KeepUP™ Blog

Financial institutions, like other entities, must comply with state unclaimed property laws, which include sending customers due diligence notices and reporting dormant accounts to the states on an annual basis.

Banking property, including checking accounts, savings accounts, and certificate of deposits are considered dormant absent owner-generated activity within a period of time defined by the state (typically 3 or 5 years). The recent adoption by several states of revised unclaimed property laws modeled on the 2016 Revised Uniform Unclaimed Property Act (RUUPA) and the continued introduction of similar legislation (North Dakota and Indiana in early January 2021), illustrates the ever-changing nature of these laws and the need to monitor legislative changes. States adopting a “RUUPA” – like law may adopt the shorter dormancy period (3 years) for most property types, alter the 60-180 due diligence timeframes and/or add the requirement that notice be sent to the owner via first class mail and email (if the owner has consented to electronic mail communications from the holder).

Taking a proactive approach to the escheatment process by communicating early and often with your customers decreases the population of reportable property, meaning less costs associated with due diligence (certified mail, return receipt requested, is required in some states, particularly above a certain dollar threshold) and with the reporting process itself.

After the Shareholder Services Association (SSA) and Securities Transfer Association (STA) voiced their concerns via a joint letter to the National Association of Unclaimed Property Administrators (NAUPA) regarding the interruption of international mail delivery due to the COVID-19 pandemic, NAUPA sent a survey to its member states in May 2020.  

The apprehensions raised were surrounding the suspension of mail service, which would prevent the successful completion of due diligence and ultimately the reporting property without a last attempt at reunification with the property owner.  It is notable that states may liquidate securities property, making it difficult for the shareholder to retrieve it in its native form.   In connection with ongoing concerns expressed by UPPO and the holder community, NAUPA recently released the responses from 19 states to the following questions:

In today’s digital world, you no longer need to be physically present in a casino, at the poker table, or at the racetrack to place a bet.  In many states, you can now place those bets online or even play daily fantasy sports directly from your mobile device.  

In May 2018, the U.S. Supreme Court struck down the Professional and Amateur Sports Protection Act, a federal law that had previously prohibited sports betting. Since then, half of the states have legalized or are in the process of legalizing sports betting.  According to the American Gaming Organization, sports betting revenue in 3Q 2020 totaled $352.3 million[1] .

Online gambling includes online casinos, online poker sites, daily fantasy sports (DFS), and sports betting.  Sports betting, in turn, includes online and mobile “sportsbooks.”  To place an online sports bet, you need an online account.  Most states that permit online sports betting allow you to do this on your mobile device, but in certain states, like Nevada, you need to create your account while physically at the casino (and often to make a deposit or withdrawal as well).

As of November 10, 2020, retail and/or online sports betting is permitted in: AR, CO, DC, DE, IA, IL, IN, MI, MS, NV, NH, NM, NJ, NY, MT, OR, PA, RI, and WV.  Sports betting is legal, but not operational in the following states: LA, MD, NC, SD, VA, and WA.  Pending legislation exists in OR and MA.  Sports betting is prohibited in the following states: ID, ND, OK, SC, TX, UT, and WI[2].

States often send official communications to companies regarding unclaimed property. While some of these mailings are mere filing reminders, other types of communications, such as VDA invitations, audit letters, and self-audit letters, urge holders to take affirmative steps to comply or demonstrate compliance with the unclaimed property laws. We will discuss some, but not all of these types of communications, to assist companies in understanding what each one means, and what holders should consider upon receipt of such a communication.  

Delaware – VDA Invitations and Audit Notices:

We recently posted that the Delaware Department of Finance is expected to send new unclaimed property audit notices in the near future to businesses who did not enroll in the state’s Voluntary Disclosure program (VDA program) in response to the Secretary of State’s invitation to participate in the program dated August, 21, 2020. Under Delaware law, businesses who do not enroll within the 60-day notice period in the letter will be referred to the Department of Finance for an unclaimed property audit.

Indiana, Pennsylvania, Utah and Washington: The Self-Audit Letter

Indiana, Pennsylvania, Utah and Washington have recently started mailing holders letters on official state letterhead that advise holders of their obligation to comply with the unclaimed property laws. Further, the letter proclaims that based on the state’s records, the holder “has never” or “only rarely” reported unclaimed property to the state.

Record retention refers to how long important information must remain accessible for future use or reference. Most financial and accounting processes have standards that need to be met because agencies such as the Internal Revenue Service, the Federal Deposit and Insurance Corporation, and the Public Company Accounting Oversight Board all have requirements. You may be familiar with the obligations for these well-known agencies. Do you know what is required for unclaimed property compliance? 

Companies generally maintain a schedule or policy for their escheat records that help define what will need to be kept and for how long. This is a worthwhile practice to meet requirements and have supporting documents available if requested or needed in the event of an audit. 

Creating and maintaining a schedule for unclaimed property record retention isn’t always easy. Unclaimed property retention requirements vary by state and jurisdiction and cause holders confusion about what information must be maintained and how ling they need to archive records. Some holders might decide not to retain unclaimed property records and take their chances during an unclaimed property audit. We don’t want you to fall into this danger zone and have some practical advice that can simplify your escheat record retention policy.

A Few Facts:

◾ Most States’ unclaimed property laws require record retention periods longer than standard tax statutes.

