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UNCLAIMED PROPERTY FOCUS is a blog written by and for UPPO members, featuring diverse perspectives and insights from unclaimed property practitioners across the U.S. and Canada. We welcome your submissions to Unclaimed Property Focus. Please contact Tim Dressen via tim@uppo.org with any questions about submitting a blog post for consideration and refer to our editorial guidelines when writing your blog post. Disclaimer: Information and/or comments to this blog is not intended as a substitute for legal advice on compliance or reporting requirements.

 

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Michigan and Massachusetts grappling with audit-focused legislation

Posted By Emily Lee, UPPO, Friday, November 27, 2015
Updated: Wednesday, December 23, 2015

Updated Dec. 2, 2015 - The information about Michigan S.B. 538 has been updated to reflect the latest developments. 

 

Audits are a sore spot for the unclaimed property community. We’ve all heard the horror stories of auditors demanding records from decades back or unreasonable estimation findings. Though these stories are not the norm, there’s work to be done to improve the unclaimed property audit environment. Two states, Michigan and Massachusetts, are considering legislation which would create positive enforcement changes if passed.

Massachusetts S.1710

This bill takes a leap to eliminate contingency fee auditors from unclaimed property audits. So far, it has received a hearing by the Committee on State Administration and Regulatory Oversight (committee) and has yet to receive a report out of committee. The deadline for the committee to submit a favorable or unfavorable report is March 2016.

At the hearing held on Nov. 9, the Associated Industries of Massachusetts provided in-person testimony supporting the bill. In addition, the Retailers Association of Massachusetts and Senator Michael Rodrigues (the bill’s sponsor) submitted written support in advance of the hearing. UPPO submitted a letter of support on Nov. 23.

Michigan S.B. 538

(Update: Dec. 23, 2015) On Dec. 22, Governor Snyder signed the bill. It's effective immediately.

(Update: Dec. 15, 2015) As of Dec. 15, the amended bill was passed by the Senate. It was ordered enrolled and sent to the governor for a signature, 

(Update: Dec. 11, 2015) As of Dec. 11, the bill was passed by the House and sent back to the Senate in its amended form.

 

This bill packs a lot of provisions into one but mainly grapples with improving the audit program. The State Treasurer, holders located in Michigan and stakeholder groups have been working collaboratively to improve the audit program in Michigan and this bill is a direct result of their work.

Currently, the bill is working its way through the Michigan legislature. As of Dec. 2, the bill was favorably voted out of the House Committee on Commerce and Trade and was sent to the House for a reading.

Highlights of the bill

  • Property valued under $50 $25 (the amount was amended in the House Committee on Commerce and Trade on Dec. 1) doesn’t need to be reported to the state. Equity-related property (stock, share, or other intangible ownership interest in a business association) and dividends don’t fall under this exemption and still need to be reported.
  • Defines an eligible holder that can participate in the streamlined audit program. A holder must meet one of these criteria to be eligible (the definition of holder was amended in the House Committee on Commerce and Trade on Dec. 1):
  • Is a corporation whose parent corporation is incorporated in Michigan.  Is a business whose principal place of business is in this state as evidenced by 20 percent or more of its payroll or 20 percent or more of its real and tangible personal property, except inventory, owned or rented in this state during the period subject to examination or the majority of officers that direct, control, and coordinate the activities of the business are employed in this state.
  • Is a corporation that has a subsidiary incorporated in Michigan. Is a corporation that wholly owns a corporation that has incorporated in this state and the corporation incorporated in this state meets the criteria under sub paragraph (i)
  • Is a corporation that is not incorporated in Michigan but is wholly owned by a corporation that is incorporated in this State. Is a corporation that is wholly owned by a corporation that is incorporated in this state and the corporation incorporated in this state meets the criteria under sub paragraph (i). 
  • Creates a streamlined audit process:
  • Eligible holders could make the election to participate in the streamlined audit process by executing a nondisclosure agreement acceptable to the Treasurer within 30 days from receiving the audit notice.
  • The streamlined process includes a goal to complete the audit within 18 months after the holder received the audit notice.
  • Provide that, for an eligible holder participating in the streamlined audit process, the Treasurer could not begin an action or proceeding more than four years after any duty of a holder under the Act arose.
  • Specify that examinations could not include checks voided within 180 days of their issuance, for eligible holders participating in the streamlined process.
  • The Act prohibits the State Treasurer from commencing an action or proceeding with respect to any duty of a holder under the Act more than 10 years after the duty arose, or, for the holder of records of transactions between two or more associations, more than five years after the duty arose. Under the bill, for eligible holders electing to participate in the streamlined audit process, an action or proceeding could not be commenced with respect to any duty of a holder more than four years after the duty arose.

