Unclaimed Property Administration: What a Financial Institution Holder Needs to Know

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1 Unclaimed Property Administration: What a Financial Institution Holder Needs to Know Presented by Robert H. Davidson Chantel Wilson NJBankers 411 North Avenue East Cranford, NJ March 30, 2017

2 HISTORY OF UNCLAIMED PROPERTY 1989 Unclaimed Property Statute Based on the 1981 Uniform Laws Commission Recommendations (with modifications). Assembly Bill No (as amended in 2002) Based on the 1995 Uniform Laws Commission Recommendations (with modifications).

General Areas of Modification to the Uniform Unclaimed Property Act Reduced abandonment periods Clarifies and expands types of property covered under the Statute.

3 General Areas of Modification to the Uniform Unclaimed Property Act Reduced abandonment periods Clarifies and expands types of property covered under the Statute. Clarifies the definition of holder - the original obligor indebted to another on an obligation Clarifies the burden of proof issue Attempts to clarify limits on fees Protects the confidentiality of personal confidential information by the Administrator as successor trustee

5 AREAS OF AUDIT Bank deposits and funds in financial organizations Demand deposit accounts (3 years) Savings deposit accounts (3 years) Time deposit (3 years) Automatically renewable property...3 years from the initial date of maturity or date of last contact, whichever is earlier.

6 AREAS OF AUDIT Checks issued by financial organizations Cashier checks (3 years) Certified checks (3 years) Vendor checks (3 years) Payroll checks (1 year) Draft (3 years) Other outstanding checks (3 years)

AREAS OF AUDIT Limitation on Holder s Power to Impose Charges There must be an enforceable written contract between the holder and the owner of the property allowing the holder to impose the charge.

7 AREAS OF AUDIT Limitation on Holder s Power to Impose Charges There must be an enforceable written contract between the holder and the owner of the property allowing the holder to impose the charge. The holder regularly imposes the charge and does not regularly reverse or cancel the charge. The amount of the charge is not unconscionable. No additional charges are imposed as a result of escheatment of the property (no escheat fees allowed).

AREAS OF AUDIT CORPORATE STOCKS & BONDS Dividend checks (3 years) Underlying shares of stock (3 years) Dividend reinvestment plan shares Non-dividend

8 AREAS OF AUDIT CORPORATE STOCKS & BONDS Dividend checks (3 years) Underlying shares of stock (3 years) Dividend reinvestment plan shares Non-dividend paying securities Merger and acquisition history Unexchanged shares of stock (3 years) Exchange for cash Exchange for shares of the acquiring company

AREAS OF AUDIT CORPORATE & MUNICIPAL BONDS Corporate Bond interest (coupon or registered) - (3 years) Corporate Bond principal (matured or called) - (3 years)

9 AREAS OF AUDIT CORPORATE & MUNICIPAL BONDS Corporate Bond interest (coupon or registered) - (3 years) Corporate Bond principal (matured or called) - (3 years) Underlying registered corporate bond principal - (3 years) Municipal Bond interest (coupon or registered) - (1 year) Municipal Bond principal (matured or called) - (1 year)

10 Funds in retirement account or plan

11 AREAS OF AUDIT Traditional Individual Retirement Accounts Three years after the earliest of: The date of distribution or attempted distribution of the property. The date of the required distribution as stated in the plan or trust agreement governing the plan. The date, if determinable by the holder, specified in the income tax laws of the United States by which distribution of the property must begin in order to avoid a tax penalty.

12 AREAS OF AUDIT Traditional Individual Retirement Accounts Deceased Owner / Inherited Beneficiary IRA Owner dies before reaching Age 59 ½ or has reached Age 59 ½ and has not reached age 70 ½ and has not begun to take distributions Three years after the earliest of: The date of distribution or attempted distribution of the property. The date of the required distribution as stated in the plan or trust agreement governing the plan. The date of required distribution to avoid a Federal Tax Penalty.

13 AREAS OF AUDIT Traditional Individual Retirement Accounts Deceased Owner / Inherited Beneficiary IRA Owner dies before reaching Age 59 ½ or has reached Age 59 ½ and has not reached age 70 ½ and has not begun to take distributions The Beneficiary must take the first distribution no later than December 31st of the year following the year of death. Generally minimum required distributions are based on the life expectancy of the oldest beneficiary.

