As we find ourselves preparing for Spring reporting (corporations must start the Spring season by submitting reports to Delaware by March 1st), it is worth highlighting several aspects of the due diligence and reporting processes.
Due Diligence Notices. The due diligence letter is a state mandated requirement that the holder provide notice to the owner before the property is reported and remitted to the state as unclaimed property and is also the holder’s last attempt to establish contact with the owner of dormant property before escheatment.
Method, Timing and Content of the Notice. Typically, a first-class mailing must be sent to the owner 60 to 120 days prior to filing the report, though as is common in unclaimed property, time frames vary state to state. Moreover, certified mail may be required in lieu of, or in addition to, first-class mail (e.g., New York: certified mail for property valued at $1000 or more and for all dividend reinvestment plans). Publication is also required for certain holders in New York, where requirements vary by property type). Many states also provide an exception for mailing to a known bad address, but again, this varies by state.
In states that have adopted a law based on the 2016 Revised Uniform Property Act (“RUUPA”), the time frame for mailing is generally 60-180 days before filing the report, though there are outliers here as well (e.g., Illinois requires notice to be sent 60 days to 1 year prior to the report, and by certified mail for securities valued at $1000 or more, 60 days prior to filing the report). These states have also adopted specific header and language requirements for the notice.
States that have adopted RUUPA like laws must send the notice via first-class mail and email (if the holder has a valid email address), if the owner has consented to receive electronic communications from the holder.
Due Diligence Minimums. Many states have set due diligence minimums, meaning that notice must be sent to owners for property valued at or above a certain value threshold (typically $50 or $100). Again, minimums vary by state. Some states, such as Connecticut, do not have a minimum and holders must send notice on all property values.
Allowable Deductions. Several states permit the holder to deduct the costs of sending the due diligence notice, though this is usually reserved for certified mail costs.
Nonperformance of Due Diligence. Some states require that holders affirm that they have performed due diligence. Some states will fine holders if due diligence is not completed. Note that the nonperformance of due diligence subjects the holder not only to fines or penalties, but it also raises audit red flags and may even prevent the holder from obtaining a release of liability for property escheated to the state.
Filing the Annual Report. Annual reporting requirements also vary state to state and can even change from one report cycle to the next. When reviewing the state websites and holder reporting manuals, holders should bear in mind the following:♦ Are holders required to file electronically – is online upload via the website required?
♦ Are cover letters required, and if so, must they be notarized?
♦ How should payments be sent to the states – via check or electronically (e.g., via ACH)?
♦ How are shares and/or worthless securities (if accepted) to be delivered to the states?
♦ Are negative reports required?
Common Errors on Reports. States can reject reports for incomplete or incorrect information, which could subject the holder to late filing penalties. Some reasons for rejection include:♦ Incomplete owner information, formatting errors or data in an incorrect field
♦ Incorrect property type codes or dormancy periods; and
♦ Incorrect submission of the report or payment.
Recent Updates to Spring Reporting Instructions
Connecticut reports are due no later than 3/31/21 (all holders)♦ New website: CT Unclaimed Property (ctbiglist.com). Connecticut now requires that holders upload reports via the website (including negatives if the holder is incorporated or physically present in the state). The .HDE file format is no longer accepted. Payments can be made online or by check (for checks, include the holder’s FEIN and a copy of the “Print Summary” from the website. The notary requirement has been removed.
Delaware reports (corporations) are due by 3/1/21♦ Payment instructions have been updated. To obtain new payment instructions, send an email (preferred) to DOF_holderreceiptsquestions@delaware.gov or contact the Office of Unclaimed Property’s Receipts & Wires Unit at (302) 577-8782, option #3.
Vermont reports are due by 5/1/21 (all holders)
♦ The notary requirement has been waived due to COVID-19. Also due to the pandemic, holders who require an extension for reporting will be granted an extension if requested in writing. Online reports and sending reports via encrypted email is permitted. Payment via EFT is required at the time of filing.
If there is anything consistent about unclaimed property, it is the fact that it is constantly changing. Holders should be aware of any legislative changes that may impact their processes and review state reporting instructions prior to each cycle. We also recommend that any changes be reflected in the holder’s policies and procedures.
Performing due diligence and reporting to the states is a complex and timely effort. If you need assistance in evaluating your current compliance practices, please Contact Us and for a free consultation with our subject matter experts. The MarketSphere team is 100% dedicated to providing services and support to organizations and implementing Just Right Compliance® strategies.
*Content contained in this article is considered accurate as of the publish date.