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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 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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Montana’s unique traits help shape its unclaimed property program

Posted By Administration, Tuesday, August 23, 2016

Montana is unusual. Despite having the fourth largest physical size of any American state, its population is the nation’s seventh smallest. No Fortune 500 companies are headquartered in Montana, and the state’s largest city, Billings, is home to only 110,000 residents. The state is also one of few that typically operate with a budget surplus.

 

The state’s unclaimed property program reflects these unusual characteristics—not only by how it functions but by the philosophy of its administrator as well.

 

Jim McKeon, miscellaneous tax program manager for the Montana Department Revenue, oversees the state’s unclaimed property program along with about 20 tax programs. He views unclaimed property holders as partners who are trying to achieve the same goal—reuniting property with its proper owners.

 

“We’re not here to criticize the holder or say the holder is not in compliance. We’re here to work with them,” McKeon says. “The best way to do that is to educate them and to make it easier to file.”

 

Much of the state’s educational outreach to holders occurs online. The state’s rural, decentralized nature doesn’t make face-to-face unclaimed property seminars feasible, although the topic is often included in meetings discussing tax-related issues with CPAs and business groups.

 

Most recently, the department has focused its educational efforts on encouraging electronic filing through the state’s website. When files are submitted properly, the system expedites the transfer of holder information into the state’s unclaimed property database with minimal need for human intervention. It also encrypts the data and scans files for viruses.

 

McKeon has also been working to streamline the filing process through work on the National Association of Unclaimed Property Administrators’ (NAUPA) Uniformity & Standardization Committee. Attending UPPO conferences and speaking with holders, he and other committee members recognized that one of the major challenges for holders reporting unclaimed property to multiple states was the lack of consistent property codes. How states use and interpret the codes has been inconsistent, and state creation of their own codes has added to the confusion.

 

“Dormancy periods may vary from state to state, but the property types are the same,” McKeon says. “We’re making a big push to better standardize property codes.”

 

As part of the standardization push, he is hoping the committee develops a process for the states to add new codes through NAUPA rather than setting them up independently. This would further reduce confusion surrounding the codes and helping to ensure consistency.

 

Of course, consistency has been one of the factors driving the Uniform Law Commission’s work in recent years to revise the Uniform Unclaimed Property Act (UUPA) as well. Currently, Montana is operating under the 1995 UUPA version. With the text of the new act recently finalized, it’s still too early to predict whether Montana will adopt it, but McKeon doubts any action will occur in the immediate future. The state legislature meets only every two years, the upcoming election will help determine the government’s direction, and unclaimed property legislation is typically a low-priority issue.

 

While there is a fairly common perception that many states look to unclaimed property as a way to make up for budget deficits, McKeon doesn’t believe this is the case in Montana. Thanks to the state’s frequent budget surpluses, McKeon sees his department’s role strictly as that of custodian of unclaimed property.

 

“We are stewards of the funds. We are responsible for getting those funds back to the users,” he says. “This is one of the areas where the Department of Revenue really shines, because we’re out there giving money back to people.”

 

One of the department’s challenges is citizens’ increasing skepticism when told they have the right to claim funds. Because there have been so many high-profile consumer scams in recent years, people wisely heed media warnings to be cautious if something sounds too good to be true. Fortunately, verification through the state’s “Click for Cash” unclaimed property website usually clears up any reservations.

 

McKeon recently spoke with a senior citizen about $650 in unclaimed property she was owed. At first, she didn’t believe the call was legitimate. Again, the unique nature of Montana came into play. McKeon told her he had once lived near the woman’s town. As they spoke about that area of the state, they found they had some common acquaintances, helping to put her at ease. McKeon directed her to the state’s unclaimed property website to confirm the amount she was owed. She eventually filed a claim and received her money.  

 

The department usually returns about 30 percent to 40 percent of the unclaimed property collected. McKeon is proud of those results and credits holders for much of the program’s success.

 

“We appreciate how much work the holders do,” he says. “For the state’s unclaimed property system to work, there has to be a good relationship between the holders and the state. They’re doing a lot of the work that makes it possible for us to reunite owners with their property, so we focus on providing enough instructions and information to make it easier for holders. The easier we can make it for holders, the more compliant they’ll be.”

