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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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Due Diligence Basics

Posted By Administration, Thursday, February 1, 2018

With unclaimed property audits being an ongoing concern for holders, it is more important than ever to get on track with performing due diligence if your company is not already in compliance. 

 

Unclaimed property due diligence is a specific type of communication deemed legally necessary by most states and territories to make individuals aware of the impending transfer of their property to another holder.

 

The objective of due diligence is to return unclaimed property that has remained dormant on a holder’s books to the rightful owner. Due diligence mailings to last-known addresses that the holder has on record are considered the most effective and efficient method of achieving this goal. 

 

Holders should review all addresses for completeness prior to mailing. If an address is known to be inaccurate, or if the address is unknown, the holder may want to attempt to locate a current address for the owner.

 

Unlike other types of mailed communications to property owners, such as courtesy mailings, due diligence is a formal notice at the end of a property’s dormancy period. Holders are responsible for sending letters to an owner’s last-known address, stating that property will be turned over to the state if the owner fails to respond within a specified timeframe.

 

Most states require that a written notice be sent via first-class mail. However, New Jersey, New York and Ohio require letters to be sent by certified mail with return receipt for accounts equal to or greater than $1,000. Notices for lower amounts can be sent by first-class mail.  

 

While the Uniform Unclaimed Property Act states that properties with value of $50 or more require due diligence, some states have determined alternative values that require due diligence. For example, the more lenient Texas requires mailings only for values of $250 or more, while Connecticut requires holders to send notification to all owners with a valid address, regardless of the value of the property. A small number of states and territories do not require due diligence at all. Because property value thresholds vary, holders should refer to individual state statutes.

 

Even if a particular property is not of value to require due diligence, there are still aggregate minimums for reporting purposes. It is important to note that while some states use the same thresholds for aggregate and due diligence limits, they can be different. Don’t confuse the two. For example, California has an aggregate threshold of $25, but a due diligence threshold of $50. In Michigan, if a holder is reporting 25,000 or more properties of at least $50 in value, due diligence notices must be sent only for properties valued at $100 or more. Oklahoma, however, lowers the threshold to below $50 (including items of all values) for items from a set of recurring payments, such as royalties, annuities, dividends, distributions, etc.

 

Most states and territories require that the due diligence letter include the language, “The holder is in possession of property subject to this Act.” This wording is significant because the due diligence mailings cannot include qualifying language, or any words and phrases that may lead owners to believe they may not be the owner of, or entitled to, the property. 

 

California, in particular, has stringent guidelines covering what is required in due diligence mailings to owners living in the state. The letter must contain a heading at the top that reads: “THE STATE OF CALIFORNIA REQUIRES US TO NOTIFY YOU THAT YOUR UNCLAIMED PROPERTY MAY BE TRANSFERRED TO THE STATE IF YOU DO NOT CONTACT US,” or uses substantially similar language.

 

The notice must specify the time that the property will escheat, and the effects of escheat, including the necessity for filing a claim to California for the return of the property.

 

The notice must also, in boldface type or in a font a minimum of two points larger than the rest of the notice, exclusive of the heading:

  1. Specify that since the date of last activity, or for the last two years, there has been no owner activity on the deposit, account, shares, or other interest.
  2. Identify the deposit, account, shares, or other interest by number or identifier, which need not exceed four digits;
  3. Indicate that the deposit, account, shares, or other interest is in danger of escheating to the state.
  4. Specify that the unclaimed property law requires business associations to transfer funds of a deposit, account, shares, or other interest if it has been inactive for three years.

California requires that the owner has the option to maintain the property on their account to be collected or used later, or has the option to be issued payment promptly. Other options can be allowed depending on the nature of the property. For example, if the property is a credit on a customer account, the customer could also be given the option to apply the credit to a past due or upcoming bill.

 

This letter must also allow the owner to correct their address if necessary. The holder can also give the owner the option to return their response via fax or email.

 

California also sends its own due diligence letters based on the holder’s preliminary report. A sample of California’s due diligence letter can be found on the state’s website.

 

Ohio also has more specifications than most states when preparing due diligence mailings for its residents. Similar to California, the letter must list specifics of the property, notably its nature, ID number or description of the property, and amount. The notice must also inform the owner that the property will be transferred to the state within 30 days, unless the holder receives earlier contact. 

