Do You Know the Laws Governing Unclaimed Property in Your State?

September 26, 2018

It is not uncommon for nonprofit organizations to have uncashed checks, such as refunds from clients or customers or payments to vendors. These are only just some of the most common examples of unclaimed properties that could occur. By definition, unclaimed properties are intangible or tangible property that has been abandoned or lost by its rightful owner for an extended amount of time. Assets left by a deceased individual and not identified in a will often end up as unclaimed property. Certain laws stipulate how long an individual has to claim the property before it is sold or given to someone else. These laws typically vary depending on the states were the unclaimed property is held. It is important for every organization to be aware of the laws governing the unclaimed property in its state because they might find themselves in a situation where their own asset is held as unclaimed property by a financial institution or another organization.

In fact, there have been several cases that have arisen when auditors were performing confirmation of cash and investment accounts during a routine audit. Auditors have seen instances where they discovered that an investment account with a substantial amount was dormant for many years and eventually closed out by the financial institution. Ultimately the balance of the account was sent to the state as unclaimed property. Luckily, sometimes the organization is able to recover this fund after filing the necessary documents with the state. This could happen to any organization, so it is imperative that every organization learns the laws and rules governing unclaimed property in their particular state.

When has a property become dormant or abandoned?

It depends on the nature of the property. For instance, in Maryland, a traveler’s check is presumed abandoned 15 years after issuance. On the other hand, a money order is presumed abandoned if it has been outstanding for more than 3 years. A cash check or other instrument that a bank or other financial institution is directly liable for payment is presumed dormant or abandoned if still outstanding after 3 years. For more details about other property instances, please review Maryland’s Holder Reporting Manual.

How could an organization avoid having its asset become dormant or abandoned?

Organizations that have a lot of cash or investment accounts are the ones that carry significant risks of having some of their accounts becoming dormant or abandoned. Organizations should reduce the number of open cash or investment accounts as much as possible so that it is easier to manage and track each individual account. They should also ensure that they receive and review statements for each cash or individual account.

Maryland due diligence requirements for holders of unclaimed properties

For unclaimed property that is valued at $100 or more, Maryland requires the holders to send due diligence notices. These notices must be sent each reporting cycle by first class mail at least 30 days, and not more than 120 days, prior to filing a report.

In each due diligence notice, the holder must inform the apparent owner that:

  1. The holder is in possession of the property.
  2. The property will be considered abandoned unless the owner responds within 30 days of the notice.

Unclaimed property reporting deadlines for Maryland

All holders of unclaimed property have an obligation to report abandoned or unclaimed property to the state in order to maintain compliance with Maryland’s unclaimed property regulations. The deadline to submit unclaimed property reporting and remittance files to the state of Maryland is October 31st. Insurance companies must submit their reports by April 30th.

In some cases, holders may request an extension from Maryland’s unclaimed property administrator. If holders expect to have difficulty submitting unclaimed property reports on time, they may submit an extension request in writing before the report deadline and should include their federal employer identification number, the specific amount of time needed to complete and file the report, and the reason for the extension. Extensions are granted on a case by case basis.

A negative report is when a holder files an annual report even though the holder is not reporting or remitting any unclaimed property for that given year. Negative reports are required in Maryland for nursing homes, banking and financial organizations, insurance companies, and utilities. The state also requires these reports to be filed if they meet one of the following:

  1. The holder’s information has changed.
  2. The report is the final report of a holder who has reported in the past.
  3. The holder is incorporated in Maryland.

Holders with no filing history in Maryland should not submit negative reports

Penalties for not filing abandoned property

Failure to comply with unclaimed property laws can result in interest and penalties assessed by the respective state. For Maryland, any person who fails to pay or deliver abandoned property to the administrator as required must pay a penalty equal to 15% of the value of the property. If they fail to file any report or refuses to deliver property to the administrator as required by this title, the administrator may bring an action in a court of appropriate jurisdiction to require the filing of the report and to enforce delivery of the property.

For additional information or help in answering specific unclaimed property questions and time limits, please contact your state’s governmental agency that oversees the administration of unclaimed properties law. For specific questions on this law in the DMV area, please review the websites for Maryland, Virginia, and the District of Columbia.

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