14 AREAS OF AUDIT Traditional Individual Retirement Accounts Deceased Owner / Inherited Beneficiary IRA If the deceased owner has begun to take distributions The beneficiary must continue to take distributions every year based on the oldest beneficiary s life expectancy.

15 AREAS OF AUDIT Traditional Individual Retirement Accounts Deceased Owner / No Designated Beneficiary Required Beginning Date (RBD) is April 1 of the year following the year in which the IRA owner reaches Age 70 ½.

16 AREAS OF AUDIT Traditional Individual Retirement Accounts Deceased Owner / No Designated Beneficiary Owner dies after RBD: The distribution period is the IRA owner s life expectancy calculated in the year of death, reduced by one for each subsequent year. Owner dies before RBD: The IRA must be distributed within 5 years after death. A designated beneficiary must be determined by September 30 of the year after the IRA owner s death.

17 AREAS OF AUDIT Traditional Individual Retirement Accounts Deceased Owner / Spouse is Sole Beneficiary Surviving Spouse may take withdrawals over his or her life expectancy. The withdrawals must start no later than the date on which the deceased owner would have been age 70 ½. OR The spouse may elect to treat the IRA as being his or her own (the equivalent of an IRA rollover).

18 AREAS OF AUDIT Non-traditional Individual Retirement Accounts Three (3) years after the date of the second mailing of a statement of account or other notification or communication that was returned as undeliverable, or after the holder has discontinued mailings to the apparent owner, whichever is earlier.

19 AREAS OF AUDIT Non-traditional Individual Retirement Accounts Deceased Owner / Inherited Beneficiary Roth IRA Three years after the earliest of: The date of distribution or attempted distribution of the property. The date of the required distribution as stated in the plan or trust agreement governing the plan. The date of required distribution to avoid a Federal Tax Penalty.

20 AREAS OF AUDIT Non-traditional Individual Retirement Accounts Deceased Owner / Inherited Beneficiary Roth IRA Generally a beneficiary must take the first distribution no later than December 31 of the year following the year of death. The entire interest must be distributed by the end of the fifth calendar year after the year of the owner s death unless payable to a designated beneficiary over the life or life expectancy of the designated beneficiary.

21 AREAS OF AUDIT Non-traditional Individual Retirement Accounts Deceased Owner / Sole Spouse Beneficiary Roth IRA The spouse may wait until the deceased owner would have reached Age 70 ½ to begin receiving distributions. OR The spouse may treat the Roth IRA as his or her own.

22 AREAS OF AUDIT Non-traditional Individual Retirement Accounts Education Individual Retirement Accounts Three years from the date of required distribution to avoid a Federal Tax Penalty (currently three years from the date the owner reaches Age 30 years and 1 month).

23 EXAMPLES OF UNCLAIMED PROPERTY CONSUMER LENDING Credit services/lending credit balances and payments not applied to an account Unidentified payments De minimis refunds

24 EXAMPLES OF UNCLAIMED PROPERTY COMMERCIAL LENDING Credit services/lending credit balances and payments not applied to an account Unidentified payments De minimis write-offs

25 EXAMPLES OF UNCLAIMED PROPERTY COMMERCIAL LEASING Unidentified Payments De minimis write offs

26 EXAMPLES OF UNCLAIMED PROPERTY TRUST/PRIVATE BANKING Uncashed Checks CREDIT CARD PROCESSING Unidentified remittances LOCKBOX Unidentified payments

27 EXAMPLES OF UNCLAIMED PROPERTY INSURANCE Unidentified payments Premium refunds Benefits payments

28 Burden of Proof Issues

29 New Jersey Statutes Annotated, Title 46, Chapter 30B, 10.2 Presumption of abandonment after issuance; defenses A record of the issuance of a check, draft, or similar instrument is prima facie evidence of an obligation. In claiming property from a holder who is also the issuer, Administrator s burden of proof as to the existence and amount of the property and its abandonment is satisfied by showing issuance of the instrument and passage of the requisite period of abandonment. Defenses of payment, satisfaction, discharge, and want of consideration are affirmative defenses that shall be established by the holder.

