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6/4/19 9:50 AM

Unclaimed Property Effective Due Diligence

by Benjamin Bell

mailbox with moneyAnnual unclaimed property reporting has many distinct steps.  These include, maintaining up-to-date compliance rules, compilation of potentially reportable transactions, identification of exemptions and deductions, mailing of due diligence notification letters, and reporting and remitting funds to the various jurisdictions.     

Once a holder has analyzed its’ data to determine potentially reportable items, the next step is the performance of due diligence, which includes determining which accounts require a statutory due diligence mailing, when the states require the mailing of the letters and the content of the letter.

States generally require a notice to be sent to the last known address of the owner of the funds as indicated in the holder’s records before the property can be escheated to the states. This gives the owner one last opportunity to claim their funds before they are turned over to the state. Over the years, states have placed greater emphasis on due diligence and various components of the process, including:

  • what properties require a due diligence mailing
  • timing of the mailing
  • content of the communication
  • method of delivery

To determine those properties that require a due diligence communication, several factors must be considered including:

  • property type
  • value of the account
  • whether the address is a known “bad” address

Some states relieve a holder from the due diligence requirement if the address of record is known to be a “bad” address, i.e., the mail has been returned as undeliverable.

Due diligence letters are typically required to be sent 60 to 120 days before the report date. States impose time-frames to allow the owner a certain period to respond to the letter, before escheatment occurs.  However, as with most aspects of unclaimed property, some states vary from the norm.  As an example, California requires letters to be mailed within 180 to 365 days prior to the property becoming reportable. 

The majority of states require that one or more of the following be contained in the due diligence communication:

  • a description of the property
  • an indication that the owner must claim the property otherwise it will be transferred to the State
  • the steps required to claim the property
  • the date the property will be reported to the State, if not claimed

In general, states require the use of first-class mail for delivery of the notifications.  However, a few states require the use of certified mail. New Jersey requires a certified letter for all accounts with a value of at least $50.  New York requires a certified letter for all accounts with a value of at least $1,000, if owners do not respond to a first-class letter.  Ohio requires a certified letter for all accounts $1,000 and greater.

States are beginning to require electronic communication (e-mails) as part of the due diligence process, if a holder has e-mail addresses for owners, and owners have consented to the delivery of notices via e-mail.  For example, Tennessee in its’ new unclaimed property statute states:

“If an apparent owner has consented to receive electronic mail communications from the holder, the holder shall send the notice described in subsection (a) both by first-class United States mail to the apparent owner's last known mailing address and by electronic mail, unless the holder has reason to believe that the apparent owner's electronic mail address is not valid.” [TN Code § 66-29-128 (2017)]

Each state or reporting jurisdiction has its own unique set of due diligence requirements and standards. Consequently, holders should develop policies and procedures to ensure all requirements and standards are met.  These policies and procedures should include:

  • Creating, and regularly updating, a matrix of state due diligence thresholds, letter verbiage, mail type (first class, certified, email) and timing of mailing requirements.
  • Consolidating all state requirements into one communication template.
  • For each reporting period, developing a control total spreadsheet with details of all items sent (and corresponding certified mail number if applicable). Postage report should match control totals.
  • Determining communication content, including holder logo, detailed description of type of property, bolded response deadline, return envelope
  • Use of various response methods, including phone/IVR, web, mail, e-mail, fax
  • Record retention requirements

Performing due diligence is an essential step in a holder’s overall escheat compliance requirements. To understand more about the obligations for each jurisdiction, you can review the state handbooks or engage with a professional advisor who can provide specific guidance and assist you with applying policies and procedures to streamline the process for best results.

Topics: Compliance, Due Diligence, Best Practices