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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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Unclaimed Safe Deposit Box Basics

Posted By Administration, Thursday, July 27, 2017

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. Candace Rummel, senior operations manager, consumer operations, for Capital One Bank, discussed the handling of safe deposit box contents during a recent UPPO webinar. 

 

Drilling the Boxes

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. 

 

When owners violate their rental agreements by failing to pay rent, the financial institution where the box is located will usually opt to drill the box. First, the holder should make appropriate collection attempts. Because most safe deposit box fees are charged annually and property is held for long periods of time with little thought, customers may not realize they have neglected to pay. For example, if a linked bank account that was used for automatic payments for several years is closed, the customer may inadvertently neglect to link a new account. So, efforts should be made to collect payment before assuming boxes have been abandoned. 

 

Most states set a dormancy period beginning on the date of the last rent payment, plus additional time for the holder to send a drill notification and await payment. If customers don’t respond to the drill notification, the holder may proceed with drilling. 

 

“If you decide you want to allow the customer to keep their contents in the box without paying, that is your decision,” Rummel said. “But be careful. If you determine you’re not going to drill at all, it could be viewed as avoiding escheatment.”

 

During the drilling, most states require holders to maintain dual control. They usually specify that one or two bank personnel—in some cases a bank officer—be present. A notary is also required. In some states, the notary cannot be a bank employee. Finally, the holder will need a drill vendor. 

 

As soon as the box is drilled open, the holder and notary complete an affidavit, ensuring all of the box’s contents are listed.  

 

“It is wise to err on the side of caution and be vague with descriptions on the affidavit,” Rummel said. “For example, if there is jewelry in the box, remember that you are not a jeweler when describing those items. Instead of saying the box includes a diamond ring, list it as a yellow ring with a clear stone. If it’s not a diamond and you list it as such, you may find yourself in litigation and owing someone a diamond.”

 

Contents should be kept safe in a tamper-proof bag. The affidavit should stay with the contents. If you plan to place the affidavit in the bag, make sure to keep a copy elsewhere so you don’t have to open the bag later. Having a process in place to track the chain of custody is also essential. Some states require that a post-drill notification must be sent to within a set time (often 10 to 30 days) after a box is drilled. 

 

The second scenario for drilling, relocation generally occurs when a bank branch is moving or closing. If the physical bank of boxes is being moved and not drilled, different rules apply because the holder is not technically breaking the rental agreement. Consult with applicable state laws regarding requirements for moving the entire box rather than its contents.

 

For relocation, notify safe deposit box owners that the branch is relocating or moving, and ask them to take their contents. Some states have specific language and mailing requirements. 

 

If owner payments are current but they have not responded to the relocation notice, dormancy generally begins at the time of drilling. In these instances, the customer has been paying but did not respond to the notice about the relocation. Holders may have to store items longer than required for nonpayment drilling because the one-year nonpayment gap doesn’t exist in this scenario. Otherwise, the same rules apply regarding dual control, notaries, affidavits and content handling.

 

Remittance

Once the holder completes the drilling, the state requires holding the contents for a designated period specified by state law. In the event customers claim their property, there should be a process for documenting their receipt of the items—typically a section of the affidavit they complete and sign. Make sure to keep a copy of this to prove the customer picked up the items if needed. If customers claim items after reporting to the state, follow the state’s notification process, specifying that the property is no longer unclaimed. 

 

At some point defined by each state, the holder is expected to remit either the entire safe deposit box contents or just certain items. If states do not require remittance of the complete contents, holders send an inventory list and the state specifies which items they want. For items the state does not accept, there may be an additional holding period. Once this period ends, destruction or auction of remaining items may be allowed. Each state has its own time frame and requirements. Holders should keep detailed documentation of how all property was disposed. 

 

Safe deposit boxes present a unique set of challenges for property holders. However, they still share a significant similarity with other forms of unclaimed property—lack of consistent requirements from state to state. Banks and credit unions holding customer property in safe deposit boxes should consult with their state banking laws to understand the many nuances for their individual locations. 

 

Tags:  banks  safe deposit boxes  unclaimed property 

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Illinois Passes New Unclaimed Property Act, Repeal Effort Underway

Posted By Administration, Thursday, July 20, 2017

On July 6, 2017, Illinois budget bill S.B. 9 became law after the House voted to override the governor’s veto. Among the provisions added to the bill shortly before passage was the Illinois Revised Uniform Unclaimed Property Act, which repeals the state’s current unclaimed property statute and replaces it with new language. 

