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Unclaimed Property Focus
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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 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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Building a Strong P&P Foundation

Posted By Administration, Thursday, September 13, 2018
Updated: Wednesday, September 12, 2018

Unclaimed property policies and procedures define a company’s goals and actions in pursuit of its goals to protect its interests. They are intended to strengthen compliance with the reporting requirements, and maintain an effective and efficient method to process, report and remit unclaimed property. 


What are the basic building blocks needed to document the reporting function and all of its responsibilities?


Understand reporting responsibilities for your company. Rules and regulations vary significantly by jurisdiction and industries. Despite this multitude of rules, look for opportunities to simplify. For many companies, the majority of unclaimed property exposure reside in a handful of states. If that’s the case, they may be able to base their procedures around what those states require. Staying on top of the legal requirements in the states where the majority of business occurs is typically the most effective use of limited resources. 


More conservative companies may put practices into place that ensure blanket compliance with the most stringent states’ requirements even if it means going far beyond the requirements in other states. 


Identify all potential sources of unclaimed property. Because states consider so many different types of property as reportable, it’s important to leave no stone unturned when outlining company policies and procedures. 


Review types of accounts and activities within the general ledger. Identify accounting activities for amounts reversed to income or expense, write-offs, voided checks and clean-up reversals. Evaluate promotional programs and contractual terms, loyalty programs, rebates and incentives programs, invoicing and settlement practices. Determine whether owner names and addresses are available.


Document not only what is considered unclaimed property in your company, but also other areas that have been reviewed and determined to not require reporting. Doing so helps ensure consistent application of policies and procedures. 


Build a team. Resources dedicated to unclaimed property may be scarce, so begin with what you have and build on it. You may not have buy-in from all the necessary people immediately, but as they become more familiar with what unclaimed property is, why compliance matters and how their role in compliance is important to the company’s goals, buy-in will increase. 


Involve all entities, divisions and departments. Define and assign responsibilities. For each area, establish department procedures, including:

  • Identifying unclaimed property. 
  • Researching.
  • Setting materiality limits and time frames. 
  • Detecting errors or irregularities. 
  • Resolving with the owner. 
  • Retaining adequate supporting documentation. 

Address how mergers and acquisitions will impact annual reporting. When becoming aware that a merger or acquisition has occurred, the holder must analyze the specific terms of the agreement to know what’s being purchased and what’s being retained – and whether there’s a provision addressing unclaimed property. Addressing M&A activity in unclaimed property procedures can help avoid confusion when such a transaction is under consideration or has recently occurred. 


Create an audit-ready one-stop shop. Actively following policies and procedures will make things much easier if auditors or other stakeholders require documentation of unclaimed property decisions. Recommended steps include: 

  • Create a designated unclaimed property liability account. 
  • Capture requisite details needed for reporting. Analyze data accessibility and evaluate the cost-benefit of automation.
  • Reconcile to a subledger database.
  • Establish record retention provisions. 
  • Safeguard unclaimed property, including data security controls, segregation of duties and internal controls and oversight. 

Establishing policies and procedures is merely the beginning of their lifespan. Unless they are followed, maintained and updated, guidelines and documentation serve little purpose. Make sure to include provisions for regularly reviewing and updating policies and procedures, and communicating changes to team members. 


Tags:  policies  procedures  Unclaimed Property 

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Court Rules California Unclaimed Property Guidance Are Invalid Regulations

Posted By Administration, Thursday, September 6, 2018

Judge Harold Kahn with the California Superior Court in San Francisco ruled two California unclaimed property regulations invalid on July 18, 2018, saying the state controller had improperly adopted them. 


According to the court order granting summary judgment in the case of Thrivent Financial for Lutherans v. Betty T. Yee, et al., Case No. CGC-15-548384, the California controller imposed two pieces of “guidance” as regulations without following state requirements for adopting regulations.

  • The state’s “External Database Regulation” required life insurers to compare its insureds’ life insurance policies or other records against the Social Security Administration’s Death Master File or similar database to determine whether any insureds were deceased in order to comply with California Unclaimed Property Law obligations.
  • The “Dormancy Trigger Regulation” required that a life insurance policy is reportable as unclaimed property under the California Unclaimed Property Law no later than three years after the insured had died, even if less than three years had elapsed since the insurer’s records disclosed that the insured had died. 

