Escheat is a legal term relating to the reversion of real property to the state where no individuals or entities exist that are entitled to inherit the property of a decedent. Put simply, the state takes the property if no one else has a right to it under the intestate laws.
It is a common law doctrine that operates to ensure that property is not left abandoned and owner-less. In feudal times, it related to certain situations in which an existing legal interest in land was eliminated by operation of law so that the ownership of the land reverted to the immediately superior feudal lord. In modern jurisprudence, escheat includes a situation where a government acquires title to abandoned personal property as well as real property.
The Basic Law
Under the early common law, there are two types of escheat. The first one is where the owner of land dies without competent heirs to take the property and the king takes the property. 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. State v. Savings Union Bank & Trust Co., 186 Cal. 294 (Cal. 1921).
Nowadays, Escheat is commonly applied to the transfer of the title to a deceased person’s property to the state when the person dies intestate without any other person capable of taking the property as an heir. If the intestate leaves no lineal descendants or kindred, such real property will be escheat to the state. State v. Savings Union Bank & Trust Co., 186 Cal. 294 (Cal. 1921).
It is to be noted that the primary inquiry and burden of proof in escheat cases rest upon the state. Generally, there is a presumption that a person who dies leaves his/her heirs as inheritors. However, in escheat cases, a state can overcome that presumption by proving that after diligent search and inquiry, the state was unable to find that the deceased left any ascertainable heirs. In re Estate of Smith, 179 Wash. 287 (Wash. 1934).
States are often aggressive in enforcing their rights to escheat since such laws are considered as a source of revenue for the states both in terms of ownership and as later sale to third parties who will eventually pay property taxes since 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.
Only the state in which the real property is located can escheat. Intangible property can be a source of dispute between states as to rights to such property. Del. v. New York, 507 U.S. 490 (U.S. 1993).
Requirements to Impose Escheat
An escheat is not favored in law. Any doubt as to whether property is subject to escheat is resolved against the state. Walter v. Walter (In re Estate of Walter), 97 P.3d 188 (Colo. Ct. App. 2003).
It is to be noted that the primary inquiry and burden in escheat cases rest upon the state. In re Estate of Smith, 179 Wash. 287 (Wash. 1934).
In most states, there are only certain limited situations under which a state is entitled to take a property by escheat:
- A state is entitled to take the property of the persons who die intestate under the doctrine of escheat. If the heirs are legally incompetent, then the property will be treated in such a way as if there are no heirs and therefore the property escheats. It is a settled rule of the common law that incapacity of only the heirs first entitled to succeed to property will not affect an escheat. Such property will pass to the persons next entitled to take as though the first heirs had not existed. It is to be noted that a valid disposition by will or trust destroys the right to an escheat. However, if the will and trust is defective and there are no legal heirs eligible to take the property through intestate succession, then the property will escheat. Morgan County Nat’l Bank v. Nelson, 244 Ala. 374 (Ala. 1943).
- Another situation that can lead to escheat is when the only heir murders the decedent. Under such circumstances, the state will be entitled to take the property by escheat. However, if there is more than one heir, then the property naturally passes to the other heirs. Box v. Lanier, 112 Tenn. 393 (Tenn. 1904). It may be noted that conviction for murder would be required, not just a charge.
- If a citizen of a state leaves his property to alien heirs, some statutes expressly provide for the escheat of such properties. Semrad v. Semrad, 170 Neb. 911 (Neb. 1960). As an escheat is not favored by the law, the statutes concerning alien issues are construed in a narrow manner and are repealed in most states.
- Various states have specific statutes relating to escheat and local counsel should be consulted as to any particular state. At times, statues provide for escheat of property if the property was acquired illegally or by use of illegally acquired funds and the rightful owners cannot be located. Often the property so escheated is dedicated to specific purposes, such as helping law enforcement budgets or the victims of violent crimes.
Third Parties and Escheat
Once an escheat is established, then the state is vested with title to the property. The title which the state receives pursuant to a decree of escheat is by the statute made subject to the expenses of administration which will accrue after the death of the prior owner. In re Estate of Clark, 271 A.D. 691 (N.Y. App. Div. 1947). If a state statute specifies a period of time within which a claim to escheated property can be made, the state holds the property until the statutory time expires.
If the property of a decedent is taken by escheat by the state because of lack of legal then the state takes such property subject to the lien of taxes duly assessed prior to the death of the decedent. The state is liable for all the liens and encumbrances and also the debts of a former owner that existed at the time of escheat from the former owner. This is a critical matter for third party creditors to realize: the state does not eliminate their rights to security in the property. See Debt Collection for further explanation of the collection tools available. There are statutes that protect the rights of a creditor by permitting them to enforce their claims against the property in the hands of the state. Puyoulet v. Gehrke, 143 La. 315 (La. 1918).
It is to be noted that neither entry upon the land nor the judgment of a court is necessary to consummate the title of an estate under an escheat. In re Ohlsen’s Estate, 158 Ore. 197 (Or. 1938).
Property has to be owned by someone and the last resort of property left without heirs clearly must be the state. Escheat happens less often than one would think since even property left without heirs often has creditors with claims to it, be it mortgages or deeds of trust, or liens of hospitals and medical providers who helped with the last days of the decedent, remain unpaid, thus can obtain judgments which can be applied against the property. In such cases, timing is everything since if the property escheats to the state prior to obtaining security against the property, the right to claim against the property will be lost.