 

S.B. 9’s unclaimed property provisions become effective on Jan. 1, 2018. However, a movement to repeal the Illinois RUUPA is already underway. 

 

Illinois RUUPA

Among the Illinois RUUPA provisions that are most noteworthy for holders are:

  • The new statute’s definition of escheatable “property” specifically excludes game-related digital content, loyalty cards and gift cards. The definition of “stored-value card” specifically excludes loyalty cards and game-related digital content but includes gift cards. Because stored-value cards are escheatable property, these opposing definitions present an obvious conflict for holders that deal with gift cards. 
  • The new statute defines “virtual currency,” and includes it within the list of escheatable property.
  • Tax-deferred accounts are considered abandoned under the new statute three years after either the required distribution date for avoiding tax penalties, or the 30th anniversary of the account’s opening date—whichever is earlier. Earlier abandonment dates are specified for deceased owners of such accounts. The statute specifically includes health savings accounts in the tax-deferred account provision. 
  • Similarly, the statute includes detailed provisions regarding custodial accounts for minors.
  • Holders are required to maintain records for 10 years. Retained records must include unclaimed property report information; the date, location and circumstances that led to the property rights; property value; last-known owner address; details for items that were not reported as unclaimed; and details related to money orders, traveler’s checks and similar instruments. 
  • The statute incudes a “transitional provision” that requires holders to file an initial report for property that was not previously reportable, but is reportable under the new statute for a period of five years from the effective date (Jan. 1, 2018). 
  • The state’s current business-to-business unclaimed property exemption is excluded from the new law. 

 

Repeal Effort

Before S.B. 9 passed, efforts to repeal the Illinois RUUPA provisions were already underway. On July 3, 2017, Rep. David McSweeney introduced H.B. 4078, which specifies that if S.B. 9 becomes law, the Illinois RUUPA provisions contained in S.B. 9 will be repealed, effective immediately. If passed, the state’s current unclaimed property law, the Uniform Disposition of Unclaimed Property Act, would remain in effect. Before the Illinois legislature’s recess, 19 representatives signed on as co-sponsors of the bill. 

 

For the latest information about this and other noteworthy unclaimed property bills, visit UPPO’s govWATCH website

 

 

Tags:  B2B exemption  gift cards  Illinois  RUUPA  unclaimed property  virtual currency 

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2017 Unclaimed Property Legislative Roundup

Posted By Administration with contribution by Marcella Easly, senior compliance advisor at UPCR, Thursday, July 13, 2017

Across the nation, unclaimed property has been a popular topic for state legislatures this year. Although a handful of state legislatures are still in session, most have completed their work. Following is a brief summary of some of the most noteworthy unclaimed property bills that became law during the 2017 session. 

 

Delaware

Effective on Feb. 2, 2017, S.B. 13 adopts in substance many provisions from the 2016 Revised Uniform Unclaimed Property Act promulgated by the Uniform Law Commission. In addition, it adopts certain recommendations from the Delaware Unclaimed Property Task Force formed under Senate Concurrent Resolution No. 59 of the 147th General Assembly, and makes significant changes to the state's unclaimed property reporting process and compliance initiatives. More specifically, these changes include reducing the look-back period of all voluntary disclosure agreements and audits to 10 report years, and creating a 10-year statute of limitations for the state to seek payment of unclaimed property due to the state. In addition, this legislation aligns the state’s record retention requirement for companies with the statute of limitations and look back period, which brings State law into conformity with a majority of other states. This bill also offers any company currently under audit prior to July 22, 2015, the opportunity to convert their audit into a voluntary disclosure agreement by entering into the Secretary of State Voluntary Disclosure Agreement program. All companies who received a notice of examination and are currently under audit as of the effective date of this Act will have the opportunity to engage in an expedited audit review process. Finally, the bill mandates that interest be assessed on any late-filed unclaimed property, as a means to incentivize voluntary compliance. See previous UPPO’s May 4 blog post for more information about S.B. 13. 

