Avoiding pitfalls in unclaimed securities reporting

Reporting unclaimed or abandoned securities held in brokerage accounts can be daunting and fraught with unforeseen risks. That’s why we’ve prepared this “quick guide” checklist of some of the key details that brokerage companies should be aware of when preparing to report abandoned securities to the states.

1. Keep track of dates

A complex and non-uniform web of date driven events are central to unclaimed securities reporting (dormancy) requirements, and the maintenance and updating of these dates is critical to the application of state-specific reporting requirements. Different dates to consider are:

• Date of birth
• Date of required minimum distribution
• Date of death
• Date of uncashed dividend checks
• Undelivered mail

Maintain the date(s) on which a piece of mail is returned as undeliverable by the post office to the address you have on file.

• Latest owner generated activity (OGA)

This can take many forms and the latest date across each of these forms should be constantly maintained. Activity such as (but not limited to) calls from the owner, online log-ins, placing trades (buying or selling) and written correspondence are all forms of OGA. Companies should also be aware of non-OGA dates and avoid inadvertently capturing them into this category. Automatic dividend reinvestments, execution of limit orders, outgoing calls to the owner and other types of activity may not be accurate indications of OGA.

2. Calculate dormancy based upon type of account holding the securities

Different calculations may be necessary for the same unclaimed security depending on the type of account in which the security is held. For example, the dormancy rules for a retail trading account can differ from those of an IRA account holding the same security. Different types of dates and dormancy periods may apply in each calculation, so it’s important to understand individual state rules for each type of account holding securities.

3. Maintain complete and accurate owner names, including other additional owners

When it is time to file your reports, all relevant owner information must be included. This can include the main account holder and any beneficiaries, trustees, joint tenants, executors, agents, custodians, etc. that may also be listed on the account. When applying the National Association of Unclaimed Property Administrators (NAUPA) relationship codes to such additional owners, ensure that the information does not imply an ownership interest in the security that the additional individual does not have (e.g. accidentally using the code for Joint Tenant instead of Custodian). Exporting and reformatting the data from your systems into the acceptable NAUPA format can be a large and painstaking process. However, steps must be taken to ensure names and additional owner details are not lost in the transfer.

4. Keep track of security transfer instructions

Rules regarding the transfer/delivery of unclaimed securities into the custodianship of the states are constantly changing and there is no true standard that applies across the board. For example, many states require advanced notice before transferring securities, while some do not. Some states may require the liquidation of shares (either whole or only fractional), and others may not accept worthless shares. There are many details to consider before initiating any transfer of securities to the state custodial accounts. Ensuring that these are all understood and maintained may avoid accidental noncompliance.

5. Ask for help when necessary

For many reasons, including those stated above, the process of reporting and remitting unclaimed securities to the states can be an extremely complex task. Leveraging the assistance of lawyers, consultants and programmers may be a necessary step to ensure a streamlined reporting process.

Questions?

To learn more about reporting unclaimed or abandoned securities, or any other unclaimed property questions that may impact your company, reach out to a member of the Baker Tilly unclaimed property management team for guidance and assistance.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.