The bill would be retroactive and apply to audits in progress as of Aug. 15, 2015, but would not apply retroactively to contested determinations in litigation before the bill's effective date.

UPPO is actively monitoring both pieces of legislation. To stay updated on the progress of the bills stay tuned and look for more information in the weekly, govWATCH emails.


Tags:  contingency fee auditors  Massachusetts S. 1710  Michigan S.B. 538  unclaimed property 

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Ten tips for discussing unclaimed property on Thanksgiving

Posted By Administration, Tuesday, November 24, 2015

Along with traditional turkey, stuffing and pumpkin pie, Thanksgiving just wouldn’t be complete without awkward conversations with aunts, uncles, cousins and other relatives you don’t often see. There’s a good chance you’ll find yourself trying to explain your profession (probably repeating conversations you had last Thanksgiving). To help you prepare, UPPO presents the following tips for discussing unclaimed property with relatives.

 

1. Keep it simple. Explain the basics, but avoid getting overly detailed. Unless you want to see a room full of faces that are glazed over like a HoneyBaked Ham, skip the 40-minute, state-by-state dormancy period breakdown.


 

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2. Avoid jargon. If you use the term “escheat” and suddenly face a dozen questions about thread counts from Aunt Judy, you have no one to blame but yourself.

 

 

Image source: marthastewart.com


3. Skip the acronyms too. If you throw around acronyms like UPPO, ULC and UUPA, don’t be surprised when you find out your mom has been telling her friends that you work for UPS.

 

 

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4. Entertain yourself. Most people have little knowledge of unclaimed property, but they’ll try to find a familiar point of reference when hearing the term. Try to guess in advance which cousin will be the first to mention the TV show “Storage Wars”.

 

Image source: imarcade.com


5. Use analogies they can understand. “Remember when your mom left her favorite Corningware dish at my mom’s house and forgot about it? Pretend that dish is an individual retirement account, and my mom is Charles Schwab…”

 

 

Image source: womansday.com


6. Be patient when they don’t fully grasp the concept. No matter how many times you explain unclaimed property to your cousin Stevie, he’ll still tell you about the great deal he got on a confiscated dirt bike at a police department auction.

 

 

Image source: giphy.com


7. Celebrate small victories. If after explaining your job, your relatives seem to have a reasonable understanding of unclaimed property, chalk it up as a win. You’re obviously a master communicator.

 

 

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8. Just go with it. When Uncle Mike asks if you still run the airport lost and found department, just nod and smile. At least he’s trying.

 

 

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9. Change the subject. If, despite your best efforts, your relatives fail to understand unclaimed property, turn their attention to something else. Reopening old emotional wounds is a sure-fire way to sneak out of the conversation and liven up the holiday. “Did you and Uncle Jack ever settle your differences over grandma’s estate?”

 

 

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10. If all else fails, pretend to fall asleep. Everyone knows the tryptophan in turkey causes drowsiness.

 

 

Image source: giphy.com


We’d love to hear your experiences about explaining unclaimed property and your profession with family and friends. Share them below in the comment section or email them to emily@uppo.org and we’ll incorporate them into post-Thanksgiving blog post.   

Tags:  Unclaimed Property 

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Industry Focus: Property and Casualty Insurance

Posted By Administration, Thursday, November 19, 2015

The property and casualty insurance industry pays out more than $400 billion annually in policy benefits, according to the American Insurance Association. Most of those payments are issued by check, opening the door to unclaimed property issues. Delores Dupras, senior accountant with Amica Mutual Insurance Company, and Wilson Barmeyer, associate with Sutherland Asbill & Brennan LLP, will lead a discussion about the unique intricacies of property and casualty insurance unclaimed property as part of the new, Industry Focus educational track at the 2016 UPPO Annual Conference.

