The Holders Voice for Unclaimed Property Reform. UPPO Presentation Disclaimer. CPE Credit CPE credit is available at this conference.

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1 The Holders Voice for Unclaimed Property Reform Part I and Part II UPPO Presentation Disclaimer Use of the Unclaimed Property Professionals Organization, Inc., (UPPO) name or copyrighted materials in this presentation does not constitute an endorsement by UPPO of a member, vendor, product or service. The content represents the opinions of the author and not necessarily those of UPPO. This information is not intended as legal advice and should not be used to replace the advice of legal counsel. CPE Credit CPE credit is available at this conference. However, NASBArules require proof you attended the sessions. For UPPO to provide verification of attendance, you MUSTbe scanned in ANDout of each session to be eligible to receive credit(s). Please see the room monitor(s) at the back of room to have your name badge scanned. 1

2 UPPO Antitrust UPPO has a policy of strict compliance with federal antitrust laws. UPPO members and/or meeting attendees cannot come to understandings, make agreements, or otherwise concur on positions or activities that in any way tend to raise, lower or stabilize prices or fees. Members and/or attendees can discuss pricing models, methods, systems, and applications, as well as certain cost matters that do not lead to an agreement or consensus on prices or fees to be charged. However, there can be no discussion as to what constitutes a reasonable, fair or appropriate price or fee to charge for any service or product. Information may be presented with regard to historical pricing activities so long as such information is general in nature and does not include data on current prices or fees being charged in any trade area. Any discussion of current or future prices, fees, discounting, and other terms and conditions of sale, which may lead to an agreement or consensus on prices or fees to be charged, is strictly prohibited. Work Group Estimations Brenda Mayrack, Esq. BACKGROUND With revisions to 1995 Uniform Act under consideration by the Uniform Law Commission, UPPO has an opportunity to develop itspoint ofview(pov)on whatis an appropriate and reasonable estimation process and advocate for changes in state law. The Estimation Working Group of GRAC has been asked to: Develop UPPO s Best Practices POV; Engage NAUPA for support of POV; Share POV with ULC and ABA; Advocate for appropriate change at the state level 2

3 Current State of Play 1981Act Sec. 30(e) allows reasonable estimation from any available records if a holder fails to maintain records sufficient to permit the preparation of a report as required for 10 years 10-year S/O/L after duty arose 1995 Act Sec. 20(f) allows reasonable estimation from any available records or by any other reasonable method if a holder fails to maintain records sufficient to permit the preparation of a report as required for 10 years 10-year S/O/L after filing report. Comment suggests that other states, in addition to state of holder s legal domicile, could estimate as a penalty, not a liability, for holder s failure to maintain records of name and last known address. Current State of Play Delaware: allows reasonable estimation based on available records or any other methods where holder has not maintained records sufficient to prepareareport. 12Del.C No record retention requirement 3-or 6-year S/O/L applies prospectively from 2003, if reports have been filed In New Jersey v. The Chubb Corporation, et al., 570 A.2d 1313 (N.J. Super. Ct. Ch. Div. 1989), the only unclaimed property case addressing estimation in limited context, the court inferred that proposed approach was reasonable. Issues with Current Approach Unclear whether Texas v. New Jersey, et al. allows estimation of unknown or unledgered property: only held that actual, known, or ledgered property for which the holder did not have record of the owner s last known address would escheat to the holder s state of domicile. did not expressly authorize the estimation of property itself for which there was no record. Supreme Court expressly rejected the use of estimation to allocate actual property that may or may not have had an owner address among states. Results in windfall to holder s state of incorporation Penalty comment in 1995 Act may expose holders to liability (or penalty ) to multiple states. 3

4 Issues with Current Approach Contract auditor practices control how estimation is applied Inconsistent by state, auditor, industry, property type, and holder Reasonable? Are records really insufficient and not available? Burden of proof to prove item is or is not unclaimed property? Sample size and parameters, stratification, etc. Estimation: Recommended Approach Must be tied to record retention requirement Consistent with IRS or other laws? Must be tied to a statute of limitations consistent with record retention requirement Eliminate exposure to estimated penalty by multiple states, beyond holder s state of incorporation Better define sufficient or complete records Recently enacted Michigan statute is a step in the right direction: no estimation if records are substantially complete, defined as 90% Estimation: Recommended Approach Define burden of proof as preponderance of evidence applied in civil proceedings, not clear and convincing or beyond a reasonable doubt Develop more specific and consistent standards for what constitutes a reasonable estimation Allow holders to help develop and agree to estimation methodology, where appropriate 4

5 Next Steps Complete paper re: UPPO s POV and recommendations UPPO Board Approval Submit to ULC Drafting Committee Any Questions? GRAC Foreign Property Study Group Sam Schaunaman BACKGROUND UPPO Member survey rated these issues as important last year GRAC Study Group established to analyze specific issues associated with treatment of foreign unclaimed property Study Group drafted proposed action for UPPO Board consideration 5

6 Overview-Foreign Property Federal priority rules established in Texas v. New Jerseydid not specifically address treatment of foreign property Certain foreign property is claimed by most states under their unclaimed property laws 1981 and 1995 Uniform Unclaimed Property Acts address treatment of foreign property Foreign Property (Cont.) 1995 UUPA sets forth two rules for foreign property Sec. 4(5) provides that if last known address of foreign owner, as shown on holder s records, is in foreign country, property is subject to custody of holder s state of domicile Sec. 26 provides that Act does not apply to property held, due and owing in foreign country and arising out of foreign transaction Foreign Property (Cont.) Study Group believes no U.S. state should be entitled to escheat foreign-owned property for five reasons First, U.S. Supreme Court has not given any indication its priority rules were meant to extend to owners in foreign countries, and has rejected attempts to extend priority rules of TX v NJ Second, foreign owner is not likely to be reunited with property via delivery of property to any state 6

