Even for the most seasoned professionals, the annual unclaimed property reporting process is not without its pitfalls. With 55 individual jurisdictions and varying state escheat laws, there are plenty of potential mistakes to avoid.
While the list below is not exhaustive, here are some of the most common unclaimed property reporting errors to which many organizations fall victim.
Making Incorrect Dormancy Decisions
With states having varying dormancy periods and dormancy triggers for each property type, miscalculating the dormancy period for a specific property is one of the most frequent errors.
When an incorrect dormancy period is applied to a property, you may be determining that property is not due in the current cycle – when in fact it is. If you continue with that assumption, you will likely incur fines and penalties when you ultimately report those properties beyond their statutory dormancy period, leading to the generation of past-due property and possible audit by the state to which you are reporting.
Conversely, applying incorrect dormancy decisions can also lead to property being escheated too early. In this scenario, the consequences often come in the form of reputational risk resulting from the premature escheatment and liquidation of financial assets. For example, escheating bank accounts or financial instruments too soon means that the owner will not have the benefit of any future interest. For stocks and other securities-related property, escheating and liquidating a shareholder’s position too soon may result in the owner missing out on potential market gains and future dividends.
Not Updating Reporting Software
Many firms utilize commercial software to aid in the unclaimed property reporting process. In order for these software packages to accurately determine dormancy and prepare reports in the proper formats, software providers often require their users to apply regular patches or update files to keep their systems up to date.
Failing to abide by the latest state unclaimed property laws, regulations or administrative guidance is often the end result of not keeping your escheat reporting software up to date, leading to the application of incorrect dormancy periods, thresholds, deadlines, and eventual non-compliance for your organization if not handled promptly.
Incorrect Data Formats
Most, if not all, states require that annual reports be filed in a standardized format, referred to as the NAUPA II format. Within this file format are designated columns for all data points. Specific information is placed in specific fields to ensure all reports generated from these files are consistent, and that only select data is made public when newly escheated property is uploaded to state unclaimed property websites. Failing to place data in the appropriate columns can have serious consequences.
For example, if an owner’s social security number was accidentally placed in an incorrect field, it is possible that the state could publish that owner’s information. This accidental data breach places the owners of that property at risk of identity theft and can damage the reputations of both your company and the state.
Having all of the proper data elements in place is another key to a complete analysis.
Depending on the property type, simply having the date of the payable and the state of the owner’s last known address may be enough. However, for some property types, there are several other critical data elements that should be accounted for within your accounting system.
Certain property types, such as IRAs, HSAs, and educational savings plans including 529 plans, require the owner’s date of birth to determine when an account is eligible for escheatment. Without the owner’s date of birth, these accounts cannot be properly monitored for escheatment.
Additionally, knowing when mail was returned and how many times it has been returned is another critical data point to have before filing reports. Many states consider returned mail as one of several factors used to determine when property should be reported, especially for securities-related property.
Returned mail can also impact other property types. For example, in some states the non-return of mail can be considered an owner’s indication of interest on deposit property at banks. Returned mail can also be a trigger for escheatment on other property types such as IRAs and ROTH IRAs.
Not Sending Reports and Payments Together
Whenever possible, it is advised that reports and remittance are sent together. If a wire or ACH payment is necessary, be sure to reference any payment information on the report.
Additionally, sending reports and payments together allows for faster reconciliation of your records by the states, and allows the owner of the escheated property to gain swifter access to reclaim that property.
Incorrectly Aggregating Property
While property under a certain dollar amount can be aggregated together for reporting in some states, as a best practice, it is suggested to report each item individually along with any corresponding owner information.
In fact, even when reporting in the aggregate, some states will still request holders to submit a detailed list containing all owner details in conjunction with the escheat report.
Failing to Identify Joint Owners
Identifying joint owners in an unclaimed property report can help avoid future issues when trying to determine the true beneficiary of the escheated account.
By identifying joint owners, states can correctly assess the rightful owner on an escheated account, as well as make correct assessments regarding tax implications, such as inheritance taxes or estate taxes once the property is recovered.
Conversely, if an account is escheated without an indication of joint ownership, there is essentially no proof of a second owner. This places the burden of proof of ownership on the owners, making it difficult to recover the escheated property from the state.
Only Filing Reciprocal Reports
Reciprocal reporting was once a more commonly accepted practice, wherein all property was reported to one state and that state, in turn, would direct property not owed to it to the appropriate jurisdictions.
By filing only reciprocal reports, issues may arise through the application of incorrect dormancy periods, the creation of past-due property, and ultimately trigger an audit.
In our experience, we discovered that some states are rejecting reports containing property belonging to other states.
Not Asking for Help.
The unclaimed property reporting and escheatment process places a lot of strain on internal departments, especially during the two peak reporting seasons.
If you find yourself strained or facing a similar struggle, Keane is here to help. For over 65 years, our unclaimed property reporting specialists have assisted companies in managing the escheat reporting process from start to finish, ensuring complete compliance with all reporting jurisdictions.
We have also created a library of helpful unclaimed property educational resources to help you navigate the process and avoid some of these common escheat reporting errors.