 

Effective on June 29, 2017, S.B. 79 makes changes and corrections to SB 13. Among these changes, the amended bill ensures holders have sufficient time to comply with SB 13’s due diligence requirements with owners. It further clarifies that the state will indemnify and defend a holder against claims made by a foreign jurisdiction for property paid or delivered to the state escheator in good faith.

 

Idaho

Effective on July 1, 2017, H.B. 152 establishes an exemption from Unclaimed Property law for nonprofit corporations providing telecommunications service and delivery of electric power.

 

Illinois

Effective on Jan. 1, 2018, S.B. 9 creates the Revised Uniform Unclaimed Property Act. It adds language concerning definitions, applicability, rulemaking, and presumptively abandoned property. The bill also includes rules for taking custody of property that is presumed abandoned, reporting requirements, and required notice to property owners, among other provisions. The bill expressly excludes gift cards, loyalty cards and game-related digital content from property subject to escheat. However, it does not exclude gift cards from the definition of “stored-value cards,” which are subject to escheat, creating a potential conflict. The bill also specifies that virtual currency is subject to escheat. The state’s business-to-business exemption is not retained under the new bill.

 

New Hampshire 

Effective on Jan. 1, 2018, H.B. 473 increases the threshold above which merchants can sell gift cards with expiration dates from $100 to $250. The bill further clarifies that gift certificates of $250 or less shall not be considered abandoned property, and it revises the definition of gift certificate by removing the requirement that a gift certificate be in writing. The bill also provides that gift certificates and store credits remitted to the state prior to Jan. 1, 2018, must remain in the custody of the state until returned to the owner.

 

South Dakota

Effective on March 10, 2017, S.B. 34 revises provisions related to securities held as unclaimed property. It requires the state treasurer to sell all stocks, bonds, and other negotiable instruments within 90 days of confirmed receipt, unless the property is on an open claim.

 

Effective on July 1, 2017, H.B. 1081 revises provisions for establishing a trust for a mineral owner who cannot be located. It provides that a person or entity holding interest in a tract of land may petition a county court to create a trust in favor of an undetermined owner of a mineral interest in that tract of land. It further provides conditions for the creation and administration of such a trust.

 

Tennessee

Effective on July 1, 2017, H.B. 420 repeals and reenacts the Uniform Unclaimed Property Act. It includes dormancy periods, reporting and due diligence requirements, and abandoned life insurance provisions, among other measures. The bill requires the treasurer to sell or liquidate securities between eight months and one year after receiving the security. 

 

Texas 

Effective on Sept. 1, 2017, S.B. 561 relates to unclaimed life insurance and annuity contract proceeds. Among its provisions, the bill requires an insurer to periodically compare its applicable in-force life insurance policies, annuity contracts, and retained asset accounts against a Death Master File. In the event of a match, insurers are required to complete a good faith review of the situation, and if proceeds may be due, to conduct outreach to beneficiaries within 90 days and provide assistance in making a claim. The bill further requires an insurer to report and deliver unclaimed proceeds to the comptroller of public accounts.

 

Effective on Sept. 1, 2017, H.B. 2964 adopts a Senate amendment and provides that a holder of mutual fund shares must notify an owner at initial purchase that the owner may designate a representative to receive a notice of abandonment.

 

Utah

Effective on May 8, 2017, H.B. 175 repeals and reenacts the Revised Uniform Unclaimed Property Act. Among its provisions, the bill revises presumptions of abandonment, amends reporting procedures, and addresses the duties of a holder of abandoned or unclaimed property.

 

Effective on May 8, 2017, H.B. 42 makes comprehensive revisions to insurance law. Among other changes, the bill amends definitions under the Unclaimed Life Insurance and Annuity Benefits Act by removing the definition of "Knowledge of death."

 

For the latest information about these and other noteworthy unclaimed property bills, visit UPPO’s govWATCH website. 

 

About the contributor 

Marcella Easly, senior compliance advisor at Unclaimed Property Consulting & Reporting (UPCR), contributes to UPPO’s regular legislative update blog posts. Easly has more than 30 years of unclaimed property experience with special focus in state legislative tracking and resolving client-state advocacy issues. She was Unclaimed Property Manager for the State of Oregon for 14 years.  She was active in the National Association of Unclaimed Property Administrators (NAUPA), serving as president, and regional vice president.  She was instrumental in the creation of the NAUPA property type reporting codes.  She has been with UPCR for 11 years, and has been active in UPPO for more than 13 years.   