30 DUE DILIGENCE Does NOT refer to the M&A function! Confirmation and documentation of the status of the property Rebuts presumption of abandonment Required by almost every state Specific requirements for format of letter, date sent, method of mailing, etc.

DUE DILIGENCE New Jersey rules: Not more than 120 days and not less than 60 days before report due date, holder shall send certified mail, return receipt requested

31 DUE DILIGENCE New Jersey rules: Not more than 120 days and not less than 60 days before report due date, holder shall send certified mail, return receipt requested to owner at owner s last known address Required for property that has a value of $50.00 or more Due diligence must be filed: For November 1 reports July 1 August 31

32 Rules Enacted

33 Rules Enacted Definitions New Jersey Administrative Code, Title 18, Chapter 13, 2.1 Conduct by owner indicating interest in time deposit New Jersey Administrative Code, Title 18, Chapter 13, 2.2 Communicated in writing includes: Written notification by the owner or facsimile or transmission of the facsimile Written signed confirmation by the owner Cashed check Making a deposit or withdrawal with the financial organization Electronic access by the owner of any account of the owner held by the financial organization Responding to financial privacy opt out notices Any other type of written correspondence made by the owner

34 Rules Enacted Automatically Renewable Time Deposits New Jersey Administrative Code, Title 18, Chapter 13, 2.3 Notice to Apparent Owners of Time Deposits by Certified Mail, Returned Receipt Requested, Before the Filing of a Report by the Holder Returned mail prior to initial maturity date Due at initial maturity date or three (3) years from date of returned mail, whichever is LATER Otherwise, there must be proof of contact from the owner within three (3) years from the initial maturity date and three (3) years thereafter

35 Rules Enacted Notice to apparent owners of time deposits by regular mail. New Jersey Administrative Code, Title 18, Chapter 13, 2.4 Suggested language in Due diligence letters sent by financial organizations Recommends sending written notice by regular mail first (minimizes certified mail costs)

36 Rules Enacted Payment to be made; claimant s address and signature in claim form; corporate claims New Jersey Administrative Code, Title 18, Chapter 13, 3.2 Payments of claims to be made directly to claimant (the rightful owner) and not to a search firm (heir searcher) Exceptions: Fiduciary of claimant Court appointed representative Business Association claimants must provide: Proof that business association is not dissolved Current Certificate of Good Standing Tax Clearance Certificate Any other document issued by the State of New Jersey showing good standing prior to payment

37 Rules Enacted 38 N.J.R.2732(a) Rules Adoptions (Effective May 24, 2006) Re-adoption with Amendments Abandoned Safe Deposit Box Policies and Procedures Reporting Reporting must be in electronic format approved by the unclaimed property administrator.

38 Rules Enacted 38 N.J.R.2732(a) Regulations Rules Adoptions (Effective May 24, 2006) Re-adoption with Amendments Abandoned Safe Deposit Box Policies and Procedures Cash Cash, consisting of coins or currency, must be maintained in its original form and not commingled with the cash of the owners. It must not be converted to any other cash instruments until the box has been inspected by the Unclaimed Property Operations Branch personnel. If cash is worth face value, it is to be added together and converted to a check instrument payable to Treasurer, State of New Jersey. Cash funds are to be reported by owner.

39 Rules Enacted 38 N.J.R.2732(a) Rules Adoptions (Effective May 24, 2006) Re-adoption with Amendments Dormancy fees; unconscionability; limitations Holders of demand or savings accounts, and any funds paid toward the purchase of shares, mutual fund investment certificates, or any other interests held in a financial organization (N.J.S.A.46:30B-18 and N.J.S.A.46:30B-20) Fees must be imposed uniformly on all types of Property referred to in N.J.S.A.46:30B-18 Terms must be clearly disclosed to the owners of the property. The fees do not accrue until at least one year of no activity for the property or of any related property of the owner held by the holder. Fees must be permitted by contract between the holder and the owner. Fees are limited to $5.00 per month per property item or the aggregate of $ per said item. Written notice must be sent at least three months before initial imposition of charges or cessation of interest to the last known address of the owner for property held in excess of $2.00 (N.J.S.A.46:30B-18).

