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7/14/21 8:48 AM

Unclaimed Property Legislative Alert: A Deep Dive Into DE SB 104

by Heather Gabell

delawareDelaware 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.
    • Justification for Examination. The state can initiate an examination for any reason and is not obligated to provide any other reason or justification other than it is related to compliance with the unclaimed property law.
    • Verified Reports and Compliance Reviews. The state may send notices or requests to any entity in possession of records, which can include an agent, subsidiary, or affiliate of the entity under review, to determine compliance with the unclaimed property law.
    • Due Diligence. Due diligence letters can be sent by the holder or the state during an examination.
    • Re-institution of a permanent expedited audit program.   Requests to enter the expedited audit program may be granted or denied at the discretion of the State Escheator within 60 days of the request.
       
      • Expedited audits are available for audits authorized after August 1, 2021, as well for holders subject to an audit that was authorized between February 2, 2017, and August 1, 2021.
      • Holders must provide “sufficient responses” to auditor requests. If the holder provides such sufficient responses, an audit report will be provided within 2 years of the date of the acceptance into the expedited audit program.
    • Interest Assessments. To incentivize holders, penalties and interest can be waived for holders who complete a VDA. Holders who receive a notice of examination after August 1, 2021, and complete the expedited audit program are subject to a non-waivable 1% per incident interest assessment, while holders under a non-expedited audit initiated after August 1, 2021, will be subject to a non-waivable 20% per incident interest assessment (“per incident” means the total past due examination liability, including any estimated liability).
    • Statute of Limitations. Tolled by the earlier of the date a VDA invitation is delivered, the date the holder elects to enter the VDA program, or the date the notice of examination is delivered.
    • Third Party Auditor Fees. Hourly compensation required for compliance reviews and examinations, except for those related to customer accounts or policies for securities accounts and life insurance policies. Third party audit firms must also comply with any state-approved non-disclosure and non-solicitation provisions.
    • Use of Holder's Records. Records obtained in an examination or VDA may not be used in a multistate examination unless the holder consents to such use in writing. However, the provision in the current law requiring that other states have substantially similar confidentiality provisions as Delaware has been eliminated. 
    • Limited Indemnification. Delaware will no longer indemnify the holder against penalties and interest imposed by another state, even if the holder paid or delivered the property to the state in good faith.

  • Adjusted Dormancy Periods for Specific Property Types
    • Bonds and Property Held by the Government. Dormancy for bearer bonds, original-issue discount bonds, and property held by the government or governmental agency is reduced from 5 to 3 years.
    • Individual retirement accounts. If the holder has knowledge of the death of an owner, which is confirmed during the ordinary course of business, dormancy is reduced to 1 year after the date specified in the income tax laws of the United States by which distribution of the property following death must begin to avoid a tax penalty, unless a beneficiary has indicated interest in the property within the most recent 12-month period. If the holder has no knowledge of death, the account is presumed abandoned 3 years after the owner's last indication of interest in the account following the required minimum distribution age. 

If you have recently received an invitation to join the Delaware VDA program, or received a notice of examination, please reach out for assistance to understand your options. Even if you have not received a VDA invitation or notice of examination, we recommend taking a proactive stance by assessing your current situation. Performing a risk assessment and/or testing your policies and procedures can help you determine whether your company has any potential unclaimed property liability. If you need help performing a risk assessment, or would like to tighten your policies and procedures, please contact MarketSphere for support.

*Content contained in this article is considered accurate as of the publish date.

Topics: Delaware, Compliance, Audit, Best Practices