 

Unlike other states, Ohio requires the holder to provide owners with a self-addressed, stamped envelope for return communication. 

 

When mailing letters to owners in multiple states, the same body text may be used as long as content requirements of all states are met. Although Ohio and California are specific in what they require in a due diligence letter, most of these required elements can be considered best practices for all due diligence mailings.

 

A few jurisdictions currently have advertising or publication requirements, including New York and Puerto Rico. Each state varies but, in general, newspaper publication is are an acceptable form of advertisement. Refer to individual state statutes for specific requirements.  

 

As with other aspects of due diligence, little uniformity exists regarding the timing of mailings. Most states and territories follow the 1995 Uniform Unclaimed Property Act timing, which calls for sending the letters no more than 120 days before reporting the property to the state. Others states and territories have adopted their own timing standard. Holders need to confirm each state’s requirement when preparing their due diligence mailings.

 

When building your timeline for mailing due diligence letters, keep in mind that best practices recommend providing 30 to 60 days for the property owner’s response.

 

Providing a response deadline in due diligence letters lets owners know there is limited time to claim their property directly from the holder, so doing so is considered a best practice. Clearly state that after the property will no longer be in possession of the holder after the response deadline date. 

 

Finally, it is best to examine state statutes on a periodic basis before performing due diligence and reporting. This information is readily available through state websites. Laws are amended occasionally, and such changes can occur at any time. It is vital to be aware of any and all legislative changes to ensure that you and your company is fully compliant.

 

For additional information about due diligence, attend the Managing Your Due Diligence Program session at the UPPO Annual Conference, March 4-7, 2018, in Tampa, Florida, and see our previous blog post, “Due Diligence: Beyond the Minimum.” 

Tags:  due diligence 

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Texas Publishes Designation of Representative Form

Posted By Administration, Thursday, August 24, 2017

On Sept. 1, 2017, Texas law H.B. 1454, passed in June 2015, goes into effect. Among other things, the law allows property owners to designate a “representative for notice,” which triggers a requirement that the holder must mail or email the required due diligence notice to both the representative and the owner. 

 

Representatives may not claim or access the owner’s property, but can stop the dormancy period by communicating with the holder knowledge of the owner’s location and confirmation that the owner has not abandoned the property. The new requirements also require holders to include the name and last-known mailing or email address of the representative when reporting unclaimed property. 

 

With the Sept. 1 effective date just a week away, Texas posted a form that holders may provide to owners to designate a representative. The form requests the designated representative’s name, address, phone and email information and allows the owner to choose multiple accounts (checking, savings, IRA, etc.), for which the representative is the designee. It also specifies, “This form is to be maintained on file with the account owner’s bank or financial institution. Do not submit with the holder’s unclaimed property report.” 

 

In April 2017, Texas unclaimed property officials responded to a December 2016 inquiry from UPPO about implementation of H.B. 1454. In its response, Texas indicated it would be providing the designated representative form, but other methods of collecting the information would also be acceptable. 

 


Tags:  compliance  due diligence  Texas  unclaimed property 

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Tennessee Reduces Dormancy and Lookback Periods, Adds Requirements

Posted By Administration, Thursday, August 10, 2017

Among the first states to pass a version of the Revised Uniform Unclaimed Property Act this year was Tennessee. On May 25, 2017, Tennessee Gov. Bill Haslam signed H.B. 420 into law, effective July 1, 2017. The new law includes several substantial changes to the state’s unclaimed property requirements. Noteworthy provisions include:

 

New property types: Among the new property types addressed in H.B. 420 are health savings accounts (HSAs) and stored value cards. HSAs are presumed abandoned if unclaimed three years after the earlier of either the date distributions must begin to avoid tax penalty or 30 years after the account was opened. Stored value cards (other than payroll or gift cards) are presumed abandoned five years after the later of: Dec. 31 of the year in which the card was issued or funds were last deposited; the most recent indication of owner interest in the card; or a verification of the balance by or on behalf of the owner. 

 

Due diligence: Holders must perform due diligence for property valued at $50 or more. Notices must be sent to apparent owners by first-class mail between 180 days and 60 days before the unclaimed property report is filed. Owners who have consented to receive electronic communications must be sent the notice by both first-class mail and email unless the holder believes the email address is invalid. 