The regulations appeared in the September 2013 Holder Handbook, issued by the controller’s office. Insurer Thrivent Financial filed suit in 2015, arguing that they were improperly adopted. Defendant Betty Yee, in her role as California controller, responded that the Holder Handbook was intended to provide best practices and was not intended as regulations.


The court disagreed with the defendant and ordered the controller’s office to remove reference to the regulations from any materials it disseminates to life insurance companies “unless accompanied by a conspicuous disclaimer that the purported requirements of the two regulations are merely defendants’ views and do not have any legal effect.”


The ruling also allows the defendant to take steps to comply with the state’s Administrative Procedure Act in order to properly enact the regulations. 


In addition to the immediate effect on life insurers complying with California laws, the ruling raises issues about guidance published by other state and federal agencies. Treatment of such guidance as requirements rather than informal opinions could be problematic, and could be subject to scrutiny as a result of the Thrivent decision. 

Tags:  California  dormancy  life insurance  litigation  thrivent financial 

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GDPR, Privacy Policies and You

Posted By Administration, Wednesday, August 29, 2018

During the past few months, you’ve likely seen numerous website popup messages asking you to review updated privacy policies and check a box confirming that you agree with the terms of use. 


Beginning on Sept. 19, visitors will see a similar message. Upon visiting the website, you will be prompted to review and consent to UPPO’s updated privacy policy with a simple, one-time checkbox confirmation. Declining consent will result in the loss of some website functionality and online member profile suspension.


Implementing this consent requirement is necessary for compliance with the EU’s General Data Protection Regulation (GDPR). UPPO is committed to protecting member data and is taking this step to ensure compliance with applicable regulations.  


GDPR is a collection of rules aimed at modernizing and strengthening data protection practices across Europe. Despite a two-year window between its passage and implementation earlier this year, many organizations have begun feeling the effects of the new regulation in the past few months, as they attempt to fully understand their compliance responsibilities.


GDPR protects basic identity information and web data – location, IP address, cookies, etc. – along with a variety of other personal details, and aims to give consumers greater control over how this information is collected and used. In order to collect personal data, covered entities must obtain and document clean and explicit consent from data subjects. 


As such, companies have been updating their website privacy policies and terms to reflect what information they collect, with whom the data may be shared, and how it may be used. This is the reason you’ve been seeing so many website messages requiring you to agree to new privacy terms.


Although GDPR is aimed at protecting European citizens, companies based in the United States are not exempt from complying. If a company collects or processes personal data of EU residents, it is likely covered by the new rules. In order to help ensure GDPR compliance, many companies require all website visitors, regardless whether the individual or the company is located in the EU, to provide consent rather than attempting to identify and gain consent from only EU residents. 


This is merely a snapshot of the most visible and prominent aspect of GDPR. The overall regulation is detailed and complex. However, we hope it helps explain why UPPO and so many other organizations have been adding consent requirements to their websites. 


Tags:  data privacy  GDPR 

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Automating the Unclaimed Property Process for Greater Efficiency

Posted By Contribution from Michelle Graf, 2018/19 UPPO southern vice president, Thursday, August 23, 2018

All companies doing business in the United States today must comply with unclaimed property laws and regulations. Regardless of the size of your company, the process is clunky and hard to manage due to the differences within each jurisdiction’s laws governing the process. Automation can help remove the bumps and streamline the process, reducing your time and expense while assisting with your compliance.   


The first step to automation starts at the bank with something called Positive Pay. While most companies today use the Positive Pay process as a fraud protection tool, it also provides the framework to automate your unclaimed property process. This process requires you to send check information to the bank prior to distribution. Because the bank then holds a list of all valid checks issued, it can provide alerts when checks are presented for payment without a valid issue being on file. 


Once checks remain outstanding at the bank for six months, the bank can automatically remove them from the outstanding list and provide an electronic file containing this activity. A report listing the unpaid checks can also be downloaded from the bank if the volume does not justify an electronic solution. 


Next, ensure that the bank account is reconciled and either pull the property information from the enterprise resource planning (ERP) system or forward the file to the disbursing departments to they can perform research and provide necessary information. Once this is completed, add the activity into whatever system you use to track the property. 