40 Rules Enacted 38 N.J.R.2732(a) Rules Adoptions (Effective May 24, 2006) Re-adoption with Amendments Dormancy fees; unconscionability; limitations Holders of checks, drafts, and similar instruments issued or certified by financial organizations (N.J.S.A.46:30B-16 and N.J.S.A.46:30B-17) Fees must be imposed uniformly on all instruments issued by the holder. Terms must be clearly disclosed to the owner/payee of the instrument. The fees do not accrue until at least one year after the issue date and stop accruing after escheatment. Fees must be permitted by contract between the issuer and the owner/payee. Fees are limited to $0.25 per month per instrument or the aggregate of $9.00 per instrument.

41 Legislation Enacted Assembly, No (Effective April 12, 2008) Money Orders (Overrides 38 N.J.R.2732(a)) Holders of Money Orders (N.J.S.A.46:30B-13) Terms must be clearly disclosed to the consumer at time of purchase by written notice on the money order or the sales receipt for the money order. A telephone number which a consumer may call for information about the dormancy fee must also be included in the notice. No dormancy fee may be charged within 12 months of the date of sale. Fees are limited to $2.00 per month per money order.

42 Legislation Enacted Assembly, No (Effective July 1, 2010) Reduces abandonment periods and defines Stored Value Cards Traveler Checks and Money Orders A3002 reduced the abandonment period for Traveler Checks from 15 years to 3 years and Money Orders from 7 years to 3 years. No dormancy fees may be assessed for the first 12 months on either instrument. Fees limited to $2.00 per month or the amount designated in the contract, whichever is lower. Total fees limited to $48.00 Stored Value Cards (SVCs) SVCs are included in the definition of property types covered under the Statute. The abandonment period is 2 years from the date of last activity. No dormancy fees are permitted on SVCs, credit balances, overpayments, security deposits, unused tickets, refunds, credit memoranda, or similar instruments.

43 Legislation Enacted Assembly, No (Effective June 29, 2012) Differentiates between stored value card and general purpose reloadable card Proceeds of general purpose reloadable card presumed abandoned shall be the value of the card, in money, on the date the general purpose reloadable card is abandoned. Proceeds of all other stored value cards presumed abandoned shall be 60% of the value of the card, in money, on the date the stored value card is presumed abandoned.

44 Legislation Enacted Assembly, No (Effective June 29, 2012) Abandonment period for stored value cards issued beginning July 1, 2010 increased from 2 years to 5 years

45 Rules Enacted R.2013, d N.J.R.1377(a) Rules Adoptions (Effective November 20, 2013) Re-adoption with Amendments Dormancy fees; unconscionability; limitations Holders of money orders and travelers checks (N.J.S.A.46:30B-11 and N.J.S.A.46:30B-12) Money Orders Impose no fees for money orders issued on or after April 12, 2008, for the first year nor retroactively to the date of purchase. Dormant fees shall not exceed the sum of $2 per month per money order or the aggregate amount of $48 per money order.

46 Rules Enacted R.2013, d N.J.R.1377(a) Rules Adoptions (Effective November 20, 2013) Re-adoption with Amendments Dormancy fees; unconscionability; Holders of money orders and travelers checks (N.J.S.A.46:30B-11 and N.J.S.A.46:30B-12) Travelers Checks Dormant fees shall not exceed the sum of $2 per month per money order or the aggregate amount of $48 per money order.

47 Rules Enacted R.2013, d N.J.R.1377(a) Rules Adoptions (Effective November 20, 2013) Re-adoption with Amendments Definition of last known address A description of the apparent owner sufficient for the purpose of determining which state has the right to escheat the abandoned property. The zip code of the apparent owner s (creditor s) last known address is sufficient.

48 Legislation Enacted P.L.2015, C.8 Issuers of stored value cards are no longer required to maintain the name and Address, or at a minimum, the zip code of the owner or purchaser.

