December 11, 2024 Sharon Otieno Sale & Transfer of Investment Securities, Sale of Investment Securities, Transfer of Investment Securities, Uncategorized

When managing estates with international assets, complexities abound. One such complexity is escheatment—a process that can significantly impact estates with US-based assets. In this article, we explore escheatment, its implications for UK estates with US holdings, and how practitioners can mitigate its risks.

What is Escheatment?

Escheatment refers to the legal process by which unclaimed or dormant property is transferred to the custody of the state. In the United States, state governments have the authority to claim dormant assets under specific escheatment laws, which vary by state.

Generally, property becomes subject to escheatment if it has shown no activity for a period of three to five years. This includes bank accounts, uncashed checks, insurance policies, and—in the context of cross-border probate—US shareholdings. Dormancy triggers escheatment to the state where the financial institution maintaining the property is incorporated.

Escheatment and UK Estates: Key Challenges

For UK practitioners managing estates that include US assets, escheatment poses unique challenges. Share registrars in the UK (known as transfer agents in the US) are responsible for maintaining share ownership records and monitoring account activity. Unfortunately, the inactivity associated with a deceased estate often aligns with escheatment triggers, such as:

• No change in the registered address.
• No new share purchases.
• Uncashed dividend checks.

The result? A significant risk that shareholdings may escheat to the state if proactive measures are not taken.

The Tax Clearance Dilemma

Another complicating factor is the tax clearance process required to administer US assets. Under the US-UK tax treaty, a Federal Transfer Certificate (FTC) must be obtained from the Internal Revenue Service (IRS) to facilitate the release of US assets for distribution. However, this process is notoriously time-consuming, often taking up to two years.

During this period, the risk of escheatment looms large. Financial institutions may flag an account as dormant and initiate escheatment before the estate administration is complete, leaving UK personal representatives (PRs) scrambling to reclaim the assets—a process that is both time-consuming and costly.

How to Mitigate the Risk of Escheatment

Practitioners can take several proactive steps to minimize the risk of escheatment:

1. Monitor Correspondence from Transfer Agents
   Transfer agents are required to notify account holders before initiating escheatment. These notifications often take the form of warning letters, which may go unnoticed if correspondence continues to be sent to the deceased’s address. Ensuring that mail is redirected and reviewed is critical.
2. Engage with Dividend Payments
   Dividends often serve as a trigger for escheatment. If issued dividends remain uncashed, they signal dormancy. While UK banks are increasingly reluctant to handle foreign currency checks, PRs should endeavor to deposit these payments where possible.
3. Request an Escheatment Block
   In some cases, it is possible to request a temporary block on the escheatment process, typically for a period of 180 days. While this may buy time, it is insufficient to cover the lengthy tax clearance process. Therefore, it should be used as part of a broader risk mitigation strategy.
4. Leverage Expert Support from Share Data
   Companies like Share Data can assist PRs (Personal Representatives) and practitioners in managing US-based shareholdings effectively. Share Data specializes in navigating the complexities of US transfer agents, monitoring accounts for signs of dormancy, and addressing escheatment warnings promptly. Their expertise ensures that correspondence, dividend management, and tax clearance processes are handled efficiently, significantly reducing the risk of escheatment.
5. Engage with US Legal Counsel
   Given the complexity of state-by-state escheatment laws, involving a US-based attorney or probate specialist can help navigate the nuances of the process and ensure compliance with state regulations.

Recovering Escheated Assets

If assets have already escheated to a state, recovery is possible but can be cumbersome. Each state has a dedicated process for claiming escheated property, typically requiring detailed proof of ownership and authority to act on behalf of the estate. Engaging Share Data, a specialist in US probate recovery is often essential to expedite the process.

Conclusion

Escheatment is a pressing concern for UK practitioners dealing with US estate assets. The combination of dormant asset laws, lengthy tax clearance timelines, and international complexities creates a perfect storm for assets to escheat to US states.

However, with proactive measures—including diligent monitoring of correspondence, strategic dividend management, timely intervention, and expert support from services like Share Data—it is possible to mitigate this risk and ensure that assets are preserved for beneficiaries.

By remaining vigilant and leveraging available resources, PRs can navigate the challenges of cross-border probate with greater confidence and efficiency.