As we all know, printing and mailing due diligence letters occurs throughout the year, depending on each state’s requirements. At times, thousands of letters need to be printed and mailed so, if the volume warrants it, invest in a letter folder/stuffer.  


Managing the incoming, returned due diligence letters is often the most tedious step in the unclaimed property life cycle. Most third-party software provides the ability to use bar scans and update large amounts of records at once, which is a great automation tool. You can also create a process to allow owners to return the due diligence letter by email, which makes it easier to automate the workflow so information quickly routes to the responsible department. Lastly, you can set up a process to allow owners to respond online. This takes a little more time and creativity (and security reviews along the way) but it is achievable and very efficient once implemented.


Automation is not only important but essential for any successful unclaimed property department. It helps ensure compliance, reduces costs and improves efficiency.


Tags:  automation 

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IRS Guidance Presents Challenges for Securities Holders

Posted By Contribution from Mike Ryan, 2018/19 UPPO eastern vice president, Thursday, August 16, 2018

On May 29, 2018, the Internal Revenue Service published Revenue Ruling 2018-17 – Withholding and Reporting with Respect to Payments from IRAs to State Unclaimed Property Funds. The ruling, which clarifies that property in an IRA that is escheated to the state meets the definition of a designated distribution under Section 3405 of the Internal Revenue Code (IRC) and therefore is subject to applicable tax withholding and reporting to the IRS.  


The ruling appears to be the result of guidance requested from the Information Reporting Program Advisory Committee (IRPAC), which provides an organized public forum for discussion of tax information reporting issues between IRS officials and representatives of the public.


According to the ruling, the payment of an individual’s interest in a traditional IRA to the state unclaimed property fund is a payment from an IRA that is treated as includible in gross income. The analysis in the ruling concludes that under Section 3405(e)(3), a nonperiodic distribution is a designated distribution that is not an annuity or similar periodic payment. Therefore, the payor shall withhold 10 percent of the distribution unless the IRA owner has previously established a different withholding rate or opted out of withholding.  


Because the escheatment of an IRA account is to be treated as includible in gross income and therefore subject to applicable withholding rules, it is also required that the distribution and withholding be reported on Form 1099, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 


Although the position presented in the revenue ruling implies that escheated IRAs have always been considered includible in gross income and subject to withholding and reporting, the ruling provides for an effective date of the earlier of Jan. 1, 2019, or the date it becomes reasonable practicable for the holder/trustee to comply with the requirements.  


The release of this Revenue Ruling has left many in the unclaimed property industry scratching their heads with concerns of how to execute a distribution for the IRA account, particularly those in the securities industry. This is because holders in the securities industry (broker dealers, equity stock, mutual funds, etc.) where IRAs are not held in a cash position are faced with concerns of liquidating a customer’s assets without their consent in order to fulfill the IRS reporting obligations. For these holders, compliance with the Revenue Ruling may not be possible without creating compliance issues with other federal regulations. 


Internal and/or external legal counsel should be consulted before liquidating securities to satisfy the IRS reporting requirement to determine what, if any, Securities and Exchange Commission (SEC) and/or Financial Industry Regulatory Authority (FINRA) violations may be present.  


Since most banks and financial organizations have already been withholding when reporting IRA assets in cash positions, this ruling will likely not have an impact on their process. If holders in the securities industry determine they will make the distribution from the IRA in order to fulfill the IRS withholding and reporting requirements, extensive system enhancements may be necessary. Systems will need to have capability to execute the distribution from the IRA, withhold the applicable tax, and report the distribution and withholding to the IRS and the owner by using IRS Form 1099-R.  


Holders will also be faced with decisions on how to report the distributions to owners when there is a bad address on the account. Generally, holders cease sending first class mailings to customers who have bad addresses.


The IRS has provided transition relief by providing a compliance date of “January 1, 2019, or the date it becomes reasonably practicable for the person to comply with those requirements,” however, it may take holders a more substantial amount of time to adequately update and test systems. 


In light of the new revenue ruling and pending tax implications to IRA customers, holders should consider enhancing owner location efforts as a means of reducing the number of IRAs escheated and subject to the ruling. 

Tags:  1099  IRA  IRS 

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