 

For more information about Montana’s unclaimed property program, visit the state Department of Revenue’s holder web page.

Tags:  compliance  Montana  unclaimed property 

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Temple-Inland decision and settlement open the door to changes in Delaware

Posted By Administration, Thursday, August 18, 2016

Delaware’s use of and methodology for estimation in audits has come under the spotlight as a result of the Temple-Inland Inc. v. Cook court case, filed in May 2014. Recent developments in June and August 2016 provided clarity about the legality of Delaware’s practices and subsequently ended the case.

 

Background

The plaintiff, Temple-Inland, alleged violations of several federal laws based on the estimation methods used by Delaware’s third-party agent, Kelmar, which resulted in a $2 million estimated liability (later reduced to $1.3 million) based on a single payroll check for $147.30 that the company failed to escheat to the state.

 

June decision

On June 28, 2016, the U.S. District Court for the District of Delaware issued an opinion, granting Temple-Inland’s request for summary judgment. The court said it “finds several aspects of defendants’ actions troubling,” specifically:

  • Waiting 22 years to conduct an audit.
  • Avoiding the otherwise applicable six-year statute of limitations under dubious circumstances.
  • Giving holders no notice that they would need to retain unclaimed property records to defend against unmeritorious audits.
  • Applying Section 1155 for a prolonged retroactive period for no obvious purpose other than to raise revenue.
  • Failing to follow the fundamental principle of estimation where the characteristics of the sample set are extrapolated across the whole, which also puts the plaintiff at risk of multiple liability.

August settlement

On Aug. 5, 2016, Temple-Inland and the defendants filed a joint motion to dismiss the case, signaling a settlement and ending the dispute. Although details of the settlement were not made public, several published reports indicate that Delaware withdrew the full assessment and agreed to pay all of Temple-Inland’s attorney fees and additional case-related costs.

 

Long-term effects

How the Temple-Inland decision and settlement will affect Delaware’s practices, the litigation landscape, the state’s voluntary disclosure program, and other states’ use of estimation remain to be seen, but some of the results may play out quickly.

 

Delaware’s budget depends on revenue from unclaimed property, the third largest source of state revenue. As such, officials won’t have the luxury of time on their side when retooling unclaimed property systems, processes and practices. Finance Secretary Tom Cook told The News Journal that officials are already “conducting a thorough review of the state’s escheat statutes, regulations, policies and procedures, with the intention of improving the program going forward.”

 

If Delaware finds itself facing a budget crisis as a result of lost unclaimed property funds, it may have to turn to alternative sources, namely a state sales tax. Currently, Delaware is one of just five states that doesn’t charge sales tax, and residents would not be happy to see one implemented.

 

“When you’re getting unclaimed property based on estimation going into Delaware’s general fund, it’s coming from outside sources so Delaware’s not tapping its own citizens for that revenue,” says Kevin Spiegel, senior manager at Crowe Horwath LLP. “Now Delaware may have to tap its own citizens for that revenue the state has come to expect.”

 

Holders facing substantial liability in Delaware as a result of the state’s estimation practices are likely to follow Temple-Inland’s lead, so lawsuits against the state may surge as a result of the case’s outcome.

 

“Holders are lining up to litigate,” says Chris Hopkins, partner at Crowe Horwath LLP. “It would be in Delaware’s best interest to settle these cases before they even hit the administrative appeals level, when they may become public record.”

 

Temple-Inland will also affect the state’s voluntary disclosure program. The results of the case will undoubtedly factor into negotiations for holders with voluntary disclosure agreements already in place and going through the process.

 

While the court’s decision is, in many ways, a victory for holders, it isn’t entirely positive.

 

“The decision was good for Delaware-incorporated and domiciled businesses,” Hopkins says. “However, it may not be such good news for holders in general. The court implicitly sanctioned reasonable estimation by states that aren’t necessarily the states of domicile of holders.”

 

It will take weeks, months and perhaps even years to fully know how Temple-Inland changes the unclaimed property landscape. In the immediate future, it highlights the importance of ongoing compliance.

 

“Not only is there some precedential value here, but there’s also an important takeaway for holders, and that is to be in compliance,” Spiegel says. “One of the important elements Temple-Inland had going for it is that it had filed reports in the past.”

