Delaware Enacts Senate Bill 104
July 13, 2021
Publication
On June 30, 2021 Governor Carney signed Senate Bill 104 (“S.B. 104”) enacting certain amendments to the Delaware unclaimed property statute (12 Del. C. § 1130 et seq). It is the first significant amendment of the Delaware unclaimed property statute since the complete amendment and restatement of the statute in 2017. The key aspects of S.B. 104 are summarized below.
- Powers of the State Escheator: The Delaware code previously indicated that the administration and enforcement of the Delaware unclaimed property statute was vested in the Delaware State Escheator (the “State Escheator”). S.B. 104 amends such provision to indicate that such power expressly includes “verification of completeness and accuracy of records relating to unclaimed property.” According to the synopsis, this provision is meant to broaden the State Escheator’s authority to allow access to records even if such records may not specifically identify unclaimed property owed to Delaware. This amendment seems intended to address (and rebut) arguments that the State Escheator has no right to access a holder’s records unless such specific record would indicate dormant amounts owed to Delaware.
- Dormancy of Individual Retirement Accounts (“IRAs”): S.B. 104 updates the Delaware unclaimed property statute to conform with the federal SECURE Act enacted in 2019 as it relates to IRAs. As amended by S.B. 104, the Delaware unclaimed property statute now provides that IRAs become dormant one year following the date of required distribution that results from the owner’s death unless a beneficiary has indicated an interest in the account in the most recent 12-month period.
- De Minimis Gift Card Exception: Although many states exempt the unused balances on stored value cards from escheat, Delaware generally includes those balances as escheatable property. Delaware has always provided a de minimis exception for gift cards with a face value of less than five dollars. Prior to S.B. 104, it was not clear whether the exception was applicable to a gift card with a remaining balance of five dollars or less, or was only applicable to a gift card with an original face value of five dollars or less. S.B. 104 provides clarity on that issue, indicating that the de minimis exception is only available with respect to a gift card with an original face value of five dollars or less.
- Due Diligence Mailings During Audit: Effective in 2017, holders were required to do final due diligence mailings to owners prior to escheating dormant property owed to them to the State Escheator. S.B. 104 clarifies that in connection with a Delaware unclaimed property examination, due diligence mailings can occur at any time, either at the holder’s initiative or at the direction of the State Escheator.
- Limit on State Indemnification: In general, when a holder escheats property to Delaware, Delaware will indemnify the holder to the extent that another state successfully asserts a claim to the property that the holder escheated to Delaware. S.B. 104 limits the scope of such indemnification, providing that Delaware will not indemnify the holder with respect to any interest charge or penalties imposed upon the holder by such other state.
- Tolling of the Period of Limitations to Audit: In general, the Delaware unclaimed property statute requires that any action by the State Escheator with respect to a holder be commenced within 10 years after a holder’s duty arose under the statute. S.B. 104 amends the Delaware unclaimed property statute to provide that such period of limitations is tolled upon the earlier of the delivery to the holder of an invitation to enroll in the Delaware Secretary of State Unclaimed Property VDA Program or the holder’s enrollment in that VDA Program. In general, successful completion of the VDA Program takes several years. As such, S.B. 104 is intended to prevent a holder from enrolling in the VDA Program, dragging the process out, failing to complete the VDA, and precluding Delaware from auditing certain earlier years that would have been covered by the VDA.
- Request to Expedite Existing Audit: Any holder currently under audit, if such audit was authorized after February 2, 2017 but before August 1, 2021, may request to expedite the completion of such audit by filing a request within 60 days after the effective date of S.B. 104 (August 1, 2021). Such request to expedite the completion of the holder’s audit must include the holder’s responses to all pending or outstanding requests for information made by the state’s auditor as well as a workplan to complete the audit within two years. To the extent that such request to expedite the completion of the holder’s audit is granted by the State Escheator, applicable underpayment interest and penalties will be waived except for a 1 percent interest charge.
- Option for Future Audits to Elect Expedited Audit: In addition to holders undergoing an audit after February 1, 2017, any holder receiving a notice of examination after August 1, 2021 may also request an expedited audit by filing a request for an expedited audit as well as a workplan to complete the audit within two years. To the extent that such request for an expedited audit is granted by the State Escheator, applicable underpayment interest and penalties will be waived except for a 1 percent interest charge.
- Imposition of Mandatory Underpayment Interest Under Audit: After the 2017 amendment and restatement of the Delaware unclaimed property statute, the statute generally provided for the imposition of underpayment interest and penalties calculated as a percentage of the underlying liability, but also granted the State Escheator the power to waive, in whole or in part, such interest and penalties. S.B. 104 limits the State Escheator’s power to waive interest and penalties, essentially requiring the imposition of mandatory underpayment interest equal to 20 percent of the underlying liability with respect to each holder under audit (other than those holders that have successfully requested an expedited audit as noted above).
If you have any questions with respect to S.B. 104 or other matters of Delaware unclaimed property law, including enrollment in the Delaware Secretary of State Unclaimed Property Voluntary Disclosure Program, please feel free to contact Stanford Stevenson at (302) 651-7707 or at sstevenson@rlf.com.