Thu, May 31, 2018

Unclaimed Property Reporting: Best Practices for complying with Due Diligence and Notification Requirements in the 21<sup>st</sup> Century

Most unclaimed property reporting laws require that companies that are “holders” of potentially abandoned property notify apparent owners before turning over their funds to the states. Most states require a letter be mailed to the last known address on holder’s books and records at the very end of the dormancy tracking process and immediately before funds must be reported and remitted to the states as unclaimed property.

The minimum dollar threshold for mailing these letters vary by state, as do the requirements to use first class versus certified postage, the earliest and latest dates for mailing, the structure and formatting of the letter, the font, as well as options for the owner to respond.

The medium itself required by most states – a letter, has very little chance of being impactful in today’s world. The majority of states require that due diligence letters are mailed no earlier than 120 days and no later than 60 days before a filing deadline. Considering dormancy holding periods average three to five years, this is a last-ditch effort and the results typically reflect what you might expect – very few owners respond, funds are mostly turned over to the states and holders are saddled with an expense that has little chance of providing benefit to any party. 

At Duff & Phelps, we recommend our clients take proactive, early measures to remediate unclaimed property reporting liabilities. We recommend starting the process early. An individual or a business entity is much more likely to act if contacted within a few months of the issuance of a check or credit. Resources are readily available to confirm or find the best address for the owner of the property. Better still, use of electronic methods such as email, texting and phone calls to contact owners increases the likelihood of receiving a positive response. While these methods may not satisfy the formal due diligence statutes, they will greatly reduce the likelihood that state mandated due diligence letters will need to be sent in the eleventh hour, and will reduce unclaimed property reporting liabilities and the expense of compliance.

While most states still require the due diligence letters to go via “snail mail,” some movement has been made to help take state unclaimed property provisions into the 21st century. In July 2016, during its annual meeting, the Uniform Law Commission “ULC” approved its “Revised Uniform Unclaimed Property Act or “RUUPA.” 

RUUPA specifically permits the use of email as a method of due diligence in certain circumstances – mainly at financial institutions. If a holder does not send first class mail to the owner during business routinely, or the owner has opted out of receiving mail, then email is to be used to contact the owner. However, if the holder does not have an email address for the owner, has reason to believe the email address is invalid or receives notification that the sent email has been rejected, then first class mail must be used.

Hopefully states will begin to phase out traditional first-class mailing in favor of email as the preferred method of due diligence, such as Kentucky, which recently became the fifth state to adopt some portion of the provisions of RUUPA. Modern electronic forms of contact are more efficient, much less expensive and have a much higher chance of achieving the desired result – returning property to the rightful owner and preventing unnecessary unclaimed property reporting.

For more information on unclaimed property reporting, click here.

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