 

“Property and casualty insurers issue a large number of checks under a lot of different situations,” says Barmeyer. “It’s different than reviewing payroll checks, where they’re standard amounts on set terms at regular intervals to people you’re paying on a recurring basis. Every uncashed check made out on a claim payment has a unique set of facts, and there’s a huge volume. That can create questions about what is unclaimed property.”

 

Settlement offers

One area of confusion surrounding property and casualty insurance is what constitutes a settlement offer from an insurer. An insurance company may issue a check as an offer to settle a claim. If the recipient cashes the check, that represents an acceptance of the settlement offer. If the payment amount is disputed, those checks can go uncashed for years.

 

“Many state statutes exclude offers of settlement from unclaimed property because they are not fixed and certain obligations,” says Barmeyer. “A company might process thousands of claims, and there can be disputes on a lot of them about the exact obligation. That creates an unclaimed property issue over whether there is a fixed and certain obligation that constitutes property for the purposes of abandoned property law.”

 

Not all insurance payouts are offers to settle. However, some insureds fear that by cashing a check, they are relinquishing their rights to additional payments on a claim.

 

“A lot of people are nervous about cashing checks because they worry that they are agreeing to a settlement offer or what happens if they develop complications to an injury,” Dupras says. “If anyone is unsure about cashing a claims check they should reach out to the issuing company to discuss future options.”

 

Owner identification

Another area ripe for confusion in the property and casualty insurance industry is identifying rightful property owners. When third parties, such as body shops or mortgage companies are involved, it’s not always clear whether the insured or the third party has rights to the insurance funds.

 

Deceased and divorced policyholders are other common sources of ownership questions. For example, if a homeowner dies and his son pays the bills but is unable to officially take ownership or sell the home because of red tape, should he receive the funds when the homeowner’s policy is cancelled with excess premium on the account? Likewise, with divorced couples there can be questions regarding which spouse is the property owner. Also, if the property is jointly owned and the divorce was messy, one party may be less than helpful providing location or contact information for the ex-spouse.

 

Unopened mail

Because insurance companies send out a high volume of marketing mail, it’s not uncommon for recipients to throw away unopened checks and due diligence letters, thinking they are sales pitches. Thus, the discarded checks become unclaimed property.

 

“We have changed our mailing of due diligence letters to have an exterior envelope with a blurb about unclaimed property in hopes that this will prompt people to open the correspondence,” Dupras says. “The last thing we want to do is turn over funds of a current insured or receive a letter from the state to an address that they have lived at for numerous years.”

 

To learn more about the issues surrounding property and casualty insurance, attend the 2016 UPPO Annual Conference, March 20 – 23. The new, Industry Focus Track will provide educational content specific to industry-specific needs and complement the industry-specific breakouts, which offer a facilitated, private forum to network and discuss industry-specific trends, nuances and challenges with peers. Register today.

 

Tags:  due diligence  property and casualty insurance  unclaimed property 

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Understanding dormancy

Posted By Administration, Thursday, November 12, 2015

Essential to compliance with unclaimed property laws and regulations is an understanding of dormancy, the period of inactivity that triggers escheatment to the states. Complexities arise because dormancy periods and activities deemed as owner contact vary widely across property types and states.

 

To help cut through the confusion, Bob Peters, managing director of Duff & Phelps, Thomas Powers, regulatory review representative at U.S. Bank, and Mel Kurman, director of audits for the New York State Comptroller Office, addressed issues surrounding dormancy at UPPO’s Oct. 21 Understanding Dormancy webinar.

 

For some property types, activity on related accounts may be sufficient to prevent the dormancy period from beginning. Certificates of deposit, for example, rarely require customer contact until they have matured, which can be several years—sometimes exceeding a state’s dormancy period. Thus, owner activity on a checking account held by the same financial institution can help prevent the certificate of deposit from being considered dormant.

 

“Always pay attention to other relationships—especially with certificates of deposit,” says Powers. “Customers do not expect to be transacting on these, especially if they’re automatically renewing.”

