The rewrite has resulted in a more comprehensive Act, a significant increase in the number of sections, a more logical flow, and significant updates corresponding with the reality of modern technologies. When reading the Act, it is important to be aware that bracketed language is suggested language. As such, each state will ultimately make its own decision on whether to include it as written, whether to insert alternate language, or whether to include the topic at all.
There are still some anticipated changes. The ULC Style Committee will make non-substantive phrasing changes to be consistent with the ULC's current standards. More significantly, comments and legislative notes will be added. The comments and legislative notes are drafted at the option and discretion of the reporter and the co-chairs. Comments and legislative notes typically offer a vehicle to 1) provide any pertinent background information, 2) state the intent of the Drafting Committee, and 3) provide legislative guidance or direction related to real-world application of a particular provision. Along these lines, it is likely that some of the bracketed language will have ancillary information. With that background information in mind, highlights of some of the key changes found in the Act are as follows.
New Holder Protections
While contingency fee compensation to auditors has not been eliminated, there are several important new provisions to protect holders. New appeals process options have been included in the Act, including 1) an informal conference, 2) administrative review, and/or 3) judicial review. Furthermore, the Act provides for a process to voice complaints during an ongoing audit, allowing holders to request an administrator to hear a complaint. There is a defined time frame of 30 days when the administrator must hold the conference and also a limit of 30 days after the conference ends for the administrator to provide a report.
The Act specifies a statute of limitations of five years for a non-fraudulent report. Moreover, the administrator may not commence an action or examination of a holder more than ten years after the duty to report arose. Also, the record retention period has been defined to be ten years after the unclaimed property report should have been filed.
New Owner Protections
The Act would restrict a state administrator from liquidating securities within the first three years after receipt, and the state must also give notice to the owner before selling. If an administrator sells a security before six years has passed following delivery, an apparent owner that makes a valid claim before the expiration of this period is entitled to receive, at the option of the administrator, 1) a replacement of the security or 2) the market value of the security at the time the claim is made. Regardless, any dividends, interest, or other increments associated with the security, up to the time the claim is paid, must also be paid. There is a new section addressing when tax-deferred properties can be turned over to the state, which offers further protections.
Owner-directed recurring automated transactions, including automatic deposits or withdrawals, are considered activity sufficient to rebut the presumption of abandonment. However, it does not include automatic investment of interest or dividends. Additionally, actions by the owner reasonably demonstrating the owner is aware of a property are expressly considered activity.
Furthermore, the dormancy triggers for securities have been clearly defined and are based on return mail, rather than last activity. (This is in line with the federal requirements of SEC 17Ad-17.) However, there is the added direction for owners not receiving communication via U.S. mail. Under these circumstances, the holder is required to confirm the owner's interest by sending an electronic mail communication within two years after the owner's last indication of interest in the property. If no response is received or the holder is notified that the electronic mail was not received, then the holder must try to contact the owner via U.S. mail. The three-year dormancy period would be triggered and begin to run if this U.S. mailing is returned as undeliverable.
Life Insurance Changes
The Act expands the concept of "knowledge of death" of an insured or annuitant. This expansion includes a validated match with a database, such as the Social Security Death Master File, and activities conducted by the insurer resulting in obtaining validation of a death. In both of these instances, validation by the insurer is necessary to trigger the running of the dormancy period. Also, the Act encompasses all assets for policies or contracts, such as retained assets. However, the Act does not contain a requirement for insurers to conduct any database matches.
Priority Rules Expanded
The first and second priority rules fundamentally remain intact. However, for property to fall under the scope of the first priority rule, it does not require an address sufficient for postal delivery. Rather, any descriptions, codes, or other indications, such as zip codes, can be used to determine the state of the owner for purposes of the first priority rule. A third priority or transactional rule has been included into the Act. Due to the complexity of case law and federal common law in this area, it is likely challenges to this area will continue. Direction is also given for situations when records show multiple addresses.
What Did Not Make It into RUUPA
Many in the holder community would like to have seen a few more areas incorporated in the Act, including 1) an express exemption for Employee Retirement Income Security Act (ERISA) property, which would be deemed to fall under federal preemption; 2) a business-to-business exemption; 3) a universal de minimis exemption; 4) a universal exemption for foreign property; and 5) a gift card exemption—although, there is bracketed language included on this matter. Unfortunately, these items did not make it into the Act.
RUUPA goes a very long way towards clarifying many previously murky and disputed issues. Ultimately, it is up to each state's legislature to introduce and pass the Act, as it is up to each respective governor to sign the Act into law. The ULC and other organizations will advocate for and offer support for this process. Unquestionably, full uniformity will not be achieved, as some states will opt to not introduce the Act. Other states will introduce the Act but make different decisions as how to deal with bracketed language. While in other states, the adoption process will undoubtedly be impacted by the advocacy of holders, associations, lobbyists, etc. Ryan will continue to monitor developments in this area.
Ryan is an award-winning global tax services firm, with the largest indirect and property tax practices in North America and the seventh largest corporate tax practice in the United States. With global headquarters in Dallas, Texas, the Firm provides a comprehensive range of state, local, federal, and international tax advisory and consulting services on a multi-jurisdictional basis, including audit defense, tax recovery, credits and incentives, tax process improvement and automation, tax appeals, tax compliance, and strategic planning. Ryan is a five-time recipient of the International Service Excellence Award from the Customer Service Institute of America (CSIA) for its commitment to world-class client service. Empowered by the dynamic myRyan work environment, which is widely recognized as the most innovative in the tax services industry, Ryan's multi-disciplinary team of more than 2,100 professionals and associates serves over 12,000 clients in more than 40 countries, including many of the world's most prominent Global 5000 companies. More information about Ryan can be found at ryan.com.
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