Thursday, January 26, 2017

Proposed Delaware Legislation on the Fast Track

The unclaimed property community is abuzz regarding new legislation in Delaware that is being touted as a fix for the numerous deficiencies and questionable practices that a federal court vigorously criticized last summer.  The new legislation -- Senate Bill 13 -- is intended to fix the problems identified by U.S. District Court Judge Gregory M. Sleet in Temple Inland v. Cook, as well as to adopt some of the new proposals set forth in the Revised 2016 Uniform Unclaimed Property Act.

Among some of the highlights of the proposed legislation include:
  • a uniform due diligence requirement;
  • more clarity on what information constitutes a last-known address;
  • notice to the owner by the State Escheator for certain types of property;
  • clearer standards for determining when a debt has been discharged;
  • a 10 year record retention provision;
While these are all welcomed potential developments, what really has the unclaimed property community intrigued are the provisions relating to audits.  In particular, a 10 year period of limitation on the state's audit rights (except for cases of fraudulent or willful misrepresentation), and a provision limiting the state's use of estimation to those periods where statutorily required records are not kept.  Even more notable is a potential provision impacting audits that are already underway.

For any audit commenced on or before July 22, 2015 (except for certain securities examinations where estimations are not being used) the holder under audit may exercise the option of converting the audit into a review under the Secretary of State's Voluntary Disclosure Agreement (VDA) program, and limit the period under audit to 10 report years from the date of the original audit notice. 

The legislation, introduced on January 12, has already passed the Senate and been approved by the House Administration Committee and is currently on the "Ready List" (meaning that it is ready for debate by the full House). 

Monday, September 12, 2016

Pennsylvania Changes IRA Rules

According to the Investment Company Institute, Americans have $5.68 trillion in Individual Retirement Accounts (IRAs).  In a traditional IRA account, a person can make tax deductible contributions to an account that can grow over the years with no tax impact until distribution.  Importantly, individuals must wait until age 59.5 to make withdrawals without a tax penalty (and individuals generally must begin taking distributions at age 70.5).  In other words, an IRA is a prototypical long term investment.  Depending upon the individual's age when he or she opens the plan, decades can go by before the money is touched, in fact, to avoid tax penalties, it is likely.

The unclaimed property laws account for the fact that long dormancy is expected.  Pursuant to the 1995 Uniform Unclaimed Property Act, the dormancy period for IRAs and similar accounts does not begin to run until (1) the attempted distribution of assets or (2) the date that distribution must begin under the tax laws. 

This position is sensible - the whole purpose of these accounts is to put the money away until retirement.

Pennsylvania, however, has recently amended its unclaimed property laws for IRAs.  Under the new law (House Bill 1605) the dormancy period begins to run when two account statements are returned to the custodian as undeliverable.  In other words, if a person moves, but forgets to tell his or her IRA custodian within the period of two account statements, the IRA account is on its way to being turned over to the Commonwealth. 

It is unclear if there are any positive impacts from this change, but there certainly could be negative impacts.  Under the former law, if a person moved without notifying his/her broker, their funds would not be escheated until the mandatory distribution date (therefore there is no adverse tax consequence).  Now, if the same move happens, and the property is escheated, the account owner may suffer tax implications as a result of the "distribution" of his or her property to the Commonwealth. 

Moreover, it wouldn't seem that delivering the property to the Commonwealth does not make it any more likely that it will be returned to the owner.  If an individual remembers that he or she had a forgotten IRA account, he/she is more likely to remember (and contact) the broker rather than to contact the Commonwealth.  Accordingly, other than simply bringing more money into Pennsylvania's treasury, the reasons for this change are not clear.   

Monday, August 8, 2016

Delware and Temple Inland Settle - Questions to Remain Unanswered

In late June, 2016 a Delaware federal court issued a decision ruling that Delaware's unclaimed property audit and estimation practices "shock[ed] the conscience" of the court and likely violated the due process rights of Temple Inland (a Delaware company being subjected to an unclaimed property audit on Delaware's behalf by a private auditing firm).  While the court's holding was big news in the unclaimed property industry and signaled potentially seismic changes in the way unclaimed property audits are conducted, the real work was left to be done:  the Court expressly left open the issue of how Delaware's violations were to be remedied.

Even with this important step left to be taken, the holder community was understandably excited that -- finally -- there would be some answers concerning (a) the interplay between estimation and availability of records; (b) the proper methods for calculating and sourcing historical unclaimed property liabilities; and (c) the retroactivity of Delaware's estimation authority.

Well, it seems that we will have to wait a little longer.  According to a an Associated Press story in Saturday's Chicago Tribune, the parties in the Temple Inland case reached a settlement resolving the matter in full.  According to a joint-motion to dismiss the case filed by the parties on Friday, Delaware and Temple Inland have "entered into a voluntary settlement agreement that fully and finally resolves all claims, including all claims that were asserted, or that could have been asserted, in the case and therefore the matters in dispute between Plaintiff and Defendants have been resolved."

Accordingly, while the Temple Inland case showed that courts are willing ask the hard questions about Delaware's unclaimed property audit practices, it ultimately left those questions unanswered.

Tuesday, July 12, 2016

Charging Money For Free Informaton On Both Sides of the World

The Sydney Morning Herald (Australia) recently posted an article outlining how various companies in Australia seek to make money by repackaging otherwise public information at increased prices. According to the article, profit-minded Aussies are charging for public information relating to unclaimed property, ancestry records, government reports -- sometimes at a significant profit. 

The experience here in the U.S. is no different, particularly with regard to unclaimed property.  Agreements with so-called "finder firms" are allowed in many states, pursuant to which the finder agrees to assist a claimant with obtaining his or her money from the state in exchange for a percentage fee.

Of course, states generally charge no fees for searching, claiming and receiving unclaimed property that they hold for the benefit of the rightful owner.  Accordingly, finder firms (might) provide you with expertise or time (i.e., the they will deal with the the claim process so you don't have to).  They are NOT, however, providing you with access to the money; the underlying funds belong to the owner and is (or shortly will be) claimable directly from the state without the involvement of a finder firm. 

Everyone is free to spend their time and money how they wish, and everyone has their own individual balance of what is worth doing and what is worth paying someone else to do.  Just know what you are paying for.  In the case of unclaimed funds and finder firms, it is (maybe) time and expertise, not access, that you are buying.