Legislative trends in unclaimed property

Computershare serves as unclaimed property administrator for many of our corporate clients, which requires us to stay on top of changing unclaimed property legislation. We also assist other companies with unclaimed property compliance. It is a complex and constantly changing landscape.

Over the years, there have been many trends that have impacted the securities industry, such as the move to shorter dormancy periods and changing definitions of what is considered ‘contact’. There was a time when most states had a seven-year dormancy period for stock; currently, over half the states have a three-year dormancy period and only one state still has seven years.

Move to inactivity or contact standard

A more recent trend across unclaimed property legislation is the transition from a ‘lost’ or ‘RPO’ (Returned by Post Office) standard to an inactivity or contact standard.

Florida is one of the latest states to make the move. Specifically, the language “the date of a statement of account or other notification or communication that was returned as undeliverable” was deleted from Florida state statute.

This shift away from returned mail to inactivity can be viewed as an unfortunate trend since many owners of stock are still practicing the ‘set it and forget it’ investment strategy. That is, their asset is not ‘lost’, there is just no activity such as logging in to check an account balance or initiating a transaction, which will now put their property at risk of escheatment.

It is also problematic because a three-year inactivity standard may lead shares to be escheated prior to receiving the benefits of the SEC Rule 17Ad-17 search requirements, which requires that transfer agents search for ‘lost’ accounts with returned mail. The purpose of the SEC rule is to reduce the number of lost securityholders; however, there can be no impact in states that do not require an RPO. This conflict in regulations is an ongoing topic of debate.

While escheatment could be viewed as a mere inconvenience if owners were able to easily recover their shares back from the state, the reality is that all too often, escheatment results in financial harm to the shareholder. Almost all states liquidate the shares and only pay the owner the proceeds of the sales when the owner files a claim. As a result, the shareholder may receive less than the current market value of the shares.

Dormancy due to death

Accelerated dormancy due to death is another growing unclaimed property trend related to securities that could have a negative impact on shareholders and their estates. These types of statutes are often confusing, and in Florida, there are two separate provisions regarding death that are in direct conflict with each other.

The general contract provision states in part, “If a holder learns or receives confirmation of an apparent owner's death, the property is presumed unclaimed two years after the date of death…”. However, the securities provision references a period of three years from date of death, or one year from notice of death if notice is received less than two years after the date of death and the holder lacked knowledge of the owner's death during that period of two years or less.

In addition to the conflicting language, there is also the issue of date of death versus date of notice. Since the trigger of the Florida language is based primarily on date of death (notice of death only applies if it is received within two years of death), there is an increased likelihood that property for deceased owners will be considered past due when it is reported.

Importance of shareholder education

As states continue to move away from the ‘lost’ standard and accelerate dormancy periods, there could be an increase in lawsuits brought by affected shareholders, which could pose a risk for issuers. Issuers are considered the ‘holders’ of the shareholders’ property. Staying in contact with your shareholders and educating them on the legislative changes, as well as the importance of periodically accessing their investment account, is a way to mitigate this risk.

The more informed shareholders are of the state requirements and how escheatment can impact the value of their shares, the more prepared they can be to take actions that will protect their property.

Our “Keep What’s Yours” video series was designed for the general public, to speak in plain terms about the basic rules for unclaimed property so more people can keep what’s theirs as the rightful owner. Feel free to send the link to your shareholders.

If you have any questions about the legislative changes in unclaimed property, please contact me at pwentz@georgeson.com.