BILL ANALYSIS
AB 2117
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Date of Hearing: March 23, 2010
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 2117 (Niello) - As Amended: March 17, 2010
SUBJECT : UNCLAIMED PROPERTY
KEY ISSUES :
1)IS IT WISE TO ELIMINATE THE REQUIREMENT THAT ALL MONEY IN THE
STATE'S ABANDONED PROPERTY ACCOUNT IN EXCESS OF $50,000 BE
TRANSFERRED AT THE END OF EACH MONTH TO THE GENERAL FUND,
ESPECIALLY GIVEN THAT THE TRANSFER OF SUCH FUNDS DOES NOT CUT
OFF AN OWNER'S ABILITY TO RECOVER HIS PROPERTY FROM THE STATE
WHICH COULD THREATEN WORSENING BUDGET DEFICITS?
2)GIVEN THAT THE NINTH CIRCUIT COURT OF APPEALS IN AUGUST 2009
HELD THAT THE STATE CONTROLLER IS NOT CONSTITUTIONALLY
OBLIGATED TO PAY INTEREST ON CLAIMED PROPERTY, SHOULD THE
CONTROLLER NEVERTHELESS BE REQUIRED TO PAY INTEREST ON ANY
CLAIM FOR UNCLAIMED PROPERTY FOR THE LENGTH OF TIME THE
PROPERTY WAS HELD IN THE STATE'S UNCLAIMED PROPERTY FUND,
ESPECIALLY GIVEN THE CURRENT BUDGET CRISIS?
3)SHOULD THE ESCHEAT PERIOD FOR UNCLAIMED PROPERTY BE EXTENDED
FROM THREE YEARS TO FIVE YEARS WITHOUT FURTHER ACTION TO
IMPROVE NOTICE REQUIREMENTS FOR HOLDERS OF UNCLAIMED PROPERTY,
IF THERE IS NO EVIDENCE THAT AN EXTENSION ALONE WOULD RESULT
IN MORE OWNERS BEING REUNITED WITH THEIR PROPERTY?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
This bill would make three fundamental changes to California's
Unclaimed Property Law (UPL). First, this bill would eliminate
the regular transfer of unclaimed property funds from the
Abandoned Property Fund to the General Fund, a figure estimated
by the State Controller to be in excess of $270 million per
year. Second, this bill would require the Controller to add an
interest payment to any claim for unclaimed property that the
Controller pays to an owner. Finally, this bill seeks to extend
the escheat period for most types of unclaimed property from
three years to five years without a provision improving notice
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requirements for holders of unclaimed property. The author
asserts that while one of the original purposes of the Unclaimed
Property Law may have been to facilitate the return of unclaimed
property to its owner, it has transformed into a way for the
state to fund the general fund. According to the author, this
bill is intended to address and remove incentives for the state
to take and hold unclaimed property.
First, the Committee might wish to consider whether it is wise
or even feasible to eliminate the requirement that the
Controller transfer to the General Fund each month all money
escheated to the State and held in the Abandoned Property Fund
in excess of fifty thousand dollars ($50,000). Although the
author contends that unclaimed property funds should not
rightfully be transferred to the General Fund, the bill does not
appear to provide a suitable alternate location for this money
nor refute the idea that using this money for General Fund
purposes in fact furthers the stated objectives of the UPL.
Secondly, in light of the recent (August 2009) court decision in
Suever v. Connell , the Committee may also wish to consider
whether it makes sense to require the state to add interest
payments on claims when none is required, notwithstanding its
earlier consent to the same provisions in AB 1291 of last year.
Subsequently, the 9th Circuit overruled the district court's
decision that the state is constitutionally obligated to pay
interest when it returns property to owners under the UPL.
Finally, although this bill presumably seeks to reunite property
owners with their unclaimed property, it is unclear how
effective extending the escheat period will be without also
improving upon the current notification requirements of
unclaimed property holders. The Committee recently passed AB
2221 (Wolk) of 2008, a similar but much stronger measure than
this bill. Although both bills sought to extend the escheat
period for most property from three years to five years, only AB
2221 also included improved notice requirements for holders of
unclaimed property, whereas this bill does not. Although this
bill has no known opposition, its first two provisions, as noted
above, do not seem prudent in this fiscal environment, and its
remaining provisions lengthening the escheat period for most
types of property are arguably inconsistent with the objectives
of the UPL, as well as the provisions of AB 2221 of 2008 as it
was passed by the Committee.
SUMMARY : Eliminates the transfer of unclaimed property funds to
the General Fund, requires the State Controller to add an
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interest payment to any claim for unclaimed property, and
extends the escheat period for most types of unclaimed property
from three years to five years. Specifically, this bill :
1)Removes the requirement that at the end of each month, the
Controller shall transfer all money in the Abandoned Property
Account in excess of fifty thousand dollars ($50,000) to the
General Fund.