 

Spiegel and Hopkins will provide additional insight into the Temple-Inland case during an upcoming UPPO Lunch ’n Learn event in Chicago. The case will also be part of the Lunch 'n Learn - Boston discussion. Both events will be held on Sept. 21, 2016. Register today.

 

Tags:  audits  compliance  Delaware  estimation  Temple-Inland  unclaimed property  VDAs 

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UPPO seeks clarification about Arkansas advisory on abandoned mineral proceeds

Posted By Administration, Thursday, August 11, 2016

In a May 16, 2016, letter to holders of abandoned mineral proceeds, the Arkansas auditor’s office provided information about recent changes to the state’s unclaimed property laws for mineral proceeds. The notice included this advisory:

 

“If a mineral interest was derived from a well physically located in Arkansas (as evidenced by the legal description of the well) and the owners last known mailing address is UNKNOWN, the abandoned mineral interest should be reported to the Arkansas Auditor of State Unclaimed Property Division.”

 

UPPO recently responded to the Arkansas auditor’s office, raising concerns about the state’s guidance and seeking clarification. The association’s letter notes that the state’s position on property with an unknown address conflicts with federal law. Specifically, Arkansas’s guidance runs contrary to the unclaimed property priority rules established more than 50 years ago by the U.S. Supreme Court in Texas v. New Jersey:

 

        First Priority Rule: Abandoned property must be escheated to the state of the owner’s last known address, as determined by the holder’s books and records.

        Second Priority Rule: The property is paid to the state of corporate domicile if the owner’s address is incomplete or unknown, or if the owner’s last known address is in a state that does not provide for escheat of the property owed.

 

Coincidentally, Texas v. New Jersey was a case related to mineral proceeds. The state of Texas argued that at least the intangible obligations (royalties, rents and mineral proceeds) derived from land located in Texas should be escheatable only by that state. In the footnotes to its opinion, however, the Supreme Court said, “We do not believe that the fact that an intangible is income from real property with a fixed situs is significant enough to justify treating it as an exception to a general rule concerning escheat of intangibles.”

 

“It puts the holder in difficult position to have a state claim this property, knowing it’s owed to the company’s state of incorporation,” says William King, senior manager, state and local tax, unclaimed property for KPMG LLP.

 

The communication from Arkansas is certainly not the first time a state has issued guidance conflicting with federal law or even this specific issue. The 1988 case of American Petrofina v. Nance addressed an Oklahoma law requiring that proceeds held for owners with unknown addresses and generated from mineral interests in Oklahoma should be escheated to the Oklahoma Tax Commission.

 

The U.S. District Court ruled, and the Tenth Circuit Court of Appeals affirmed, that the Oklahoma law violated the U.S. Constitution’s supremacy clause and that the federal common law established in Texas v. New Jersey preempted the Oklahoma law.

 

In its letter to the Arkansas auditor’s office, UPPO expressed concern regarding the apparent conflict between the state’s guidance and the federal priority rules. The association hopes to gain prompt clarification for its members.

Tags:  Arkansas  compliance  mineral proceeds  priority rules  unclaimed property 

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UPPO Weighs in on Delaware v. Pennsylvania and Wisconsin

Posted By Administration, Thursday, August 4, 2016

UPPO filed an amicus brief with the Supreme Court of the United States on Monday, Aug. 1 asking the court to hear State of Delaware v. Commonwealth of Pennsylvania and State of Wisconsin, and to clarify the reach of the federal common law rules governing unclaimed property. Specifically, UPPO requests the Supreme Court clarify that the federal common law rules apply to cases involving conflicting claims among the states, and cases involving a dispute between a holder and a single state. UPPO also seeks clarification that the secondary rule protects the rights of holders against unconstitutional overreaching by states.

 

Case background
MoneyGram has been involved in a number of lawsuits involving Delaware, Wisconsin and Pennsylvania. The states are each claiming right to MoneyGram’s Official Checks. Delaware claims MoneyGram should escheat the property to Delaware because it’s MoneyGram’s place of corporate domicile. Wisconsin and Pennsylvania argue that the Official Checks should be remitted to the jurisdiction in which the purchase took place.  While the states battle it out, Delaware has refused to indemnify MoneyGram.

