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Delaware incorporated or domiciled entities should be cognizant of a newly enacted Delaware unclaimed property statute that may significantly impact their unclaimed property situations.

Delaware SB 104, enacted on June 30, 2021, has an effective date of August 1, 2021, though specific provisions related to claims, audits, and pending litigation as of the effective date will apply retroactively. Though the intent of the bill is to provide clarification for holders, confirm current examination practices, and address recent litigation, some of the provisions appear to expand the state’s enforcement capabilities, while others contract the protections afforded to holders under the current law.

A summary of the relevant changes made to the Delaware unclaimed property law as a result of DE S 104 follows:

• Revised VDA and Audit Provisions
  • Response Time to VDA Invite Extended. The timing to respond to a VDA invitation is increased from 60 to 90 days. Holders who receive an invitation may enter the VDA program or request to enter the expedited audit program (see below).
  • Audit Records Scope. The State Escheator can examine the records of the holder or a subsidiary or affiliate of the holder to verify the completeness and accuracy of the records, even if the records may not identify property reportable to Delaware. The state is under no obligation to provide a reason or justification for the examination of records, other than that it relates to determining compliance.

DE S 103, which was signed into law on June 30, 2021, and becomes effective on August 1, 2021, is the latest bill to define virtual currency and include it in the definition of “property” as a property type eligible for escheat. Virtual currency is presumed abandoned 5 years after the owner’s last indication of interest and holders must liquidate it within 90 days of filing an unclaimed property report and remit the proceeds to the administrator. As we have seen in similar bills pending in the unclaimed property space, owners have no recourse against the holder or the state for any gains in value post liquidation.

As the use and popularity of virtual currencies rise and become accepted, the states are similarly stepping up their legislation to bring virtual currency within the scope of escheatable property by introducing bills like DE S 103. States are also looking to the holder to liquidate the virtual currency as they are presently unable to take custody of cryptocurrencies in their native form.

Successful unclaimed property compliance programs undertake multi-faceted approaches to find owners of unclaimed funds that may include proactive searches of life status along with other outreach programs. Insurance companies, financial institutions and other holders must follow not only industry specific laws and regulations (such as SEC Rule 17-Ad-17), but they must also actively monitor and comply with the ever-changing unclaimed property laws. A proactive search and review of the life status of owners and beneficiaries will preserve accounts from the escheatment process, thereby decreasing the reputational risk to the holder and the cost of escheatment, while increasing customer goodwill and potentially driving new business.

While there are no statutory requirements that force holders of banking or securities property to determine whether an owner is deceased, death can be a factor in triggering escheatment for some property types. For example, death is a trigger for ROTH IRAs in most states, and in some states, such as Illinois and Vermont, dormancy periods are accelerated for deceased owners of certain property types. In the states that have adopted a version of the 2016 Uniform Unclaimed Property Act (RUUPA), holders of IRAs, custodial accounts and securities must confirm death within 90 days from the receipt of notice or indication of death.

If they haven’t already, holders of unclaimed property should be preparing to send due diligence mailings in advance of the Fall 2021 reporting cycle. Statutory due diligence takes the form of written outreach to the owner at the owner’s last known address, according to the holder’s books and records. The letter puts the owner on notice that his or her property will be reported (“escheated”) to the state as unclaimed property if the owner fails to respond within a specified timeframe, after which the holder will no longer be in possession of the property and the owner must file a claim with the state to reclaim his or her funds.

Due diligence value thresholds, the timing of the mailing, the language required in the notice, and even the method of delivery is determined by the states and vary widely, and in some cases even differ by property and/or holder type. In general, first-class mailings are required to be mailed 60 to 120 days before the filing of the report, but again timing and method of delivery vary.   Additionally, the requirements are ever-changing. The states that have recently enacted revised unclaimed property laws based on the 2016 Revised Uniform Unclaimed Property Act (RUUPA) have not uniformly adopted the 60–180 day timeframe or the requirement to send an email communication in addition to the first-class mailing, if the owner consented to electronic communications from the holder.

Businesses may be surprised to learn that not only can their vendors, customers and employees be entitled to unclaimed property, but the organization itself may be entitled to unclaimed funds that are held by the states or by bankruptcy courts or county, local or federal agencies. As a holder of unclaimed property, an organization may also have escheated unclaimed property in error to a state’s unclaimed property department or paid an owner in error. Even if a business handles unclaimed property in-house, an organization may benefit from a recovery specialist to assist in the holder recovery and reimbursement process.

Why hire a recovery specialist to assist you in locating your own organization’s lost funds or handle reimbursements on your behalf for funds paid out or reported in error? For starters, there are hundreds of state and local reporting jurisdictions that may have recoverable items in their possession, with each of these jurisdictions potentially having their own protocols dealing with recovery.  Recovery specialists are accustomed to the complexities involved in recovering unclaimed property and can assist in navigating and managing the claims and/or reimbursement process efficiently, while tailoring and streamlining the process for each business.

Accounts receivable credits (A/R credits) are often overlooked when it comes to unclaimed property compliance. This is problematic because A/R credits, if treated incorrectly, can create a substantial amount of unclaimed property, and can become a key focus in unclaimed property audits. Consequently, any effective escheat program should include formal policies and procedures for reviewing and including accounts receivable credits in the reporting process.

Businesses are required to report unclaimed property on an annual basis. States differ as to when particular property types are subject to escheat, the type and timing of the due diligence notices that holders must send to property owners before escheating the property, and how and when the property should be reported to the states. The risks of non-compliance can result in penalty and interest assessments and can subject a company to a lengthy unclaimed property audit. Businesses should conduct regular reviews of their unclaimed property processes to ensure compliance with all state unclaimed property laws.

A holder’s obligations during a typical unclaimed property reporting cycle can be summarized as follows, with each step discussed further below:

▪️ Identify dormant property; collect data and review records

▪️ Analyze and apply applicable state laws;

▪️ Perform state-mandated due diligence;

▪️ Report and remit unclaimed property to the states; and

▪️ Retain supporting documentation.

We recently posted about the importance of checking the mail for letters inviting holders to participate in the Delaware Secretary of State’s Voluntary Disclosure Agreement (VDA) program. Delaware is scheduled to mail a new round of VDA invitations on May 14^th. More states are beginning to join this outreach trend. Maine and Massachusetts appear to be joining states like Nevada and Washington in mailing targeted outreach to holders regarding their compliance with the unclaimed property laws, which can take the form of self-audit questionnaires or invitations to self-audit books and records, and often disclose that they will be assisted by a third-party auditor in the process.

The following blog originally posted on March 3, 2021 on the UPPO website as part of their Membership Community Blog contribution. MarketSphere is sponsoring UPPO blogs published to their site during the month of March.

Unlike most of the property types in the unclaimed property world, safe deposit boxes are an anomaly because they contain physical, tangible items. As such, handling of safe deposit boxes has a unique set of rules, requirements, and concerns.

There are two scenarios for when a financial institution would likely drill open a safe deposit box: nonpayment and relocation. In either case, state bank laws and the rental agreement between the financial institution and the customer govern how the property should be handled.

Because most consumers are likely to return to the location where they left their physical property, the state where the safe deposit is located – rather than state where the owner lives – dictates the requirements for safe deposit box handling. Familiarity with the specific requirements of the applicable state is essential.

On January 12, 2021, the Department of Labor (DOL) issued a series of guidance for pension plan fiduciaries related to missing or nonresponsive participants, which can assist them in their review of their policies and procedures surrounding locating these participants and their beneficiaries and as related to uncashed checks.