Changes in Escheat (Unclaimed) Property: What you should know
In February, Governor Tom Corbett delivered his budget address for the 2014-2015 fiscal year which commences July 1, 2014. As part of an effort to close the revenue gap, the budget proposed the following changes to the escheat laws: “reduce, from five to three years, the amount of time unclaimed property is held by outside institutions before it would escheat to the commonwealth.“ By shortening the holding of unclaimed property, the governor’s budget office estimates it will provide approximately $150 million in revenue. House Bill 278 addresses the shortened dormancy period and also empowers the State Treasurer to enforce the unclaimed property law effective July 10, 2014.
Property affected by change in dormancy period
There are various types of unclaimed property that are subjected to this decrease of dormancy period from five years to three. Property held by financial institutions, insurers, utilities, other businesses, fiduciaries, courts, public officers and public agencies, and miscellaneous property will be affected by this change. Some examples of the properties affected include -
- Savings or time deposits in a financial institution or shares in a savings association or savings and loan or building and loan association. 72 P.S. § 1301.3(1).
- Outstanding checks or drafts. 72 P.S. § 1301.3(3).
- Contents removed from a safe deposit box or other safekeeping repository. 72 P.S. § 1301.3(4).
- Moneys due from an insurer under an annuity contract, life insurance policy, or any other contract of insurance. 72 P.S. § 1301.4.
- Utility advances, tolls, deposits, or collateral security. 72 P.S. § 1301.5.
- Gift certificates or gift cards (if no redemption period is specified). 72 P.S. § 1301.6(1).
- Stock certificates or rights to participate in a business association. 72 P.S. §1301.6(2).
- Dividends, profits, distributions, payments, or distributive shares of principal owed by business associations. 72 P.S. § 1301.6(3).
- Principal or interest due on business associations’ bonds or debentures. 72 P.S. § 1301.6(4).
- Property held in fiduciary capacity for the benefit of another. 72 P.S. § 1301.8.
- Property, including restitution, held for owners by courts, public corporations, public authorities, or instrumentalities of the U.S., states, or political subdivisions. 72 P.S. § 1301.9.
Roth IRAs and similar tax advantaged accounts provision is added
A new provision related to an individual retirement account, retirement plan for self-employed individuals, or similar account that is not subject to a mandatory distribution requirement is presumed abandoned and unclaimed three (3) years after the owner is age 70½ or 3 years after he or she has indicated an interest in the property or other property held by the holder. 72 P.S. § 1301.8(2).
Indicated an interest in the property
Another change to Pennsylvania’s Unclaimed Property Act defines the term “indicated an interest in the property.” House Bill 278 defines this term as any contact, communication or transaction, related to property, from the owner, or involving some affirmative action by the owner, which is documented in a contemporaneous record prepared by or on behalf of the holder or in the possession of the holder, including:
- a written contact, communication or transaction;
- a secure or password-protected electronic contact, communication or transaction;
- a verbal contact, communication or transaction, in which the holder takes reasonable action to verify the identity of the owner; or
- a contact, communication or transaction, which is evidenced by other criteria provided by the State Treasurer. 72 P.S. § 1301.1
The holding period used to calculate the dormancy would “reset” if any of the above events included within the definition of an “indication of interest in the property” would occur within the three year dormancy period. This is not a new concept as much as it nearly defines the standards for property holders related to the dormancy period. The following are examples where the dormancy clock for the holding period could be reset:
- A check or other such instrument that remains outstanding for more than three years (a travelers check for fifteen years, a money order for seven years) now is not presumed abandoned and unclaimed if there has been an “indication of interest” by the remitter, payee, or person entitled to enforce the instrument in the previous three (3) years. 72 P.S. § 1301.3(3)(ii).
- A stock certificate or right to participate in a business association is not now presumed abandoned and unclaimed if there has been an “indication of interest” in it by the owner in the previous three (3) years. 72 P.S. § 1301.6(2).
- A dividend, profit, distribution, payment or distributive share of principal owed by a business association is not now presumed abandoned and unclaimed if there has been an “indication of interest” in it by the owner in the previous three (3) years. 72 P.S. § 1301.6(3)
- Principal or interest due on business associations’ bonds or debentures are not now presumed abandoned and unclaimed if there has been an indication of interest in such principal or interest by the owner in the previous three (3) years. 72 P.S. § 1301.6(4).
Effective immediately Act was amended to provide for the Treasury to examine the records of agents of holders, including transfer agents and provides that Treasury’s selection of the auditor may not be questioned by the holder and specifically provides that audit work papers are confidential.
If an audit/examination reveals reportable property, Treasury may assess the cost of an audit against the holder at a rate of $200 a day for each auditor. In the event that a holder does not maintain adequate records and the available records are insufficient to permit report preparation, Treasury may reasonably estimate the amount due in unclaimed property.
Effective immediately, the Treasury may impose a penalty of up to $1,000 per day against holders who fail, without proper cause, to report and deliver unclaimed property. The penalty begins the day after the report should have been filed and continues thereafter. The penalty may be waived in full or in part for good cause.
Remember that the reporting due date for property meeting the dormancy period is April 15th of the following year, so get those reports in on time !!
Research for this article compiled by Megan McKlindon. For additional information regarding this topic please contact Christopher M. Turtell, CPA at firstname.lastname@example.org.