KeepUP™ Blog

With 2023 right around the corner, we wanted to call your attention to new changes to the unclaimed property laws in Washington and Maryland.

WA S 5531

Washington joins the RUUPA states (states that model their unclaimed property laws on the 2016 Revised Uniform Unclaimed Property Act), with WA S 5531, effective on January 1, 2023. Here is a summary of the key changes:

• While dormancy periods generally remain the same, it is important to review property types and trigger dates for escheatment, as those have changed for some property types. All holders should note that that Washington, like other RUUPA states, introduces new property types eligible for escheat, including health savings accounts and custodial accounts, and while a specific dormancy period for virtual currency is not included, the term is defined. Generally, the new provisions follow RUUPA, except Washington uses the current federal RMD age of 72 in the retirement provision.

California AB 2280 was signed by Governor Gavin Newsom on September 13, 2022 and becomes effective on January 1, 2023.

Holders have been closely following CA AB 2280, as it authorizes the Controller to establish a voluntary compliance program (“VCP”), which would allow holders to voluntarily report and remit past due property. Holders that are eligible for the program and successfully complete the requirements outlined in the bill would receive a waiver of the mandatory 12% interest assessed on late property reported to California.

Enacted and made effective on June 30, 2022, Delaware SB 281 makes significant changes to Delaware’s unclaimed property law. Holders currently under audit or who are participating in a voluntary disclosure program (VDA) with Delaware’s Secretary of State (DE SOS), as well as holders in litigation should take note that many of these new provisions apply retroactively.

Below is a summary of the key provisions:

Enforcement: Verified Reports and Compliance Reviews

• While the Department of Finance is required to notify a holder of the opportunity to participate in the Secretary of State’s VDA program before it can initiate an audit, the new law allows the state to initiate an audit if a holder has not responded to or completed a verified report or compliance review, without requiring such notice.

• The state can request a verified report or initiate a compliance review for any reason, whereas prior to the new law, the state needed reason to believe that the holder had previously filed an inaccurate, incomplete, or false report.

The West Virginia State Treasurer’s Office (WVSTO) recently confirmed that holders will need to follow the changes made to their unclaimed property law as a result of the passage of House Bill 4511, which becomes effective June 10, 2022, for the upcoming Fall reporting cycle.

This short turnaround time for holders to become compliant with the new law highlights the need for holders to actively monitor legislative, regulatory, and administrative activity.

On March 29, 2022, the U.S. House of Representatives voted almost unanimously in favor of SECURE Act 2.0, also known as the Securing a Strong Retirement Act (H.R. 2954). SECURE Act 2.0 expands upon the retirement savings solutions set forth in the SECURE Act, which passed in December 2019.

Life insurance benefits can go unclaimed for several reasons, such as if the insurer loses contact with an insured, is not aware that an insured has died, or is unable to locate any beneficiaries. Both the insurance laws and the unclaimed property laws require the reporting and remitting of unclaimed life insurance proceeds, and life insurance companies must be mindful of the requirements in each state, which continue to evolve.

As states actively enforce their unclaimed property laws by way of audits, self-reviews, and questionnaires (often with the assistance of a third-party auditor), insurance companies are not immune. A recent investigation by the New York State Department of Financial Services into one life insurer’s practices has led to a settlement under which the insurer must pay upwards of $10 million in restitution and penalties for the failure to pay unclaimed life insurance proceeds in accordance with New York law.[1]

With Spring reporting due dates around the corner, holders are busy reviewing due diligence responses, and updating and reconciling their files. But what if a holder is already aware that they will not be ready to file timely reports to the states?   While businesses continue to feel the strain of the pandemic, in the form of staffing shortages and postal service disruptions, holders may also experience other business interruptions that could lead to reporting delays, including implementing new accounting systems, changes to transfer agents or other personnel changes, or undergoing a merger or acquisition.   In these cases, it is worthwhile to consider whether a reporting extension is available.

The next scheduled rounds of invitations to enroll in the Delaware Secretary of State’s (SOS) voluntary disclosure program are expected to be sent on February 18, 2022, and then again on May 20, 2022.

 Under Delaware law, the SOS must first notify the holder in writing that it may enter the VDA program prior to initiating an unclaimed property examination (audit). Holders who do not enroll within the 90-day notice period will be referred to the Department of Finance for audit.

If your company is incorporated in Delaware or has significant operations in Delaware, be on the lookout for these letters, or any letters from either the Secretary of State or the Department of Finance.

Note that while this post uses the terms gift certificates and gift cards interchangeably, states generally define these terms either in their unclaimed property or general business law.

New York State Comptroller Thomas P. DiNapoli recently encouraged gift certificate owners in the state to spend their holiday gift certificates before they become lost, subject to inactivity fees or dormant.[1] Under New York’s unclaimed property law, gift certificates have a 5-year dormancy period, after which they must be reported as unclaimed property. Under state unclaimed property laws, businesses must report unclaimed funds to the states in accordance with the priority rules set forth by the U.S. Supreme Court in Texas v. New Jersey. [2] Under the first priority rule, property is reported to, or escheats, to the state of the owner’s last known address, according to the books and records of the company (a.k.a., holder). If the last known address is unknown, the property escheats to the holder’s state of incorporation (corporate domicile).

Merger and acquisition (“M&A”) activity is as dynamic as it ever has been even during the on-going global pandemic. The unclaimed property consequences of M&A transactions, however, tend to be an afterthought. Even when unclaimed property compliance is identified as a potential issue, it is most often only reviewed at a very high level, which may result in future problems.