 

Learn more about the cases involving MoneyGram which have led up to Delaware v. Pennsylvania and Wisconsin.

 

Arguments
UPPO Government Relations and Advocacy Committee members, John Coalson of Alston & Bird, Sara Lima of Reed Smith, Ethan Millar of Alston & Bird, and Diann Smith of McDermott Will & Emery, were joined by Michael Lurie and Matthew Setzer of Reed Smith to draft the amicus brief. They laid out a number of arguments in the brief to depict the current unclaimed property landscape and why it warrants the Supreme Court’s attention and consideration.

 

The landscape has changed since the Supreme Court announced the common law rules in Texas v. New Jersey.
“While significant change is to be expected over a half-century, the revolution in unclaimed property is ground-breaking,” the brief states. It goes on to say that the major developments include: massive increases in the unclaimed property collected by states; legislative trends increasing state unclaimed property collections; and aggressive interpretations of the secondary rule.

 

Holders are caught between conflicting and competing state laws.
The Supreme Court created the federal common law rules to resolve conflicting claims of different states with “clarity and ease of application” (Texas v. New Jersey). The intention of creating the rules have been lost, and states have interpreted the federal common law rules differently, causing issues like the one that presents itself in Delaware v. Pennsylvania and Wisconsin.

 

Another example of conflict is how states interpret “last known address.” Texas v. New Jersey dictates that property with a “last known address” of the owner should be escheated to the state where that address is located. The problem lies in that the definition of “last known address” is different among states. The brief adds that, “For example, New Jersey regulation states that a zip code is a last known address. Connecticut and Michigan define last known address as an address sufficient for mailing.”

 

Holders face significant burdens in light of these conflicting and expansive state rules.
Multiple states can assert claim to property, yet the holder is required to obtain confirmation from a state that it is required to remit the disputed property to that state, and in addition, defend its choices to the multiple other states claiming the property. The Council on State Taxation conducted a study of its members and found that 61 percent spent more than $1 million dollars in staff time, legal fees and other expenses (excluding the actual assessment) to go through the motions of an unclaimed property audit.

 

Holders have minimal recourse.
In the past, states have argued that federal common law rules only apply to interstate disagreements, and that holders cannot raise the federal common law rules in defense. This leaves holders at risk of multiple states claiming custody of the same property.

 

Next steps
Its anticipated that Supreme Court will make a decision as to whether it’ll hear the case around early October. Check back for updates and more information.

Tags:  amicus curiae brief  Delaware v. Pennsylvania and Wisconsin  unclaimed property  UPPO 

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How does the UUPA address our issues?

Posted By Administration with contribution by Karen Anderson, GRAC co-chair , Thursday, July 28, 2016

If you missed the Revising the Uniform Unclaimed Property Act: Where do we go from here? webinar, here’s a synopsis of how the Uniform Law Commission treats UPPO’s priority issues in the approved draft of the Uniform Unclaimed Property Act.

Definition of holder

The definition of “holder” should make it clear that there can be only one “holder” of any item of unclaimed property, and the definition of “holder” should be revised to make that clear. UPPO believes this definition section should be accompanied by a comment that affirms that where one party has a direct legal obligation to the owner of the property, and another party has possession of the property and an obligation to pay or deliver it to the owner solely by virtue of a contractual relationship with the party who is directly obligated to the owner, it is the party who is directly obligated to the owner who is “primarily” obligated and hence is the holder for purposes of the act. Thus, the issuer of stock or bonds, and not a third party transfer agent or paying agent contracted by the issuer, would be the “holder” of the obligation and any unclaimed dividends on the stock or interest on the bonds. See, e.g., Clymer v. Summit Bancorp, 792 A.2d 396 (NJ 2002).

Current Status: Section 102 (12) the following definition of “holder” is in the draft:Holder means a person obligated to hold for the account of, or deliver or pay to, the owner property that is subject to this [act].”

Definition of owner contact/Indication of owner interest
UPPO recommends the definition of owner contact be expanded to include various activities that are commonly executed by owners.