◾ The 1981, 1995 & 2016 Uniform Acts require a record retention period of 10 years plus the dormancy period of the type of property (typically 3 or 5 years).

◾ Statutes are often silent on which records to keep.

New Brunswick will soon join Alberta, British Columbia, and Quebec as Canadian provinces with active unclaimed property laws on their books.   New Brunswick recently published proposed rules in connection with their Unclaimed Property Act, which received Royal Assent on March 17, 2020 (Bill 22).  Per the Financial and Consumer Services Commission (FCNB), the Act will be proclaimed and become effective with the adoption of the rules. 

The proposed rules were approved for publication on September 22, 2020. Businesses and other stakeholders are invited to provide feedback by November 23, 2020. The Act, proposed rules, and the invitation to comment are available at: https://fcnb.ca/en/unclaimed-property.  

The following is a summary of the Act and proposed rules.

Exemptions from the Definition of “Property”

• Gift cards;
• Property acquired from participating in a loyalty program;
• Property in a safe deposit box held by a provincially regulated credit union ,trust company, or federal financial institution;
• Property owed under an accident or sickness in-force insurance policy; and
• Property with a fair market value of less than $1.00.

New York is increasing its focus on unclaimed property compliance. The New York State Comptroller’s Office of Unclaimed Funds (OUF) recently sent letters to companies regarding participation in the state’s Voluntary Compliance Program (VCP).

The correspondence states: 

We are contacting you because your company has conducted business in New York State, but has not filed reports with the New York State Comptroller’s Office of Unclaimed Funds (OUF) pursuant to the Abandoned Property Law (APL). The law can be found on the New York State Legislature’s website at http://public.leginfo.state.ny.us/lawssrch.cgi?NVLWO.

We encourage you to review your records for any unclaimed funds that may be subject to reporting. Unclaimed funds include uncashed checks issued to employees or vendors, outstanding accounts receivable credits and credit balances, and unredeemed gift cards/certificates, among others.

The first step of coming into compliance with the law is completing our Self-Audit Checklist. This online survey will help you to identify if your company is holding any unclaimed funds. Find it online at https://surveymonkey.rNYSVCU and use reference number XXXXXX. Complete the survey even if you find that you have nothing to report.

Organizations (holders) are not always made aware of the death of the people they do business with. While death plays an important role in the escheatment process, holders of banking and securities property types are not required to proactively search for and confirm death. Similarly, in the securities industry, SEC 17Ad-17 searches for lost shareowners are not required if the holder has received documentation that a shareowner is deceased

Death, however, is a factor in triggering escheatment. For example, death serves as the dormancy trigger for Roth IRA accounts in most states, as a possible trigger date for individual retirement accounts, and in states like Illinois and Maine, decreases the dormancy period for “other tax deferred” accounts.  In states that have adopted certain provisions of the 2016 Revised Uniform Unclaimed Property Act (RUUPA) as they relate to retirement accounts and securities, holders are not required to confirm death unless and until they receive a notice or indication of death (with death to be confirmed within 90 days).

Often, a holder becomes aware of the death of an owner when the next of kin contacts the holder. In other cases, notice of death comes from an SEC 17Ad-17 search of an account that is RPO (Returned by Post Office). There are no statutory requirements that force holders of banking or securities property to proactively determine if owners are deceased. Auditors, however, have been taking a more aggressive approach and assert that holders must proactively bump their records against the death master file (“DMF”) database. If an account owner is found to be deceased and there has been no contact with a beneficiary, the account is considered lost, which triggers escheatment and the property becomes fair game for the auditor. The National Change of Address (NCOA) database is similarly utilized by auditors as an attempt to locate accounts with updated addresses. According to auditors, these updates serve as proof that the holder does not know the location of the account owner, which triggers escheatment for some property types, including securities.

Every business is required to report unclaimed property annually. If you are unsure if your company is reporting unclaimed property (“escheating”), start by asking your finance or accounting team members. A few examples of unclaimed property are unpaid or unreconciled liabilities such as payments to vendors, refunds or credits owed to customers, unpaid wages and/or commissions, unpaid insurance claims and lost/abandoned bank accounts or investment accounts.

Unclaimed property compliance is not an option; it is a requirement. The risks of non-compliance could result in fines and/or penalties being imposed. Additionally, a company could be subjected to an exhaustive escheat audit where the disruptions to time, resources and greater amounts of monies owed are at risk.

Organizations should conduct regular reviews to ensure their compliance. The following, while not exhaustive, contains the most important tasks for you to perform and consider establishing policy and procedures to create an efficient unclaimed property program.

The Delaware Department of Finance has begun mailing letters entitled “Notice Requesting Verified Report for the Report Year 2019” to companies that have previously submitted unclaimed property reports to the state of Delaware but did not submit a report on March 1, 2020.

The letter requests that the company submit the following documentation to the Department of Finance, within 30 days of the date of the notice:

• A completed Form of Verified Report for Report Year 2019, as well as a list of legal entities included in the report; and

• A copy of the company’s unclaimed property policies and procedures.

If a company did not have unclaimed property to report in the 2019 Report Year, the state nevertheless requests that the company confirm this information by returning the a Verified Report form even though under Delaware law, negative (or “zero”) reports are not required (22 DE Reg. 851, § 2.6.2).