Delaware enacts statute changing its voluntary disclosure program

In an effort to encourage holders of abandoned property to resolve their outstanding claims, Delaware recently enacted a new statute changing its voluntary disclosure program for unclaimed property.

There are two ways that unclaimed property can "escheat" (revert to the property of the state) in Delaware:

  • If the address of the owner of the property is known by the "holder" (the company, in most instances) and that address is in Delaware
  • If the address of the owner is not known and the "holder" is incorporated or organized in Delaware

Well-established corporate laws, a separate business court, and appealing tax rates have long made Delaware an attractive state for companies to incorporate or organize. But because so many businesses have incorporated there, unclaimed property has become a substantial portion of the state’s revenues, and the state has become more aggressive about pursuing what it believes it is owed.

In the past, Delaware has audited companies and demanded payment of unclaimed property already escheated to another state, claiming in many cases that the owner’s address in another state is not valid and, as such, the property should escheat to the state of incorporation. Often, the unclaimed property is paid twice in these situations.

Under the new voluntary disclosure program, Delaware will only demand payment of unclaimed property from 1996 forward, if a letter of intent to enter into a voluntary disclosure agreement (VDA) is completed, executed, and delivered by June 30, 2013, and the agreement is entered and property is paid in full or is under a payment plan by June 30, 2014. If the letter of intent is completed, executed, and delivered by June 30, 2014, and the agreement is entered and the property is paid in full or is under a payment plan by June 30, 2015, the state will not demand payment of unclaimed property from before 1993.

Otherwise, a property holder is subject to reporting of property back to 1981 if examined, or 1991 if a voluntary disclosure is made outside of this timeframe.

The Act also calls for Delaware’s secretary of state to resolve and compromise claims for abandoned property rather than the state escheator, with the exception of those who have already entered into a voluntary self-disclosure agreement before June 30, 2012. However, those holders of unclaimed funds who have submitted voluntary agreements to the state escheator on or before June 30, 2012, shall be afforded the benefit of the same deadlines as stated above.

This program is scheduled to end July 1, 2015.

A word of caution: Part of the compliance process includes due diligence mailings which can take a period of months. While the above periods seem generous, more time may be required to fully complete the process than might be otherwise anticipated.