49 Unclaimed Property Home Page

50 UP Holder Information

51 STATE OF NEW JERSEY DRP Instructions 1) Holders must report DRP (Dividend Reinvestment Plan) accounts as SC19. The State will only accept whole shares for each individual. Fractional shares must be liquidated at market value when reported (see # 3). 2) DRP s must be registered in physical form in the name of Neary Penco, or delivered electronically via DTC. We will not accept a statement or system printout. 3) The fractions must be sold for each individual and must be reported as SC09 and accompanied by a check or wire.

52 STATE OF NEW JERSEY UNCLAIMED PROPERTY ADMINISTRATION (UPA) ACH/WIRE INSTRUCTIONS (AS OF MARCH 2012) ABA# ACCOUNT# FID# ACCOUNT NAME BANK ADDRESS STATE OF NEW JERSEY UNCLAIMED PROPERTY WELLS FARGO BANK, N.A. 123 SOUTH BROAD ST. 8TH FL PHILADELPHIA, PA In order to ensure proper credit to your account, please this office (UPA) prior to remitting funds and provide the following information: 1) Company Name and Contact Information 2) Amount of Wire 3) Date of Wire Be sure to include your company name in the ORIGINATOR NAME field on the wire form- Do not use the processing bank name in that field. Detail Payment Types: Annual Reporting, Audit Proceeds, etc. Note: If you have utilized the Taxation EFT System in the past, please DO NOT use that system for reporting unclaimed property.

53 UNCLAIMED PROPERTY ABANDONEMENT TABLE PROPERTY PRESUMED ABANDONED

54 FILING YOUR REPORT Online Reporting is Now Required Free reporting software is available through a link on the NJ Unclaimed Property/Holder Information web page: HRS Pro (Holder Reporting Software) You can also access this software directly through the vender at Due Before November 1st

60 Legal Issues

61 Legal Issues Exception to Texas v. New Jersey and Delaware v. New York Title 12, U.S.C 484b (Passed by Congress in 1974) The proceeds of an unclaimed money order, traveler s check, or other similar instrument on which the bank is directly liable other than a third party bank check (e.g. a certified check) escheat to the State in which the purchase took place.

62 Legal Issues Anderson National Bank v. Luckett U.S. 233 (1944) United States Supreme Court held that national banks were subject to a state law that required them to report and deliver to the State the proceeds of bank deposits that were presumed abandoned. The Kentucky Statute in that case was substantively the same as the Uniform Unclaimed Property Acts and the custodial abandoned property laws in all the states.

63 Legal Issues Anderson National Bank v. Luckett 321 U.S. 233 (1944) The State Law: did not discriminate against national banks did not pose a danger of unlimited control over the operations of national banks was not a forbidden encroachment upon the privileges of such banks

64 Legal Issues Federal Preemption and the Application of State Unclaimed Property Laws to National Banks Visitorial Powers Refers to the power to visit a national bank to examine the conduct of its business and to enforce its observance of applicable laws. Except in specialized circumstances where federal laws make provisions for another regulator to have a role, OCC s visitorial powers are exclusive with respect to activities that are authorized.

65 Legal Issues OCC Advisory Letter AL Questions Concerning Applicability and Enforcement of State Laws: Contacts from State Officials U.S.C 484b Provides an exception to the OCC s exclusive visitorial authority for state examiners inspecting for compliance with state unclaimed property or escheat laws upon reasonable cause to believe the bank has failed to comply with those laws.

66 Legal Issues OCC Interpretive Letter #1006 (September 2004) States authority to review national banks records to ensure compliance with state unclaimed property or escheat laws is governed by U.S.C 484b and is not affected by the visitorial powers rulemaking.

67 Legal Issues Office of the Comptroller of the Currency Service Charges on Dormant Accounts and Abandoned Property Laws Interpretive Ruling 12 CFR A national bank may, consistent with contracts of deposit, impose such service charges on dormant accounts as its board of directors determines to be reasonable. The directorate of each national bank is responsible for reviewing the basis for the bank s services charges on dormant accounts, and for recording its determination that the charges are reasonable. The record of the board s determination of reasonableness will be reviewed by national bank examiners during the course of their examination.