 

DMF matching requirement: The new law specifies that life insurers must perform searches of the death master file and comply with the Unclaimed Life Insurance Benefits Act. 

 

Dormancy periods: Most property type dormancy periods have been reduced from five years to three years under H.B. 420.

 

Audit lookback period: For audits in Tennessee, the lookback period has been reduced from 10 years to five years. 

 

Record retention: Holders are required to retain records for 10 years after the unclaimed property report was filed or was due to be filed. 

 

Promulgation of examination rules: The new law specifies that the state treasurer should develop rules for examinations, including procedures and standards for estimation, extrapolation and statistical sampling.

 

Sale of securities: H.B. 420 requires the treasurer to sell a security between eight months and one year after receiving it and giving the apparent owner notice. If the treasurer sells the security within six years, and a valid claim is filed before the six-year period expires, the owner will be entitled to receive a replacement of the security or its market value plus interest.

 

Informal conference provision: This law establishes provisions for an informal conference in situations where an examination results in a determination that a holder has failed to pay or deliver reportable property to the treasurer. It also allows for judicial review of the treasurer's decision. 

 

Exemptions: The law retains the state’s business to business and gift card exemptions. 

 

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

 

Tags:  audits  DMF  dormancy periods  due diligence  record retention  RUUPA  securities  Tennessee  unclaimed property 

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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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Texas responds to UPPO’s request for clarification of H.B. 1454

Posted By Administration, Thursday, May 18, 2017

Passed in June 2015, Texas law H.B. 1454 goes into effect on Sept. 1, 2017. The law allows property owners to designate a “representative for notice,” which triggers a requirement that the holder must mail or email the required due diligence notice to both the representative and the owner.

 

Representatives may not claim or access the owner’s property, but can stop the dormancy period by communicating with the holder knowledge of the owner’s location and confirmation that the owner has not abandoned the property. The new requirements also require holders to include the name and last-known mailing or email address of the representative when reporting unclaimed property.

 

In December 2016, UPPO posed several questions to Texas unclaimed property officials in an effort to receive clarity about the new requirements for the holder community. On April 24, 2017, Texas responded. The letter from Texas is prefaced with a statement advising that the letter is intended to provide general guidance and that no formal changes have been adopted by the Texas Comptroller of Public Accounts (comptroller).

 

Covered property types

UPPO sought clarity regarding which property types are covered by the law, specifically asking if IRAs and both open-end and closed-end mutual funds are covered. In its response, Texas specified that funds deposited with a bank or other financial institution in an interest-bearing account, checking account or savings account are included. This includes mutual funds held in an IRA, but those “would not be subject to abandonment until they would normally be reportable as unclaimed property.”

 

Methods to obtain representative information

Texas clarified that although the comptroller will provide a form holders may provide to owners to designate a representative it is not required and therefore other methods used to collect this information are acceptable. Texas expects to make the form available before Sept. 1, 2017, and “anticipate[s] that holders will inform customers of the option to designate a representative.”

 

Criteria for becoming a representative

UPPO requested clarification regarding specific criteria for being designated a representative and whether the designated person has to provide consent. Texas responded that it anticipates requiring that the representative be an individual over 18 years old who does not own the account. The state doesn’t anticipate requiring a legal relationship between the owner and representative, or requiring consent.

 

Duration and reporting of representative appointment

Texas anticipates its representative designation form will give holders the ability to specify the duration of the designation, according to the letter. Without such stipulation, the designation would be perpetual unless revoked. It seems likely that the form will actually give the ability to specify the duration of the designation to owners—not holders—and that the wording in the letter was an error.

 

Holders would not need to notify the comptroller of changes to designated representatives, only to list them when reporting unclaimed property. The comptroller is updating its electronic holder report format to accommodate representative details. The updated format should be announced before Sept. 1, 2017.

 

Multiple accounts

The state clarified that the representative designation form will give owners the ability to specify the accounts for which the representative is a designee. There will be an “all accounts” option. Communication from the representative regarding one account does not affect the abandonment period for any accounts for which that person is not designated as a representative.

 

UPPO will continue to monitor implementation of H.B. 1454 and will report on additional developments as needed.

 

 

Tags:  compliance  due diligence  Texas  unclaimed property 

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