2)Requires the Controller to add interest, at the rate of 5
percent per year or the bond equivalent rate of 13-week United
States Treasury bills, whichever is lower, to the amount of
any claim paid to the owner for the period the property was on
deposit in the Unclaimed Property Fund. Specifies the
criteria with which the bond equivalent rate of 13-week United
States Treasury bills shall be defined.
3)Requires the holder who pays to the owner property that has
escheated and been remitted to the state and that, if claimed
from the Controller, would be eligible for payment of interest
as provided, to add interest as specified. Further requires
the Controller to repay the holder any interest, if added, in
the same manner as the principal.
4)Extends the escheat period for most types of unclaimed
property, the period of time after which if an account is
inactive or there is no communication from the owner after
reasonable efforts by the holder to notify the owner the
property is unclaimed, the property escheats to the state.
Increases the escheat period from three years to five years
for the following types of unclaimed property:
a) Any demand, savings, or matured time deposit, or other
account made with a banking organization
b) Any demand, savings, or matured time deposit, matured
investment certificate, or other interest in a financial
organization
c) A draft, cashier's check, teller's check or certified
check or other written instrument where a bank or financial
organization is directly liable
d) Funds held by a business association in an individual
retirement account or similar account
e) Contents of, or proceeds of sale of the contents of, any
safe deposit box
f) Funds held or owing by a life insurance corporation
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under a life insurance policy or annuity contract
g) Property distributable in the course of a
demutualization or related reorganization of an insurance
company
h) Any dividend, profit, distribution, interest, payment on
principal, or other sum held or owing by a business
organization for or to a shareholder
i) Any intangible interest in a business association
j) All tangible and intangible personal property held in a
fiduciary capacity for the benefit of another person
aa) All tangible and intangible personal property held for
the owner by any government or governmental subdivision or
agency.
bb) All tangible and intangible personal property, except
those previously specified, held or owing in the ordinary
course of the holder's business
cc) Employee benefit plan distributions and any income or
increment thereon.
5)Increases the escheat period from one year to five years for
any wages or salaries that have remained unclaimed by the
owner after becoming payable after such time.
6)Increases the escheat period from six months to five years for
property distributable in the course of dissolution or
liquidation of certain business entities, as specified below:
a) Provides that all property distributable in the course
of dissolution or liquidation of a business association
that is unclaimed by the owner after five years (rather
than six months ) after the date of final distribution or
liquidation escheats to the state.
b) Provides that all property distributable in the course
of dissolution or liquidation of an insurer, pursuant to
the Insurance Code, that is unclaimed by the owner after
five years (rather than six months ) of the date of final
distribution, shall be transferred to the Department of
Insurance, with any proceeds of sale of property to be
deposited in the Insurance Fund for specified purposes.
7)Makes corresponding changes to the information about escheat
period contained in the notice, specified by CCP 1513.5,
that holders must mail to owners of unclaimed property at
specified times.
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EXISTING LAW , the Unclaimed Property Law,
1)Provides that, notwithstanding any provision of law to the
contrary, property received by the state under this act shall
not permanently escheat to the state. (Code of Civil
Procedure Section 1501.5(a).) (All further references to the
Code of Civil Procedure, unless otherwise noted.)
2)Provides for the escheat to the state of unclaimed property,
as defined, following reasonable efforts by the holder of the
property to notify the owner that the property is unclaimed
and will escheat to the state. (Sections 1500 et seq.)
Generally, unclaimed property escheats to the state after
three years since the last deposit or contact with the owner
or depositor of the property. (Sections 1513, 1514, 1515,
1516, 1518, 1519, 1521.)
3)Provides that the contents of any safety deposit box or any
other safekeeping repository, held in this state by a business
association, escheat to this state if unclaimed by the owner
for more than three years from the date on which the lease or
rental period on the box or other repository expired, or from
the date of termination of any agreement because of which the
box or other repository was furnished to the owner without
cost, whichever last occurs. (Section 1514.)
4)Provides that if the holder of funds or other property has in
its records an address for the apparent owner, which the
holder's records do not disclose to be inaccurate, every
banking or financial organization shall make reasonable
efforts to notify by mail any customer that the customer's
deposit, account, shares, or other interest in the banking or
financial organization will escheat to the state. Provides
that the holder shall give notice either:
a) Not less than two years nor more than two and one-half
years after the date of last activity by, or communication
with, the owner with respect to the account, deposit,
shares, or other interest, as shown on the record of the
financial organization; or,
b) Not less than six nor more than 12 months before the
time the account, deposit, shares, or other interest
becomes reportable to the Controller. (Section 1513.5.)
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5)Provides that no interest shall be payable on any unclaimed
property claim paid by the Controller under the UPL. (Section
1540(c).)
6)Requires the Controller, at the end of each month, to transfer
to the General Fund all money escheated to the State and held
in the Abandoned Property Fund in excess of fifty thousand
dollars ($50,000). (Section 1564(c).)