 

Current status: Section 102 (21) The following definition of “owner” is in the draft:a person that has a legal, beneficial, or equitable interest in property subject to this [act], or the person’s legal representative when acting on behalf of the owner. The term includes a depositor, for a deposit, a beneficiary, for a trust other than a deposit in trust, and a creditor, claimant, or payee, for other property, and includes the lawful bearer of a record which may be used to obtain money, reward, or things of value.”

 

Section 210 states: “(b) Under this [act], an indication of an apparent owner’s interest in property includes:

(1) a record communicated by the apparent owner to the holder or agent of the holder concerning the property or the account in which the property is held;

(2) an oral communication by the apparent owner to the holder or agent of the holder concerning the property or the account in which the property is held, if the holder or its agent contemporaneously makes and preserves a record of the fact of the owner’s communication;

(3) presentment of a check or other instrument of payment of a dividend, interest payment, or other distribution, or evidence of a receipt of a distribution made by electronic or similar means, with respect to an:

            (A) account;

            (B) underlying security; or

            (C) interest in a business association;

(4) activity directed by an apparent owner in the account in which the property is held, including accessing the account or information concerning the account, or a direction by the apparent owner to increase, decrease, or otherwise change the amount or type of property held in the account;

(5) making a deposit into or withdrawal from an account at a financial organization, including an automatic deposit or withdrawal previously authorized by the owner other than an automatic reinvestment of dividends or interest;

(6) subject to subsection (e), payment of a premium on an insurance policy; and

(7) any other action by the apparent owner which reasonably demonstrates to the holder that the owner is aware that the property exists."

Electronic owner contact

To make the owner contact trigger requirement more consistent with how holders and customers communicate with each other today, UPPO supports the acceptance of expanding owner contact to include electronic means, such as email, text messaging, automatic reinvestments of dividends or interest, electronic account access, etc.

Current status: Section 210(b)(1) states that an “indication of interest” is (among a list of other things), “a record communicated by the apparent owner to the holder or agent of the holder concerning the property or the account in which the property is held”. Section 102 (26) states a “record means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.”

Due diligence timelines
UPPO advocates that the UUPA require that holders complete due diligence at least 60 days prior to the reporting deadline. This more open-ended due diligence timeline will provide a better chance for reunification of the property -- forestalling escheatment. Further, this time frame encourages greater outreach efforts by the holder and allows the holder to incorporate due diligence efforts sensibly into its processes.

Current status: Section 501 (a) - No change in the standard timing in the approved UUPA (not more than 180 days nor less than 60 days….) but a different schedule for securities and IRAs . For securities, if the owner does not receive communications from the holder by First-Class United States mail, the holder is required to send a notice by electronic mail not more than two years after the owner’s last indication of an interest in the property to attempt to re-establish contact with the owner and the owner’s continued interest in the property. If the holder receives notice that the electronic mail communication was not received, or if the owner does not respond to the electronic communication within 30 days, the holder is required to send a letter by First-Class United States mail seeking to re-establish contact with the owner. If that letter is returned undelivered (and a second communication if sent by First-Class United States mail within 30 days of return of the first mailing is also returned undelivered), then the three-year dormancy period runs from the return of the second consecutive mailing. At the end of the dormancy period, the holder is required to again attempt to contact the owner by electronic mail prior to reporting the property. 

Electronic due diligence

As long as the owner’s email address is verified by the owner as accurate, UPPO supports including a provision which allows holders to conduct due diligence via email and to collect responses to letters via web-based certification, email or call center activity.

Current status: Section 501 (b) – Holders are required to send owners that have consented to receive electronic-mail delivery, a notice by first-class United States mail and electronic mail.

Aggregate limits

UPPO recommends that reporting using aggregate limits be an option for items valued under $50 and that state administrators shall not be permitted to request or demand that the holder provide the name and address of the apparent owner of items property reported in the aggregate.

Current status: Section 501(a)(2) - While the amount is in brackets (indicating the dollar value is elective in the draft), Section 402 (b) states, “A report under Section 401 may include in the aggregate items valued under $[50] each. If the report includes items in the aggregate valued under $[50] each, the administrator may not require the holder to provide the name and address of an apparent owner of an item unless the information is necessary to verify or process a claim in progress by the owner.”