68 Legal Issues Analysis of right to assess dormant fees or escheat fees Does the holder have a valid enforceable written contract authorizing the deduction of service charges (and/or the cessation of interest)? Did the adoption of such a contract occur prior to the beginning of the dormancy period? Has the holder enforced or waived these charges to its depositors/customers (derivative rights)? Are the charges themselves reasonable in light of the services rendered?

69 Legal Issues Courts have struck down service charges in certain circumstances Where the bank s discussion of service charges were inconspicuous (Cory v. Golden State Bank, 157 Cal.Rptr.538 (Cal.App.1978)) Where the court found that the bank s first attempt to service charge the accounts occurred immediately prior to escheat (Boswell v. Samson Baking Co., 368 So.2d 547 (Ala.App.1978))

70 Legal Issues UGMA & UTMA Accounts N.J.S.A.46:30B-18 applies (3 Years) 3 years after the last contact with the apparent owner whether the custodian (Parent or Guardian) or the minor/former minor

71 Legal Issues UGMA & UTMA Accounts A bank s obligations to UGMA and UTMA depositors are the same as its obligations to all depositors. Banks are not fiduciaries regarding these accounts. Property titled in the name of a custodian (Parent or Guardian) for the benefit of a minor. N.J.S.A.46:38A-19

72 Legal Issues UGMA & UTMA Accounts The custodian retains control of the property. N.J.S.A.48:38A-21,-24 & -26 The minor becomes the owner of the account when the minor becomes an adult. N.J.S.A.46:38A-52

FOR MORE INFORMATION REACH US ON THE WEB: www.unclaimedproperty.nj.gov SEARCH FOR UNCLAIMED PROPERTY: www.missingmoney.

73 FOR MORE INFORMATION REACH US ON THE WEB: SEARCH FOR UNCLAIMED PROPERTY: NEW JERSEY STATUTES: (click on the Statutes Link) QUESTIONS: (Reporting) (Claims)

74 About the Presenters Robert H. Davidson Chief of Operations Unclaimed Property Administration Trenton, NJ Robert has been an employee of the New Jersey Department of the Treasury for the past 37 years. He is currently the Chief of Operations for Unclaimed Property. He has previously served in various capacities in the Department including as Supervising Auditor of the Unclaimed Property Audit Unit, as a Management Auditor in the General Ledger and Appropriation Reporting area of the Office of Management and Budget, and as an Auditor in the Internal Audit Unit of OMB. Robert has been a member of the Audit Agenda Committee and has served on various panels at both the Annual and the Mid-Year Conferences of the National Association of Unclaimed Property Administrators. He has also given presentations before the New Jersey Bar Association (Tax Committee), the New Jersey Society of CPAs, the Institute for Professionals in Taxation, the National Association of Tax Professional New Jersey Chapter, various Banking and Insurance Organizations, the Association of Independent Colleges and Universities in New Jersey, as well as for Lorman Education Services. Robert obtained his Bachelors Degree in government from American University in Washington, D.C. and his MBA in accounting from Temple University. He is a Certified Public Accountant and a member of the Philadelphia Chapter of the Pennsylvania Institute of Certified Public Accountants as well as the Trenton Chapter of the Association of Government Accountants. Robert may be reached by telephone at or by at Robert.Davidson@treas.state.nj.us

75 About the Presenters Chantel Wilson Supervising Auditor Reports Section Unclaimed Property Administration Trenton, NJ Mrs. Wilson has been an employee of the New Jersey Unclaimed Property Administration for 20 years, supervising the Unclaimed Property Reporting Unit for the past 4 years. Chantel earned her Bachelors Degree in accounting from Virginia State University. Chantel can be reached by telephone at or by at Chantel.Wilson@treas.nj.gov

UNIFORM UNCLAIMED PROPERTY ACT Act 29 of The People of the State of Michigan enact:

UNIFORM UNCLAIMED PROPERTY ACT Act 29 of 1995 AN ACT concerning unclaimed property; to provide for the reporting and disposition of unclaimed property; to make uniform the law concerning unclaimed property;