Unclaimed Property Software

While the vast majority of unclaimed property is due to be reported before November 1, many holders, especially insurance companies, will also need to file a report in the spring, before May 1. A handful of jurisdictions require all holders to file their unclaimed property reports in the spring, notably Vermont, Connecticut, Pennsylvania, and Florida.

Further down the road are the outlier states of Texas and Michigan, with July 1 filing deadlines for all companies. Owner notice letters (also known as “due diligence letters”) should go out by May 1 for these states.

Also this spring… the annual Unclaimed Property Professionals Organization conference has been online-only for the past two years, so we are looking forward to reconnecting in-person with our friends in the unclaimed property professional community March 27 – 30 in Orlando, Florida! Proper hygiene and masking protocols will be followed.

UPPO offers an excellent opportunity to keep up to date with trends in the unclaimed property world, with plenty of chances to connect with leading industry professionals in both the private and public sector. You’ll also be able to visit our booth for a product demonstration of the premier unclaimed property software, FSITrack! Our Senior VP of Product, Corky Cootes, as well as our Senior VP of Sales and Marketing, Luke Forrest, will be in attendance. Hope to see you there!

2020 sure has been something, and the fun isn’t over yet: the big fall deadline for unclaimed property reports is fast approaching, but this year October 31 and November 1 fall on a Saturday and a Sunday respectively. Will this cause any changes to your unclaimed property reporting process?

If all has gone according to plan, no. In general, as long as you have given sufficient time for owners to respond to your due diligence mailing, you can file your unclaimed property report any time between now and the end of October. For those that like to take it closer to the wire, most jurisdictions will allow reports to be submitted on November 2, without penalties or interest.

However, there are states that are not so lenient, and require the report to be in their office on October 30th, the Friday before the weekend: Arkansas, Idaho, and Washington.

Nevada, which is an online-only state, requires the report to be submitted no later than Saturday, October 31.

Iowa, Indiana and Wyoming require that the report be postmarked by Sunday, November 1, while North Carolina requires the report to be in their office by November 1.

Finally, here are the states that I have personally confirmed will accept reports on November 2: AK, AL, AZ, CA, DC, GA, IL, KS, KY, MA, MD, ME, MO, MS, MT, ND, NE, NH, NJ, OH, OK, OR, SD, TN, TX, UT, WI, WV.

We hope that everyone is staying safe and sane during this terrible pandemic. FSI acted quickly to ensure the safety of our team, and though we have been working from home since mid-March, our level of service remains undiminished.

In response to the COVID-19 outbreak, many state unclaimed property departments have closed. Some are still operating as normal remotely, while others have limited their hours, or are only accepting inquiries by email. Others have even extended their spring filing deadlines.

As of now, California, Massachusetts, Maryland, Nevada, North Carolina, and New Jersey have officially extended their deadlines. Other states may be added to this list as time goes by:

• California – deadline extended to 8/15/2020
• Massachusetts – deadline extended to 7/1/2020
• Maryland – deadline extended to 7/31/2020
• Nevada – deadline extended to 6/1/2020
• North Carolina – deadline extended to 6/1/2020
• New Jersey – deadline extended to 6/30/2020

While Pennsylvania has not extended their deadline, all fines, penalties, and interest will be waived as long as the holder submits their report by June 15, 2020. Similarly, in Illinois, interest and late-filing penalties will be waived for up to 60 days after the end of their emergency declaration.

Many other states have indicated that they will grant extensions to holders that are unable to file on time due to COVID-19. If you need more time, fill out a holder extension request, or email the state unclaimed property department for more information.

Here are a few states that have confirmed that they will accept extensions for COVID-19:

• Connecticut – email CTHolderReport@ct.gov for information
• Florida – email EReporting@MyFloridaCFO.com
• Georgia – email Farrah.Harper@DOR.GA.GOV with company name, FEIN, reason for extension, and desired date of submission.
• Kansas – email extension request form to KSHolder@treasurer.ks.gov. All requests will be approved.
• Missouri – email UCP@treasurer.mo.gov
• Virginia – send a completed “Request for Extension” form to Report.Remit@trs.virginia.gov.
• Vermont – email TRE.UPCompliance@vermont.gov

Finally, Oklahoma and Vermont have waived their notarized signature requirement. Connecticut normally requires a cover sheet to be executed by a company officer, but if that is impossible, they will still accept the report at this time. The form can also be sent to CTHolderReport@ct.gov instead of being mailed in.

Starting this year, the IRS requires holders to deduct the 10% federal tax from traditional IRAs prior to unclaimed property reporting. NAUPA recommends using the TW “Income Tax Withheld” standard deduction code in this case. The value of the property before the deduction should be put in the PROP-AMOUNT-REPORTED field, and the amount after the 10% deduction goes in PROP-AMOUNT-REMITTED.

The majority of states I have contacted have confirmed that they are following the NAUPA guidance, but I have run into a few exceptions, notably Colorado, which currently does not support the use of TW. Colorado asks that holders report and remit the post-deduction amount, without mentioning the federal tax withholding at all. We also have discovered that Mississippi’s system does not recognize TW, and instead requests that the SW deduction code be used instead.

