Unclaimed property is generally defined as a fixed and certain interest in intangible property that is held, issued or owed in the course of a holder’s business that has gone unclaimed for a specific period of time (the dormancy period) by the rightful owner. At its most basic level, unclaimed property laws are intended to be consumer protection statutes with the goal of reuniting owners with their property. Indeed, states take custody of such property for the benefit of the “lost” owners, who may claim the property from the state at any time.
All industries and companies generate items that can become unclaimed property if they remain unclaimed. Common property types include bank accounts, stocks, mutual funds, uncashed checks, uncashed payroll, gift cards, rebates, insurance policies, safe deposit boxes and other intangible assets.
Each state has a law requiring companies holding unclaimed property (Holders) to file an annual report of these outstanding liabilities and ultimately transfer, or escheat, the property to the state for safekeeping until the ultimate owner comes forward. While all states have unclaimed property laws, no two are exactly alike. To make matters worse, the states are constantly updating their laws and guidance, often making compliance complicated and burdensome.
Determining where to report unclaimed property
A trilogy of United States Supreme Court opinions created bright line rules for determining to which state a holder is to report unclaimed property. The Priority Rules provide that unclaimed property first goes to the state of the owner’s last known address. If there is no address associated with the property, the property should be reported to the Holder’s state of incorporation.
Determining when property is presumed abandoned
Analyzing when property is presumed abandoned under state requirements can be exceedingly difficult. This is because requirements differ by state, industry and property type. Each state assigns a dormancy period to each property type. Over the last few decades, states have been continuously decreasing those dormancy periods, resulting in property becoming unclaimed more quickly. Currently, typical dormancy periods are three to five years, but some property types can be less than that.
What triggers that dormancy period varies dramatically by state and property type. While the date an uncashed check was issued is an obvious dormancy trigger, there are a variety of triggers of the dormancy period for other property types that are not so obvious, including brokerage and securities accounts, insurance policies, certificates of deposits and individual retirement accounts. Those triggers include, but are not limited to, date of last contact, the date mail to an owner has been returned from the post office as undeliverable (RPO), the date the mail is not returned to the owner, date of confirmed death and age of the owner.
Once the dormancy period has started, it will restart each time there is owner-generated contact. Like most unclaimed property issues, what constitutes owner-generated contact differs by state and property type. Cashing a check, contacting the holder, logging into an online account, deposits and withdrawals—including automatic deposits and withdrawals from a bank account—and Holder-sent mail that is not returned are all activities that may update the date of last contact.
Performing due diligence
Once property is presumed abandoned, Holders are required to reach out to apparent owners of dormant properties to resolve the item prior to reporting and remitting (due diligence). In general, states require a notice to be sent to the last known address of the owner of the funds as indicated in the holder’s records. The purpose of the requirement is to give the owner one last opportunity to claim their funds or reactivate their account before it is turned over to the state. Over the years, states have placed greater emphasis on due diligence with new or enhanced requirements on qualifications for due diligence, timing of the mailing, letter content, method of delivery and even attestations of mailing. Indeed, the requirements vary by state. One example of a due diligence requirement is as follows: “For property valued at $50 or more, the holder shall send written notice to the owner at the owner’s last known address not more than 120 days and not less than 60 days prior to filing the report.”
Each state has a deadline by which annual reporting must be performed. The reporting deadlines occur at different times throughout the year, but there are three main seasons:
- Fall reporting (reports due October 31/November 1)
- Spring reporting (reports due March 1 – May 1)
- Summer reporting (reports due June 30 – August 10)
Remember that some states require reports to be filed on different dates based on holder type or the type of property reported. Thus, a holder could possibly be required to file more than one time in a particular state.
In some years, a holder may not have any unclaimed property to report to a particular state. Unfortunately, some unclaimed property laws or regulations require that the holder file a “negative” report if the holder has no unclaimed property eligible for reporting in a particular report year.
Each state is authorized by law to audit Holders for compliance with the state’s unclaimed property laws. Oftentimes, the states utilize third-party audit firms, paid on a contingency fee basis, to perform such audits. As a result, aggressive tactics are used to maximize liability. Furthermore, periods under review can go back as far as 15 years. Therefore, audits are both time consuming and burdensome. Fortunately, many states offer voluntary compliance programs that allow companies to come into compliance without being subject to interest, fines and penalties.
Watch our recent webinar, Unclaimed Property 101, to learn more.