Election to make payment early

A provision should be included in the UUPA that would permit the holder to deliver property before it is presumed abandoned so long as the holder discloses to the state that the dormancy period for the property remitted has not expired. Under UPPO’s recommendation, prior approval by the administrator of such a remittance would not be required and the property would not be presumed abandoned until it would otherwise be presumed abandoned under the Act. Coupled with this recommendation is one to relieve the holder of all liability for any and all claims regarding the property upon remittance of the property to the state.

Current status: Sections 608 & 609 - Prior approval by the administrator is required, but if the administrator doesn't respond within 30 calendar days after the holder's request, the holder can submit the property. A condition of early reporting is that due diligence be performed. Property reported early is presumed abandoned and is considered reported in good faith triggering indemnification by the state.

Record retention requirements 
The following requirements should be added to the UUPA about record retention:

  • Changing the record retention requirement from 10 years to seven years
  • Records should be retrievable
  • A threshold for available sufficient records required during an audit should be added to provide some level of protection to holders (i.e. holders are required to produce 80 percent of sufficient records requested by auditors)

Current status: Section 404 of the draft provides that a holder required to file a report must retain for 10 years after the later of the date the report was filed or the last date a timely report was due to be filed the records containing: the information required to be included in the report, the date, place and nature of the circumstances that gave rise to the property right, the amount or value of the property and the last address of the owner if known to the holder, and if the holder sells, issues or provides to others for sale or issue in this state traveler’s checks, money orders, or similar instruments, other than third-party bank checks, on which the holder is directly liable a record of the instruments while they remain outstanding indicating the state and date of issue.

Estimation/Records
UPPO’s positions regarding estimations are listed below:

  • Insufficient records trigger - Estimations only be used in audits when holders cannot produce sufficient records.
  • Clear and consistent procedures - If estimations are to be used in state enforcement, creating clear procedures and standards for the use of estimations is a must.
  • Sampling method - After an independent study of the MTC statistical sampling method (which is the method NAUPA recommends using) UPPO supports the use of this model and a statement in the UUPA which adopts it.

Current status: Section 1003 (a) requires the administrator to promulgate rules governing the procedures and standards for examination including the use of estimation, extrapolation and statistical sampling. Further, in Section 1006 it states that if a holder being examined does not have records, “the administrator may determine the amount of property due using a reasonable method of estimation based on all information available to the administrator, including extrapolation and the use of statistical sampling….”.

Administrative appeals
Grounded in fairness is the willingness to grant an elective administrative appeals process for holders to pursue if it disagrees with the audit results produced by the state. Further, the arbiter of the appeal should be an independent party chosen through a fair process involving both the state administrator and the holder. Not only will this increase holders’ trust in the state enforcement policies but it provides a less burdensome and costly option to litigation.

Current status: Section 1008 and 1012 - Section 1008 permits a holder to request a meeting with the administrator during the pendency of the audit. Further, in Section 1101 – 1104 detail the options and procedure for post audit issue/liability resolution in the form of administrative review, judicial review and an informal conference.

 

Foreign addressed property

UPPO has continually advocated for the exclusion of all foreign address property from the UUPA,

as supported by the principles of comity and the Supremacy Clause, the Due Process Clause, and the Foreign Commerce Clause of the U.S. Constitution.

Current status: Section 103 - The Drafting Committee decided to not change the status quo and to retain the language in the 1995 Act:  “This [act] does not apply to property held, due, and owing in a foreign country if the transaction involving the property was a wholly foreign transaction.” However, Section 303 of the UUPA continues to permit the state of domicile to take custody of property arising from a domestic transaction if the last known address of the owner of the property is in a foreign country. 

Business to business exemption

UPPO supports the inclusion of specific language in the UUPA exempting business to business transactions from the UUPA.

Current status: The UUPA committee decided not to include a business to business exemption in the draft but will include a note that some states do have such exemptions/exclusions currently.

Securities definition

To enhance comprehensiveness and clarity, UPPO advocates for a definition of securities to be added to the UUPA. In addition, the Act must include a specific reference to an owner’s interest in a brokerage account held by a broker-dealer.