 

 

Tags:  Delaware  Idaho  Illinois  legislation  New Hampshire  South Dakota  Tennessee  Texas  unclaimed property  Utah 

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Due Diligence: Beyond the Minimum

Posted By Administration, Thursday, July 6, 2017
Updated: Monday, July 10, 2017

State unclaimed property statutes require holders to conduct due diligence, generally consisting of a first-class letter sent 30 to 90 days before the property’s report date. Some property types, such as life insurance, may require additional due diligence efforts, but more commonly the last-ditch letter is all that is required. However, going beyond the minimum statutory requirements offers some significant advantages.

 

“Going above and beyond the last-ditch mailing effort at the end of the dormancy period, holders can drive down the total amount of reportable unclaimed property and thereby reduce their associated unclaimed property risks,” said Will King, senior manager, SALT, unclaimed property at KMPG LLP. “It’s also a good customer service practice, demonstrating that the company is proactively trying to reunite owners with their property.”

 

By the time holders send required due diligence letters, property has been aging for three to five years, in most cases. One proactive step holders can take is reaching out to customers, vendors and other payees who have credit balances or uncashed checks much earlier than required. Putting processes in place that call for outreach after six or 12 months of inactivity, for example, encourages owners to claim their property before it is officially classified as unclaimed. 

 

Another proactive step can be taken as soon as the holder believes a property owner’s address is no longer current. State requirements typically specify that the due diligence letter must be sent to the apparent owner’s last known address. If the holder receives returned post office (RPO) mail and believes that a due diligence letter will not be received, performing a search using a publicly available source or a third-party vendor may produce an accurate, current address.

 

Although the due diligence letter typically must be sent by first-class mail, that constraint isn’t present for efforts above and beyond the requirements. If holders have a phone number, email address or other method of authorized contact, they may be able to reach out using those methods, increasing the likelihood of a response.

 

If proactive measures are unsuccessful, there are still some things holders can do beyond the statutory minimum requirements to improve due diligence efforts. States generally mandate the inclusion of specific disclosures and language. Holders may want to add additional language—perhaps marking envelopes as “urgent” and including a “reply by” date to encourage higher open and response rates. 

 

As with so many aspects of unclaimed property, due diligence requirements change often. Keeping up with these changes and the nuances from state to state and property type to property type is essential to ensuring compliance. 

 

“Often due diligence gets lumped into a single bucket,” King said. “Holders know they need to send a letter by first-class mail, for example, but there are special considerations in many states. Some require due diligence letters to be sent by certified return receipt requested. Some require a secondary letter to be mailed if the dollar value is over a minimum threshold and the first mailing is RPO. For some property types, due diligence takes on a publication requirement. So, there is nuance, and things are always changing.”

 

One of the most significant recent changes is the expansion of due diligence by electronic means. The Revised Uniform Unclaimed Property Act includes such a provision, and some states are beginning to include it in their statutes. Tennessee H.B. 420, for example specifies that if the apparent owner has consented to receive electronic mail from the holder, the holder will send the due diligence notice by both first-class mail and email unless there is a reason to believe the email address is not valid. 

 

Failing to comply with due diligence requirements opens up holders to potential risks:

  • Some states impose penalties for noncompliance.
  • Holders jeopardize the indemnification granted for reporting property in good faith. 
  • An inordinate number of claims to the state compared to the amount of property reported could signal that proper due diligence isn’t occurring and could raise an audit red flag. 

“Developing processes for conducting early and recurring outreach makes the unclaimed property compliance process easier,” King said. “Taking such steps, you have a greater degree of certainty about what needs to be reported, and you can honestly say you’ve done everything possible to reach out to property owners.”

 

To learn more about due diligence requirements beyond the minimum requirements, join Will King and co-presenter Michelle Graf from Disney Worldwide Shared Services for UPPO’s Advanced Due Diligence webinar on July 26. Topics will include increasing responses, locating lost owners, developing an efficient due diligence process and staying in compliance with statutory requirements, outside of the normal basic concepts. They will also discuss recent and pending legislation affecting due diligence requirements. 


To help with compliance efforts, UPPO members can access the Jurisdiction Resource Guide, which provides reporting deadlines, dormancy periods by property type, due diligence letter requirements, exemptions and deductions, and other helpful information for U.S. and Canadian jurisdictions.

