Proposed revisions to the Uniform Unclaimed Property Act were under debate this past week in Washington, DC as the Uniform Law Commission (ULC or Commission) Committee to Revise the Uniform Unclaimed Property Act (Drafting Committee) continued the process of crafting a new Uniform Act. The Drafting Committee focused on seven priority issues, including (1) the definition of address; (2) gift cards and stored value cards; (3) life insurance; (4) securities; (5) presumptions of abandonment; (6) definition of holder; and (7) burden of proof.
An initial draft of a revised Uniform Act was released in advance of the February 2015 meeting. Notwithstanding the many disputed issues and wide range of stakeholders, the ULC has set an ambitious schedule for release of a new Uniform Act by 2016. The Drafting Committee intends to read its draft to the full Commission at the ULC annual meeting in the summer of 2015. The current plans call for submission to the full ULC of a final version for consideration in the summer of 2016.
The priority issues addressed in the February meetings included the following:
- Definition of Address. The definition of “address” affects the application of priority rules between states and determines which state has priority in situations where the holder has something less than a complete address sufficient for delivery of mail. Holders have generally advocated that “address” should be defined as a complete address sufficient for delivery of mail, whereas the initial draft broadly defines “address” as “any description, code, or indication of the location of the apparent owner.” The definition of “address” would affect whether property is to be reported to the last-known state of the owner, or whether property is to be reported to the holder’s state of incorporation. A broad or vague definition of address could create uncertainty for holders as to where certain property should be reported.
- Gift Cards and Stored Value Cards. The initial committee draft included escheatment of gift cards and stored value cards, and there was extensive discussion on whether gift cards should be exempted or subject to escheatment, or whether language should be bracketed for individual state determinations on the issue. A motion to exclude gift cards from the definition of “property,” on the basis that the trend in the states is to exempt gift cards from escheat, was defeated. “Gift cards” will remain in the current draft for further discussion by the full ULC.
- Life Insurance. The drafting committee adopted virtually all of the recommendations of a Life Insurance Working Group, which had met to consider proposals from the insurance industry and National Association of Unclaimed Property Administrators (NAUPA). See Sutherland’s Legal Alert on the Life Insurance Working Group recommendations. There is currently not a working draft of the life insurance provisions to be included in the Uniform Act. The Reporter for the Drafting Committee will prepare draft language based on the recommendations adopted. The draft will include a dormancy period of three years running from the date of notice of death, unless the insurance company is unable to confirm the death. The draft will also include language requiring use of the Social Security Death Master File or similar database, though the notes accompany the text of the proposed language will indicate that the requirement could be enacted either as part of the insurance code or as part of unclaimed property laws.
- Securities. A fundamental issue debated was the standard for dormancy to be applied to stock and other equity interests. The securities industry has advocated for a “lost securityholder” standard triggered from the return of mail, whereas NAUPA has advocated for a “no-contact” standard that would run from the date of last contact. The draft under discussion contained a no-contact standard running from the owner’s “last indication of interest.” No consensus was reached at the meeting, and representatives of the securities industry and NAUPA intend to discuss proposals for either compromise or alternative language. The Drafting Committee also discussed dormancy triggers and periods for various retirement and financial accounts, such as IRAs, Health Savings Accounts, and 529 College Savings plans. Another issue is whether and under what conditions a state taking custody of securities may liquidate those securities, and what an owner may claim back from the state when making a claim. The Drafting Committee adopted a proposal that would permit states to liquidate securities three years after receipt from the holder. Claims by owners would be limited to the amount of the liquidation.
- Presumptions of Abandonment. The Drafting Committee discussed various issues relating to presumptions of abandonment. Among other issues, the Drafting Committee voted to include a business-to-business exemption in the draft, and rejected a requirement that the ongoing business relationship be “substantial” (where substantial was defined as ≥$100,000 per year). The Drafting Committee also discussed whether there should be a statutory limitation on the ability to transfer or assign a liability to a third party other than an affiliate. NAUPA supported such a limitation, whereas holder groups argued that such a limitation in the unclaimed property statute would infringe on general contract law and business practices.
- Definition of Holder. There was extensive discussion regarding the definition of “holder,” though no resolution was reached on this issue. This discussion session began with a focus on broker-dealers, with holder representatives arguing that the definition of “holder” should conform to the custodial relationship under the Securities Exchange Act of 1934. More generally, several committee members suggested defining “legal debtor” given concerns that the term is potentially ambiguous. Concerns were raised with how the term “legal debtor” would be applied when there are two debtors of the property, and there were references to the Supreme Court’s decision in Delaware v. New York, where the Court held that the debtor is the party that has the legal obligation to escheat. The Drafting Committee decided that a definition should be supplied either as a formal definition in the Uniform Act or in a detailed comment. The Drafting Committee also looked to other areas involving a “holder,” such as Section 20, which contains the term “putative holder.” The Drafting Committee explained that this section was added to create a judicial remedy for the situation where there has been an audit and a party is contesting being named as a “holder.” All of these areas remain open for further discussion.
- Burden of Proof. The main issue on burden of proof relates to the evidence required to create prima facie evidence of an obligation, and the evidence required to rebut the presumption. Holders advocated for the language in the 1995 Uniform Act, which states that a draft, a check, or similar instrument constitutes prima facie evidence of an obligation. NAUPA advocated for a broader definition based on any record of unpaid debt on the holder’s books. The Drafting Committee retained the 1995 Uniform Act language. The Drafting Committee also discussed whether to incorporate in the revised Uniform Act a specific standard for rebutting prima facie evidence, and holders commented that auditors often require an unreasonably stringent standard of proof.
Other issues discussed at the meeting included the standards and time period for record retention, standards for estimation and when estimation should be permitted, examination standards, periods of limitation and repose, standards for filing a claim to recover monies from the administrator, and the procedures for appealing an audit determination. The Drafting Committee also voted include an exemption for business-to-business property and deleted from the draft a proposed exemption for all property $50 and under.
The Reporter for the Drafting Committee will proceed to prepare a new draft based on discussions at the meeting, and various stakeholders will also continue to meet to prepare recommendations. None of the Drafting Committee’s determinations are final, however, and so all issues can be raised at future sessions or before the full ULC. A revised draft is expected to be released in advance of the ULC’s meetings in July 2015 in Williamsburg, Virginia.