OCTOBER 2016 NEWSLETTER

Important Updates to Pennsylvania’s Unclaimed Property Laws And Your Retirement Plan Accounts

A new law recently went into effect in Pennsylvania that will change when property is considered to be “abandoned” and required to be transferred to the Pennsylvania State Treasury. The updates to the law establish requirements for a formal, written due diligence notice to be given to property owners prior to transferring the property to the State Treasury and also modify the presumed abandonment rules for fiduciary and tax deferred retirement accounts.

Pennsylvania Unclaimed Property Law

The Pennsylvania Unclaimed Property Law created a presumption that property of a person which is in the possession, custody or control of another becomes abandoned and unclaimed after a certain period of time, unless the party holding the property can overcome the presumption of abandonment. One way to overcome the presumption is for the property holder to show records indicating that the owner of the property engaged in transactions relating to the property, contacted the property holder or showed an interest in the property in some other way. If the presumption cannot be rebutted, then the property will be deemed to be abandoned and must then be transferred to the State Treasury. The amount of time that must elapse before property will be considered abandoned ranges 3 from one year to fifteen years depending on the type of property. Most tangible person property is presumed abandoned after one year but most other types of property are presumed to be abandoned after three years absent any evidence to the contrary.

The owner of the property will then be able to claim the property by searching on the state’s unclaimed property website. Prior to the rightful owner making a claim for the abandoned property, the Treasurer has the option of retaining possession of the property or, after a “reasonable time,” selling the property at public sale to the highest bidder. However, in the event the property is sold, the sale proceeds must be returned to the rightful owner once he or she provides evidence to the Treasurer of his or her ownership rights in the property. Not everyone whose property is transferred to the State Treasury makes a claim for the return of their property. Any property which is not return to its rightful owner is transferred to the General Fund of the Commonwealth, save for a reserve equal to twenty percent of the amount transferred to the Treasurer in the prior year to pay for any claims.

Notice to Property Owners

Pennsylvania is one of the states that require formal written due diligence notice be given to a property owner before it can be transferred from the property holder to the State Treasury. Under the new law, property holders must give notice to the property owner that, under the Pennsylvania Unclaimed Property Law, the property is required to be transferred to the state between 60 and 120 days before the property is actually transferred to the State Treasury.

The notice to the property owner must include a description of the property, a description of the property’s ownership, the value of the property to the extent known, and the information necessary to contact the property holder to prevent the property from being transferred to the State Treasurer. The notice must be sent by first class mail unless the property owner has previously agreed to receive notices by electronic mail. Until the time the property is transferred to the State Treasury, the property owner can assert their continued interest in the property and it will not have to be transferred to the State Treasury.

Presumed Abandonment Rules for Fiduciary and Retirement Accounts

Prior to the most recent update to the law, Pennsylvania law presumed that property held by a fiduciary was deemed to be abandoned unless the owner has, within five years of the property becoming payable or distributable, either: 1) increased or decreased the principal; 2) accepted payment of an interest therein; 3) corresponded with the property holder; or, 4) otherwise indicated an interest in the property. For most retirement accounts, the Pennsylvania Treasury did not treat those accounts as payable until distributions were required in order to avoid tax penalties for failure to make a minimum withdrawal but the prior law did not address Roth IRAs, which are not subject to such penalties. For such accounts, they were presumed to be abandoned three years after the property owner reached the Required Minimum Distribution (RMD) age, currently 70.5 years of age, or three years after the property owner last indicated an interest in the account. There was considerable confusion about the application of these requirements so Pennsylvania has further amended the law.

Under the new law, all types of retirement accounts are presumed to be abandoned three years after the property holder has lost contact with the property owner. However, there does not appear to be any requirement that the owner must also reach the age of RMD (i.e., April 1st after the year in which the owner turns 70 ½ ) in order for the IRA to be presumed abandoned, which was a feature of the prior law. Thus, under the new law, if a holder receives two consecutive instances of returned mail from a first class letter notice to the owner, the IRA will be escheatable three years later, assuming no contact/activity by the owner. Accordingly, the main purposes of this e-newsletter is to warn you that a lack of communication with your fiduciary retirement account holder could subject you, the owner of the retirement account, to tax penalties by virtue of an escheat distribution that will be deemed by IRS to be 4 an early withdrawal/ distribution.

This presumption is rebutted if during that time the fiduciary IRA holder is in possession of your retirement account, you, the owner, have: 1) increased or decreased the principal in the account; 2) commenced receiving distributions; or, 3) otherwise indicated an interest in the account or plan or other property of the owner in the possession, custody or control of the owner. For instance, an IRA owner might not have any activity on his/her retirement account held with the fiduciary holder but might have engaged in transactions during the relevant time period on other accounts held with that property holder. This would be sufficient to rebut the presumption of abandonment.

A property holder is deemed to have lost contact with a property owner if mail sent to the owner by U.S. Postal Service is returned to the holder as undeliverable. If the property owner has elected to be contacted only by electronic communications, the property holder must attempt to confirm by those means that the property owner is still interested in the property.

In order to avoid having your property escheat to the State Treasury under the updates to the law, we strongly and firmly recommend periodically contacting the holders of your various accounts, especially retirement accounts, that you assume will be safe until your RMD age of 70 ½ years and making sure that each property holder has your current physical address and current email address. The contact can take one of many forms such as by phone, email, verbal contacts, communications or transactions, or by electronically logging on to your account online at least once a year, all of which the fiduciary holder takes reasonable action to verify the identity of the owner. That contact should be sufficient in Pennsylvania to protect your assets from being turned over as unclaimed property.

If you have questions about when property you are the owner or holder of is subject to Pennsylvania’s Unclaimed Property Law, our experienced attorneys can help.