details: Filing confirmations from the state – Holder Summary Report, property type and relationship codes reported, count of items and amount reported and the jurisdictions to which the property was reported.
- Proof of Remittance to the State: Documentation showing successful transfer of funds — wire transfer confirmations, check copies, and acknowledgements received from the state.
Electronic records are generally acceptable, provided they are secure, accessible, and can be reproduced in legible format when requested.
iv. State Requests for Outreach Documentation
Some states request a written summary or memorandum outlining the steps taken to notify class members of their eligibility in the settlement. These requests often focus on verifying that addresses were updated, and communication was conducted prior to refund distribution.
Documentation provided may include:
- Copies of all outreach attempts, such as notification letters or emails sent to class members
- Address update procedures and validation protocols used prior to fund distribution
- Return mail reports, RPO notices and actions taken to updated addresses or reissue notices
- Sample copies of published notices (e.g., newspaper advertisements, website posts, text message campaigns)
- FAQs or call center scripts provided to customer service teams to assist class members with inquiries related to the settlement
These documents help demonstrate the holder’s compliance with due diligence requirements and support the legitimacy of the escheatment process.
v. Independent Third-Party Audit
An independent audit process provides objective assurance that residual funds were managed appropriately from distribution through escheatment, consistent with the administrator’s fiduciary duty to the class. Key areas an audit could address include:
- Confirming a clear trail beginning when the administrator takes custody of the settlements funds and continuing through disbursements and the final remittance of unclaimed balances, typically including an overview of the procedures followed and verification of underlying records through sampling
- Reviewing that administrator and vendor fees were consistent with the court-approved engagement structure
- Validating bank reconciliations and residual calculations to confirm that no party improperly benefited and that funds were handled as represented
Conclusion
The success of settlement administration extends beyond distributing settlement funds. It includes ensuring that unclaimed funds are transferred to the appropriate state unclaimed property agencies, preserving class members’ ability to reclaim their funds in the future. Periodically submitting status reports keeps the court and parties involved informed of distribution progress and promotes transparency and accountability throughout the administration process. Engaging an independent third-party audit further strengthens the integrity of the settlement by verifying reconciliations and validating how unclaimed funds are handled. Together, these practices promote accountability, efficiency, and confidence in the administration process while ensuring the settlement continues to best serve the interests of the class.
How Ankura Supports the Full Settlement Lifecycle
Ankura works with counsel and stakeholders to support each phase of the settlement lifecycle, helping organizations navigate complex operational and compliance requirements while remaining focused on the interests of class members. Through integrated settlement administration, unclaimed property compliance, and the management of residual settlement funds, Ankura helps clients execute settlement programs efficiently and maintain confidence in the integrity of the process.
Our professionals bring experience in pre-settlement advisory, class identification and notification, claims processing and eligibility determination, conventional and digital payment distribution, claimant communications, regulatory reporting, escheatment obligations, and the management of residual settlement funds, providing a seamless approach from settlement planning through final resolution.
© Copyright 2026. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC, its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