Our software will be updated to create the NAUPA file according to the individual state requirements as more information comes in.

Our neighbors to the north handle unclaimed property differently than we do here in the states, and the rule differences between provinces are stark. Understanding these differences is useful if you do business in Canada.

One important difference is that federally regulated banks are administered by The Bank of Canada, the country’s central bank. All unclaimed balances are to be reported directly to this central authority after ten years of inactivity. Note that this does not cover credit unions, which are very popular in Canada.

Another important difference is that while in the United States, unclaimed property is almost always held indefinitely by the states (though there are a few exceptions), Canada has true escheat. The Bank of Canada acts as a custodian of the funds for a given period of time, after which the money is definitively transferred to the Receiver General for Canada. For funds under $1,000, this time period is 30 years. For amounts over $1,000, owners and their heirs have 100 years to collect their unclaimed property.

As of today, only three Canadian provinces have unclaimed property laws on the books. They are Alberta, British Columbia, and Quebec. The country’s most populous province, Ontario, has no unclaimed property law, despite a series of halting efforts dating back to 1989.

In the unclaimed property world we toss the word escheat around freely, to the befuddlement of the uninitiated. Further complicating matters, we often use it incorrectly!

The word escheat comes from the Old French word escheoir, meaning “to fall” and entered into the English language during the Norman Conquest. When William the Conqueror took over England, he owned all the land, and gave his vassals the right to use certain plots of land as tenants. If ever a tenant ran afoul of the crown, or died without an heir, the land would “escheat” back to the king.

In the present day United States, escheatment refers to the legal transfer of property to the state. If a person dies intestate, and no heirs are around to claim their property, that land will eventually escheat to the state.

But when we are talking about unclaimed savings accounts or payroll checks, we are rarely talking about true escheatment. When money is considered abandoned after a given dormancy period it is remitted to a state, which acts as the custodian of the property until the rightful owner comes to claim it. There is almost never a time-limit, meaning your great-great-great-granddaughter could recover that check you never cashed—provided she has the proper documentation.

That said, be aware that there are certain jurisdictions that have provisions for the “true escheat” of unclaimed monies.

Tax-deferred savings accounts such as IRAs are different than most other forms of unclaimed property because their raison d’être is to be saved for decades, until the owner is ready to retire. For this reason almost all jurisdictions have laws requiring that retirement accounts not be reported until the owner has reached the age at which distributions are required to avoid a tax penalty. For a traditional IRA, the IRS has set this age at seventy and a half. (The April 1st following the year the owner reaches age seventy and a half, to be precise.)

Except for Pennsylvania.

In 2016, Pennsylvania adopted a new unclaimed property law that, to the confusion of all, neglected to include any mention of the seventy-and-a-half rule. As written, the law treats retirement accounts the same way it treats any other piece of unclaimed property—if the holder hasn’t had contact with the owner for three years, the holder must report that property to the state.

As you embark on creating an unclaimed property program, one of the most important elements is simply knowing when to file. It would be so convenient if all states and territories required the same deadline (say, April 15th), but that is not the case. Further complicating matters is the fact that some jurisdictions require different filing dates for different property types. To top it off, states are free to change their policies at any time, as Tennessee just did, switching from a May to November filing date. Keeping all of this straight can be a headache, and filing at the wrong time gives governments the opportunity to assess penalties and interest.

The deadlines do follow some general patterns. A majority of states have filing dates at the end of October or the beginning of November. The states that require life insurance property to be filed separately generally set the deadline at the end of April or the first of May. Here are some notable exceptions:

• New York has nine separate deadlines depending on the business or property type.
• In California a business organization’s end of year may vary, but the report due date will always be June 15th, except for life insurance property, which is due December 15th.

Being familiar with the applicable dormancy periods is crucial for a successful unclaimed property program. A dormancy period is the length of time that you must hold a property before escheating it to the state, and it typically begins on the date that the funds were first payable. Of course every state has a different set of dormancy periods, and of course they are all subject to change.

The standard dormancy period is three years for most states, but over a third use a five-year standard. Certain property types often have longer or shorter dormancy periods. For example, government-related funds and utility deposits often have shorter periods, typically a year. The majority of states also use a one-year dormancy for payroll and commissions. Money orders and travelers checks almost always have longer dormancy periods.

Credit Unions in Illinois may deduct dormancy charges and escheat fees under the new law effective August 23, 2019. Here’s the relevant section:

Sec. 44.1.
Unclaimed property; dormancy or escheat fee.
A credit union may deduct a dormancy charge or an escheat fee from property required to be paid or delivered to the administrator under the Revised Uniform Unclaimed Property Act, provided the amount of the deduction is consistent with the standards set forth in subsection (b) of Section 15-602 of that Act. In making the deduction, a credit union may allocate, classify, and record all or a portion of the deduction, as applicable, as the minimum share amount required to preserve the member’s status as a member of the credit union.

Go to the Illinois General Assembly site for the full text.