 

Individual retirement accounts (IRAs) generally have a two- to seven-year dormancy period, which is triggered by one of three occurrences: distributions before the owner reaches age 70.5, mandatory distributions after the owner turns 70.5, or death. Most states begin the dormancy period for mandatory distributions on April 1 after the IRA owner turns 70.5. Nebraska, New York, Utah, Virginia and Wyoming, however, look at account inactivity before the owner turns 70.5 to determine when the dormancy clock begins, including returned mail or lack of owner activity on the IRA or related accounts held by the same financial institution before mandatory distributions begin.

 

“In New York, if all other criteria for abandonment have been met, the account would escheat at age 70.5 rather than three years later,” Kurman says.

 

Gift cards also present several unique dormancy-related considerations. Some states exempt gift cards from being treated as unclaimed property. Those without an exemption typically have a two- to five-year dormancy period. The federal Credit Card Accountability Responsibility and Disclosure Act of 2009 mandates several conditions for gift cards, including a five-year minimum expiration date. The five-year rule, however, doesn’t prevent states with shorter dormancy periods from requiring escheatment of gift cards before their expiration. Card activation or the last customer transaction date triggers dormancy.

 

Other property types, including checks, safe deposit boxes, merchandise credits, reloadable cards, insurance products and public utility accounts also have unique considerations. Holders managing such property should understand and monitor relevant state laws.

 

“It really pays to review the laws to understand what’s required,” Peters says.

 

Decreasing dormancy periods is a trend that we’ve been seeing in state legislatures. To make sure your processes are updated with the dormancy changes, review this list of changes made the 2015 legislative session. A notable and positive change came out of Louisiana this year. The state recently began recognizing recurring Automated Clearing House (ACH) transactions as customer activity, but most states don’t consider ACH transactions as customer activities affecting dormancy.

 

Dormancy periods and triggers vary significantly by property type and jurisdiction. Tracking relevant dormancy period details is essential for unclaimed property professionals. Two UPPO resources can help. The Jurisdiction Resource Guide includes dormancy period listings by property type for the United States and Canada, and govWATCH helps members monitor legislative activity, including potential dormancy period changes.

 

More resources
Want more information about dormancy? Consider attending the 2016 Annual Conference, March 20 – 23; Palm Springs, Calif.

 

 

 

 

Tags:  compliance  dormancy  unclaimed property 

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The Derivative Rights Doctrine: A Primer

Posted By Administration, Thursday, November 5, 2015

When a state takes possession of unclaimed property, it does so as a custodian of that property, taking on the absentee owner’s role. The Derivative Rights Doctrine is the premise that the state’s rights are then equal to those of the owner. Acting on behalf of the owner, the state should have identical rights to the property that the owner would otherwise have.

 

Actions taken by the states regarding unclaimed property, however, often surpass what original property owners could do on their own. As a result, the Derivative Rights Doctrine has been a point of contention between the holder community and the states as the Uniform Law Commission (ULC) works on the Revised Uniform Unclaimed Property Act (RUUPA).

 

How does the Derivative Rights Doctrine apply to unclaimed property?

One of several areas where the Derivative Rights Doctrine applies is the use of gift cards. When a company issues a gift card, it has an obligation to provide goods or services to the bearer of the card. Someone possessing a $100 Target gift card is entitled to $100 worth of Target merchandise, for example. It does not, however, entitle the gift card owner to $100 in cash from Target. If that gift card is unused, and a state requires Target to escheat $100 in cash so it can return that cash to the owner, it exceeds the rights of the owner, who would not have the authority to claim that cash from Target directly.

 

“Target isn’t a bank,” says Ethan Millar, partner with Alston & Bird LLP and American Bar Association (ABA) advisor to the ULC Drafting Committee to Revise the Uniform Unclaimed Property Act (drafting committee). “It isn’t holding cash for the owner of the gift card. The money belongs to Target. It shouldn’t have to pay that money to the state as unclaimed property. By requiring that, the state interferes with the contractual arrangement between the owner and Target, and converts an obligation to provide merchandise into an obligation to pay money”

 

Similar examples where the Derivative Rights Doctrine applies are movie tickets, prepaid spa packages and prepaid personal training sessions—anything where someone pays money in advance for a service that isn’t rendered or a good that isn’t delivered. Typically, either contractual terms or a legal statute of limitations dictates how long an owner has the ability to claim the purchased goods or services. State unclaimed property laws, however, are increasingly overriding these terms.