 

Tags:  compliance  due diligence  unclaimed property 

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Title: A look at Delaware’s statute recognizing first priority states’ exemptions under S.B. 13, part 2

Posted By Mark Watters, Thursday, June 29, 2017

Part 1 of this article provided an overview of Delaware’s prior application of the priority rules and an in-depth explanation of what constitutes an exemption under §1141(b).

 

How should holders manage these “exemptions” under §1141(b)?

Until holders gain greater clarity through statements of policy, regulations and common law, application to the previous examples will remain a business decision for holders seeking to balance aggressive and conservative practices. Too aggressive, and holders face potential audit exposure; too conservative, and holders may be remitting properties it need not immediately forfeit. 

 

Each holder needs to review its own practices under its unclaimed property policies, determine a logical and supportable position, and memorialize that position for support and reference years into the future. 

 

Delaware may—in the interest of clarity, certainty, better holder compliance and the resulting ease of auditing for holders and state agents—provide answers to these questions; in the previous examples there need not be any lack of clarity, at least in the general application. Such leadership would be welcomed by auditors and holders alike, and would create an open dialogue should disagreements arise. Such policy would allow holders greater ability to manage their risks and create an environment for better compliance.

 

Absent these answers, holders will need to take a common sense approach to these issues as they arise. Holders should have knowledge and understanding of its facts and the “exemption” it contemplates taking, record that for future reference, and review its policies periodically to determine if they are still valid. Failing to do so in the context of unclaimed property compliance compounds the issues and potential exposure or complexity of the holder’s redemption. 

 

Some considerations:

  • Risk/benefit. Holding properties under a dubious or questionable “exemption” or factual basis may not be worth any benefit over that of the risk involved. This risk is not only a financial one, but one which impacts good relations with customers, suppliers, and the public perception and image of the holder.
  • Costs of property maintenance and preservation. Some properties are just not worth the costs of maintenance and preservation. Escheatment provides an answer. By way of example, some states have a business-to-business exemption (b2b) that provides an exemption by deferral, whereby once the relationship between the holder and owner ends, the property must be escheated. Under such circumstances, the holder might do well to try settling the obligation with the owner, but thereafter, forego the deferral exemption and report the property at first opportunity. An “exemption” need not be taken and there are generally no penalties for early reporting of such properties. 
  • Costs of retaining records. Increasingly, states are reviewing records of unreported properties and documentation as to why they were not reported. This has created a greater burden on holders to maintain, preserve and index records for future reference and audit support. For exempt properties, holders have a greater burden to monitor laws to ascertain changes or eliminations of such “exemptions,” which need not be so closely reviewed if such properties are escheated. Many would agree that growing unclaimed property record maintenance has made the task more onerous and the costs of software and means for individual property record retrieval more costly and time-consumptive. Escheatment and passive record retention may be a better business decision than active maintenance of an extensive pool of active property records. 
  • The “sleep at night” test. Related to the risk/benefit analysis, does it make sense to create additional stress by holding properties at risk of audit? Escheating “at risk” properties helps to limit that stress and frees up company resources and personnel for value added pursuits.

Conclusion

The Delaware exemption and its application will be developed as time and opportunities allow. This recognition of other jurisdictions’ exemption is a welcome change to unclaimed property compliance. Let’s hope other states follow Delaware’s example as they review and enact their own updates from the current uniform act. 

 

There remain certain areas that would benefit from clarification and cleanup, some of which are discussed in this article. As compliance practitioners, we must carefully analyze each circumstance and determine whether we should apply the “exemption” to each factual pattern and each jurisdiction’s laws, regulations, and policies as we understand them. 

 

Remember that taking unclaimed property “exemptions” of any nature is not required; they are discretionary. Decisions about such require careful consideration of holder legal responsibility, and business purposes and goals.

 

About the Contributor

Mark Watters is technical director, unclaimed property, for DuCharme, McMillen & Associates Inc.

 

Disclaimer: Neither UPPO nor DMA, or any of their affiliated or related entities, by means of this summary, is rendering business, financial, legal, tax, reporting or compliance or other professional advice or services. This blog post is not a substitute for such professional advice.

Tags:  compliance  Delaware  priority rules  unclaimed property 

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