What the Escheat? All You Need to Know About Unclaimed Property! October 5, 2017

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Stephen Merritt
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1 What the Escheat? All You Need to Know About Unclaimed Property! October 5, 2017

2 Welcome! Disclaimer: This presentation and applicable material are intended for general education purposes and nothing in the presentation should be considered to be legal, accounting or tax advice. You should contact your own attorney, accountant or tax professional with any specific questions you might have related to this presentation that are of a legal, accounting or tax nature.

What is unclaimed property? Intangible and sometimes tangible property that has gone dormant and/or unclaimed by its owner after a specified period of time.

3 What is unclaimed property? Intangible and sometimes tangible property that has gone dormant and/or unclaimed by its owner after a specified period of time. Unclaimed property laws have been enacted in 56 jurisdictions (All 50 states, District of Columbia, U.S Virgin Islands, Guam, Puerto Rico, Northern Mariana Islands, and American Samoa) Each jurisdiction has its own law Each jurisdiction has unique requirements Revised Uniform Unclaimed Property Act (RUUPA) - Passed in

4 What is the Law? Banks, credit unions, corporations, colleges, hospitals, and hundreds of Holders of property must safeguard assets and try to reunite the asset with the owner. If the asset goes unclaimed or inactive for a period of time, the Holder must remit that asset to the state in a process called Escheatment. Each state has unique requirements and like must compliance processes, Escheatment is complex, costly, and comes with liability exposure. Purpose of the Law As the State sees it: Protect the interests and property rights of the owner Relieve holders from the expense and liability associated with the property Ensure that any economic windfalls benefits the public, not an individual holder As the Holder sees it: Non-tax revenue to the state, as unclaimed property is a large source of revenue in many states

5 How Unclaimed Property Differs from a Tax Derivative rights doctrine Nexus does not apply The majority of states do not provide relief for reach-back based on a statute of limitations Where statute of limitations provisions exist, the limitation period is typically longer than that applicable in taxation Failure to report or the filing of a fraudulent report generally eliminates reachback relief afforded by limitation provisions Few states provide for a traditional administrative appeals process/remedy Record-retention requirements

Rules of Jurisdiction Where to Report State of owner s last known address State of holder s incorporation, charter or domicile if address of owner is unknown State of holder s incorporation for

6 Rules of Jurisdiction Where to Report State of owner s last known address State of holder s incorporation, charter or domicile if address of owner is unknown State of holder s incorporation for foreign address property (1981 Act) State where transaction occurred for money orders and travelers checks Supreme Court weighs in: Texas vs. New Jersey (1965) Pennsylvania vs. New York (1972) Delaware vs. New York (1993) Pennsylvania, Wisconsin and 21 other states vs. Delaware - the Supreme Court agreed to weigh in on $150 million in uncashed MoneyGram checks from (2016) 6

7 File a report Holder Obligations Perform due diligence Remit property Maintain copies of reports Maintain records that identify unclaimed property and owner contact -Most states go back 10 years + dormancy -Failure to keep records could allow state to estimate liability Protect and safeguard funds until reported to the states -Property is at risk for fraudulent activity -Reasonable inactivity fees State Obligations Enforcement -Audits, including hiring audit firms Public outreach -Safeguard assets -May not be at 100% -Could liquidate non-cash properties -Such as safe deposit box contents -Tax issues (i.e. IRA accounts) Reunite owners with assets Raise awareness Holder education -Provide instruction and guidance -Facilitate the reporting process -Filing options electronic reporting, standardization

8 The Audits have Started Why be Proactive? State auditors Joint audits Multi-state audits Contracted audits to third-party vendors More punitive in nature Significant assessments Looking for revenue taken into income Reputational risk Fines and Penalties Interest assessments (up to 18%) Penalties Fraudulent reporting Failure to conduct statutory due diligence

9 Types of Unclaimed Property Saving accounts Checking accounts CDs Money orders / travelers checks Safe deposit box contents Stock and dividends IRAs Payroll General Ledger

10 Abandonment and Activity Determining abandonment Property is presumed abandoned if, for a specific period of time, the apparent owner has not communicated in writing or by means reflected in a contemporaneous record prepared by or on behalf of the holder, with the holder concerning the property or the account in which the property is held, and has not otherwise indicated an interest in the property. Owner activity The owner takes action to increase, decrease, or change the amount or type of property held within the account The owner has communicated in writing with the holder The owner has acted on another related account - known as linkage The owner has accessed their account online (access must be secure via password or PIN)