7 Foreign Property (Cont.) Third, insufficient nexus between foreign property and holder s state of domicile to justify state of domicile s right to assert custody-raises Due Process issues Fourth, as more countries enact UP laws, likelihood of multiple conflicting claims increases Finally, under U.S. Supreme Court precedent involving state taxation of foreign-owned property, a demand for custody of foreign-owned property by any state appears to violate Foreign Commerce Clause of U.S. Constitution Foreign Property (Cont.) Study Group is evaluating preliminary comments of UPPO Board A key issue being evaluated is whether the administrative ease of keeping the current rules emanating from the Uniform Acts outweighs consideration of any new rules Other issues are being evaluated, e.g., treatment of U.S. military located overseas Concerns re Escheatment of Foreign- Address Stock Special concern over escheatment of foreign-address shares of stock to states that liquidate the shares Absent clear authority of state of domicile to claim such shares (which does not currently exist), potential legal liability of issuer for wrongful escheatment can exist for many years down the road 7

8 REFRESHMENT BREAK Please join us for a 30 minutes refreshment break Part II will continue after the break. Work Group Record Retentions/Statutes of Limitation Cindy Nisley BACKGROUND UPPO Member survey rated these issues as important last year. Task Force established to develop specific issues. Based on survey results, Task Force drafted proposed action for UPPO Board approval/implementation. 8

9 Statutes of Limitations State statutes establish time limits for pursuing a legal claim. In UP law, statutes of limitations are generally used to determine how far back a state may reach to claim funds held by a holder in an audit. Statutes of Limitation (Cont.) Most state unclaimed property statutes contain an "anti-limitation provision, which generally provide that statutes of limitation, other than those defined within the unclaimed property laws themselves will not apply to defeat a state's right to unclaimed property. Statutes of Limitation (Cont.) States that have a statute of limitations in their unclaimed property laws have restricted them so that they do not apply if a holder has not reported unclaimed property or has done so fraudulently. 9

10 Records Retention Presently the state statutes require holders to maintain unclaimed property reporting records in a range from three to ten years. Most states do not clearly define what records must me maintained. The statutes distinguish between general ledger and money order/traveler check property types. Records Retention (Cont.) For money order/traveler checks, the majority of 36 states require a 3 year period, followed by 7 states requiring 5 years. The remaining states require 4 8 years DE, MS and MN having the same requirements as general ledger property. Work Group Recommendations The work group recommends the UPPO Executive Committee to submit the following requests to the Uniform Law Commission UUPA Drafting Committee. Establish a standard retention period for all states. Clearly identify what category of records to be kept for all states. Require all states to clearly establish consistent audit reach-back periods and indemnification protection policies. 10

11 Work Group Due Diligence Laura Lane GRAC Due Diligence Working Group GRAC Member Survey identified Due Diligence as the #1 ranked issue for reform Uniform requirements for due diligence will improve compliance and decrease holders costs while maintaining owners rights Areas for consistency include: Language (font size, SSN) Delivery requirements (use of cert mail, non-usps, electronic) RPO exclusions De minimus exclusions Owner response options Due Diligence Working Group Tasks Create matrix of current state requirements (DONE) Identify outliers (DONE) Conduct member survey (In Progress) Develop UPPO s Best Practices POV/white paper Engage NAUPA for support of POV Share POV with ULC and ABA GRAC to advocate for appropriate change at the state level 11

12 Member Survey on Due Diligence Questions address: Use of electronic means to send and receivenotice One value threshold for due diligence requirement One mailing deadline for Fall/Spring (rather than range) One owner response deadline Feasibility of certified mail requirements/deduction of cost State verification and checklist to include DD affidavit Content and font size requirements We Need Your Input!! Encourage participation by conference attendees and other member holders Responses will be critical in developing Best Practices POV THANK YOU! Subcommittee Members: Lori Fitzgerald (Chair) Penelope Browder Laura Lane Jim Sadik Peter Ward Work Group Presumption of Abandonment and Contact Michelle A. André 12

13 Goal/Objective Advocate for the development of Uniform Rules regarding the determination of when property is presumed abandoned, including what is considered contact, which will assist in improving compliance and decreasing holders costs without affecting owners rights. Develop best practices for UPPO to present to the Uniform Law Commission. Approach Analyze the current law in all fifty states, the District of Columbia, Puerto Rico and the Virgin Islands Identified when property is deemed abandoned and what is contact generally and for specific property types such as: Life Insurance Policies Stock or Other Equity Interest Individual Retirement Accounts Credits Owed to a Retail Customer 1995 Act All property, other than specific property addressed, is presumed abandoned after the owner s right to demand the property or after the obligation to pay or distribute the property arises, whichever first occurs. One contact definition which applies to all property communication in writing or by other means reflected in a contemporaneous record regarding the property. Enacted by sixteen states. 13

14 1981 Act All intangible property held, issued, or owing in the ordinary course of a holder s business and has remained unclaimed after it became payable or distributable is presumed abandoned. Definition of contact is defined by property type. For example, for stocks or other equity interest, the property will not be deemed abandoned if a dividend or other distribution is claimed by the owner within seven years of distribution. Enacted by seventeen states. Issues/Concerns Some property types are not addressed Tax Advantaged Accounts such as college savings plans Stored Valued Cards Virtual Currencies What constitutes contact? Phone Accessing an account on-line Change in value Passage of time is not appropriate for some types of property Inconsistencies among the states Questions/Feedback There is a two question survey you are asked to complete. Respond with the paper survey on your chair OR use the mobile app by going to this session on the agenda and clicking on Presumption of Abandonment & Contact Research Questions 14