 

Current status: Section 102 (27) "(A) a security as defined in [cite to appropriate section of Article 8 of the Uniform Commercial Code; or (B) a security entitlement as defined in [cite to appropriate section of Article 8 of the Uniform Commercial Code], including a customer security account held by a registered broker-dealer to the extent that the financial assets held in the security account are neither registered on the books of the issuer in the name of, nor are payable to the order of nor specifically endorsed to, the person for which the broker-dealer holds the assets."

Securities liquidation

Liquidation of securities has proved to be detrimental to owners and holders. Therefore it’s recommended that the sale or liquidation of securities escheated to the state occur no sooner than three years from the date of receipt. In addition, state administrators should be required to send proper notice to owners regarding its custody of their property, and if a sale of the securities should happen the property should be sold at the current market value.

 

Current status: Section 702 - the administrator is prohibited from liquidating a security until three years after the administrator has received the security and given the owner notice. Under Section 703, if the administrator sells the security before six years after the security was delivered to the administrator and a claim is made before the end of the six year period and the administrator determines the claim is valid, the claimant of the security must be put in the same position as if the shares had not been sold – either by providing the claimant with the shares or cash equivalent plus any splits, dividends, etc. that would have accrued. Section 702 (b) requires that if the administrator sells a security listed on an established stock exchange they cannot sell it for less than the prevailing price on the exchange at the time of sale.

Securities – Non-transferable, Restricted and Worthless
Stock which cannot be sold or transferred, including restricted securities should be expressly exempted from the UUPA, as escheating it will provide no benefit to the owner or the state.

Current status: Section 102 (20) – Non-freely transferable securities and worthless securities are included under the Act. The act defines non-freely transferable security as “a security that cannot be delivered to the administrator by the Depository Trust Clearing Corporation or a similar custodian of securities providing a post-trade clearing and settlement services to financial markets or cannot be delivered because there is no agent to effect transfer. The term includes a worthless security.”  It defines (Section 102(33)) worthless security as, “a security whose cost of liquidation and delivery would exceed the value of the security on the date a report is due under this [act].”

Worthless and restricted securities are excluded from the definition of property. Non-freely transferable securities must be reported with an explanation but are not required to be delivered to the administrator until they become transferable.

Further, definitions of restricted security and worthless security were added to Section 102 as follows: Restricted: “Property does not include a security that is subject to a lien, legal hold, or restriction evidenced on the records of the holder or imposed by operation of law which restricts the holder’s or owner’s ability lawfully to receive, transfer, sell or otherwise negotiate the security.” Worthless: “a security for which the cost of liquidation and delivery would exceed the value of the security on the date a report is due under this act.”

In Section 402 (a)(9) it is stated that a “non-freely transferable security” must be identified in the holder’s unclaimed property report along with an explanation of why it is such a security.

Electronic reporting
For the convenience of state unclaimed property departments and holders, holders should not be required to submit paper reports. It’s recommended that modern technology should be used to make the reporting process more efficient and secure.

Current status: Section 401 (a) – “…the administrator may not require the holder to submit a paper report.” Also, in Section 402 (2) the draft language now states that the report must be in a “secure electronic format” approved by the administrator.


Reporting deadlines

To achieve consistency among the states, UPPO advocates for creating a common reporting deadline of November 1 for all non-life insurance companies and May 1 for life insurance companies.

Current status:  Section 403 (a) and (b) - The reporting deadlines are as follows:

1. All holders except insurance companies – Before 11/1

2.  Life insurance companies – Before May 1

De minimis

UPPO recommends that property valued under $50 not be required to be reported and remitted.

 

Current status: The Drafting Committee did not include a de minimis amount exclusion in the draft.

 



About the contributor

Karen Anderson, Deputy Chief Compliance Officer at Keane and UPPO Government Relations and Advocacy Committee co-chair has been working in unclaimed property since 1988. She assists Keane’s clients in maintain compliance-related data. Karen has contributed her immense knowledge of the industry, deep understanding of legislative trends and the legislative process to UPPO’s ULC advocacy initiative and other UPPO advocacy projects. She holds a J.D. from Loyola University of Chicago.


 

More information
Here's an issues matrix which compares the approved UUPA to a number of UPPO's positions
What are UPPO members saying about the UUPA?

What’s next for the UUPA? 


Tags:  reform  ULC  unclaimed property  UPPO  UUPA 

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