 

“Unclaimed property laws in many states have adopted contractual anti-limitations provisions,” Millar says. “These provisions attempt to nullify contractual limitations, such as expiration dates, regardless of the circumstances. However, there are already consumer protection laws that govern the validity of contractual limitations provisions. Thus, if businesses are exploiting someone, consumer protection laws already provide protection. The unclaimed property laws ignore this and seek to eliminate contractual restrictions regardless of what was agreed to and regardless of what is legally permissible under the consumer protection laws, effectively overriding these other laws.”

 

A personal trainer may offer a promotional package of 10 prepaid sessions for $500 to be used within six months. If at the end of that time, the purchaser has used only seven sessions, both parties understand that the contractually agreed upon time period has run its course. Under the Derivative Rights Doctrine, the three unused sessions would not be considered unclaimed property. The obligation expired, so the owner is entitled to no compensation. If unclaimed property laws require the business to escheat the value of those unused sessions, it is overstepping the original contract and giving the owner something not covered under the agreement.

 

The Derivative Rights Doctrine also applies when considering which party has the legal burden of proving a debt exists. Debtor/creditor laws say the burden of proof falls on the creditor—in the case of unclaimed property, the owner. Under the Derivative Rights Doctrine, the states should also have the burden when acting on behalf of unclaimed property owners. However, according to Millar, the states argue that the mere existence of a credit on a company’s accounting records shifts the burden to the holder to disprove that the credit represents unclaimed property. A creditor/owner doesn’t have the right to shift the burden of proof by simply pointing to the accounting records of a debtor/holder, so neither should the states under the concept of derivative rights.

 

Derivative Rights Doctrine in ULC drafting committee discussions

Though other holder groups, including UPPO, have supported the Derivative Rights Doctrine through written and verbal commentary to the drafting committee, the ABA is the leader in the push to include the Derivative Rights Doctrine in the RUUPA. In comments to the ULC, the ABA requests that the RUUPA incorporate the Derivative Rights Doctrine to ensure states truly represent unclaimed property owners but do not receive additional property rights.

 

“The purpose of the UUPA is simply to return unclaimed property to the rightful owner and not be used as a ‘back door’ to impose additional substantive regulations that may impact the debtor’s obligations to a creditor,” ABA writes.

 

NAUPA takes issue in its comments to the drafting committee with the premise that states’ rights should be identical to those of the unclaimed property owners they are representing. NAUPA also warns that making states’ unclaimed property rights equal to those of owners would spell the end of meaningful unclaimed property laws.

 

“Because a holder can easily invent some business purpose for any restriction on its obligation to the owners, surely all would do so,” NAUPA writes. “Any holder issuing a payment instrument or credit of any form—check, rebate, refund, traveler check, money order, stored value card, credit balance—would require that the instrument or credit be cashed or used within a time period fixed so that the holder can confiscate the funds.”

 

The ULC is seeking a balance between the opposing views, as gaining support from both sides is essential to the RUUPA’s adoption. Support from states and holders will likely play a significant factor in whether lawmakers ultimately embrace the revised act. Both have the ability to put pressure on lawmakers, so the ULC faces the difficult task of trying to draft an act that both sides will support and achieve the ultimate goal – uniformity.

 

The most recent RUUPA draft addresses the Derivative Rights Doctrine in its discussion of gift cards, but not other key issues, such as statutes of limitation, contractual limitations and burden of proof. The drafting committee continues to work on its next draft, which will likely be completed before its March 2016 meeting.

 

More Resources

Debrief of UPPO’s ULC Issues Refinement Submission

UPPO’s Advocacy page

 

Tags:  ABA  Derivative Rights Doctrine  NAUPA  reform  revised uniform unclaimed property act  RUUPA  ULC  unclaimed property  Uniform Law Commission 

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