11 Best Practices Confirm you have written policies and procedures And that they are accurate and up to date (have created and updated dates) Establish a committee, set up an independent review to test current procedures In-house training Ensure linkage of accounts are done correctly Accelerated due-diligence Customer retention Expansion of service offerings Frequent reconciliations Dual control unique claims process Consolidated reporting Confirm accurate reporting to the appropriate jurisdiction Get legal and upper management involved often and keep apprised

12 What UMACHA Members Should Ask Themselves? Do we know and understand our Unclaimed Property requirements? Why do we report unclaimed property How do we stay in compliance with ever-changing unclaimed property laws/requirements? How do we track activity? Do we report to all states or only to our home state? If only our home state Do we only report those owners? Or do we report other owners from other states to our Home State? If we report other states, what state law(s) do we follow? How do we locate/activate dormant and lost owners? Do we know there are services that: Determines the life status of owner Identifies legal claimants/heirs/next-of-kin Identifies current and valid addresses and contact information

13 Common Errors and Omissions Tracking inactivity Never filed an unclaimed property report Not understanding when the clock starts for a CD Not including IRAs Using incorrect or no relationship codes Only filed to states where the bank has branch locations Reporting property to the state where the bank is located vs. to the state of the last known address Mergers/acquisitions, which are large and frequent in this industry Change in personnel Lack of direction and infrequent testing of internal controls Fraud Whistle blower statutes

14 Getting into Compliance Amnesty Statutory or administrative amnesty Specific conditions are posted Deadlines are provided Generally no pre-authorization required Voluntary disclosure agreements ( VDA ) Formal vs. Informal Conditions include reach-back and pre-authorization Formal signoff and release from penalties and/or interest Ability to conduct audit is generally preserved Additional property Including small number/amount of missed property on normal report

15 Mergers & Acquisitions Ask about Unclaimed Property! When mergers and acquisitions occur you may acquire their unclaimed property liability. So when in negotiations to acquire another bank ask: Do they report unclaimed property? All states? All property types? How do they track activity? Do they have stock/shareholders? Who is their transfer agent? Do they report stock? Did they ever acquire another bank/credit union? Were they ever audited? Where are they incorporated? FDIC takeovers are unique Not escheatable to state Non-responders back to FDIC

16 The Bottom Line! Ignoring unclaimed property compliance is no longer an option Reporting only to one state no longer ensures compliance States are looking for revenue and new property types; IRAs 401K Accounts Savings Bonds Dormancy periods are getting shorter plan for the 3-year dormancy Nothing good ever comes from Escheatment Stay in touch with your members and customers

17 Dormancy Periods for Savings and Checking Accounts WA MT ND MN OR ID WY SD NE IA WI MI NY VT NH ME MA CA NV UT AZ NM CO KS OK MO AR IL IN TN KY OH WV SC VA NC PA MD DC CT NJ DE RI MS AL GA TX LA AK FL 3 years 5 years 5 years for checking and 7 years for savings HI TN 3 years effective July IL 3 years effective January Disclaimer: This content is provided for informational purposes only and should not be considered legal advice or legal opinion. For more information, please contact Michael Ryan at

18 Unclaimed Property Reporting Deadlines for Banking Industry WA MT ND MN OR ID WY SD NE IA WI MI NY VT NH ME MA CA NV UT AZ NM CO KS OK MO AR IL IN TN KY OH WV SC VA NC PA MD DC CT NJ DE RI MS AL GA TX LA Spring filing deadline: Mar 1 May 1 Jul 1 AK FL Report Oct 31 Remit Jun 1-15 Fall filing deadline: Oct 31 Nov 1 Nov 10 HI Disclaimer: This content is provided for informational purposes only and should not be considered legal advice or legal opinion. For more information, please contact Michael Ryan at

19 Basic Reporting Information Due Diligence Report Due Cut Off Minimum State Date Date Amount Timing Michigan July 1 Mar. 31 $50 Not less than 60 days prior to filing Minnesota Oct. 31 June 30 $100 Not more than 120 days prior to filing Montana Nov. 1 June 30 $50 Not more than 120 days or less than 60 days prior to filing North Dakota Nov. 1 June 30 $50 Not more than 120 days prior to filing South Dakota Nov. 1 June 30 $50 Unspecified Wisconsin Nov. 1 June 30 $50 Not more than 120 days prior to filing Holding Period for Deposit Accounts 3 years 3 years 5 years 5 years 3 years 5 years

Resources Surf the Web Google unclaimed property www.uppo.

20 Resources Surf the Web Google unclaimed property Forums Other members Members as mentors Service providers Upcoming conferences/webinars List of states Connect directly to their state

21 Q&A

22 Thank You! Contact Us Pam Wentz Georgeson Office: Cell: Mary Gilmeister, AAP, NCP WACHA Office: Cell:

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