COMMENTS : According to the author, this bill would make three
"fundamental changes" to California's Unclaimed Property Law
(UPL). First, this bill would eliminate the regular transfer of
unclaimed property funds from the Abandoned Property Fund to the
General Fund, a figure estimated to be in excess of $270 million
per year. Second, this bill would require the State Controller
to add an interest payment to any claim for unclaimed property
that the Controller pays to an owner. Finally, this bill seeks
to extend the escheat period for most types of unclaimed
property from three years to five years, but in some cases
extending a period of 12 months or less to five years. If any
or all of these proposals may seem familiar, it is because each
has appeared individually before in previous legislation heard
by this Committee, but never with ultimate success into existing
statute. It is with great ambition that the author introduces
all three proposals together in a single bill-a true
"supergroup" of fundamental changes to the UPL. The State
Controller, who has sponsored previous legislation to revise
aspects of the UPL and who protects the rights of property
owners under the UPL, is understandably neutral on this bill,
for reasons that should become apparent below.
Background of the UPL: The Unclaimed Property Law, enacted in
1958, establishes procedures for the escheat of unclaimed
personal property. Property escheated to the state means the
state has custody of the property in perpetuity, until the owner
claims the property. Under the UPL, there are three significant
parties: the owner, the holder, and the state. The "owner" is
the person to whom the property actually belongs. The "holder"
is the person or entity who has possession of the property. The
holder might be a bank or other money depositary (e.g., holds
deposits of owner's money, holds property in a safe deposit
box), or a business that has issued a check to an individual or
other business, or a life insurance or annuity. Holders of
unclaimed property have no interest in the unclaimed property.
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(Bank of America v. Cory (1985) 164 Cal.App.3d 66, 74.) A
holder is simply a trustee of the property while the property is
in the possession of the holder. However, while the property is
in the custody of the holder, the holder generally uses the
funds or the property as an asset.
The UPL has dual objectives: (1) to protect unknown owners by
locating them and restoring their property to them; and (2) to
give the state, rather than the holders of unclaimed property,
the benefit of its retention, since experience shows that most
abandoned property will never be claimed. (State v. Pacific Far
East Line, Inc. (1962) 261 Cal.App.2d 609, 611; Douglas Aircraft
Co. v. Cranston (1962) 58 Cal.2d 462, 463.) The state, through
the Controller, acts as the protector of the rights of the true
owner. (Bank of America v. Cory, supra, at 74.)
The UPL establishes procedures to be followed when property goes
unclaimed, generally for a period of three years, and escheats
to the state. Under existing law, the holder must annually
report on unclaimed property and turn the property over to the
Controller. (Code of Civ. Proc. Secs. 1530 and 1532.) In turn,
the Controller is required to mail a notice to each person who
appears to be entitled to unclaimed property according to the
report filed by a holder, in addition to the requirement of
publication of unclaimed property owners in a newspaper of
general circulation. (Secs. 1531 and 1531.5.) A person with an
interest in escheated property may file a claim to recover the
property from the state. (Secs. 1540-1542.) The Controller
maintains a web site ( http://www.sco.ca.gov ) where members of
the public may search a database to discover if the state is
holding any of their property, and may submit claims to recover
the funds or property.
The Controller states that the office receives approximately
$600 million annually as escheated property. Existing law
requires that all but $50,000 of these funds are transferred to
the General Fund on a monthly basis. (Section 1564.) The
Controller currently maintains accounts of approximately $5.3
Billion for monies that have been remitted to the Controller and
transferred to the General Fund. There are approximately 8.7
million accounts (individuals and organizations) in the
Controller's database. In FY 2006-07, there were a total of
276,512 claims filed, and an average claim payment of $1,217.
In FY 2005-06, there were 328,411 claims with an average payment
of $889.
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Need for the Bill. The author asserts that while one of the
original purposes of the Unclaimed Property Law may have been to
facilitate the return of unclaimed property to its owner, it has
transformed into a way for the state to fund the general fund.
According to the author, this bill is intended to address and
remove the incentives for the state to take and hold unclaimed
property. The author explains:
The State of California has become dependent on taking
unclaimed property from individuals in order to help
balance our state budget. All incentives to continue
to take in the property must be stopped as . . . the
state should not be confiscating the property of
others in the name of holding "abandoned" property and
then using the funds collected to balance the general
fund. The dormancy period should also be lengthened
so that property doesn't escheat to the state so soon,
and property owners should be entitled to an interest
payment from the state on property held by the state.
Ceasing the Transfer of Unclaimed Property Moneys to the General
Fund is Not Only Unrealistic in Practice, But Does Not Further
Any Objectives of the UPL. There are two good reasons why the
Committee might wish to consider whether it is prudent to
eliminate the requirement that the Controller transfer to the
General Fund each month all money escheated to the State and
held in the Abandoned Property Fund in excess of fifty thousand
dollars ($50,000). First, it is unrealistic to expect that, in
the middle of trying economic times, the State can adjust to a
sudden annual decrease of hundreds of millions of dollars that
normally flow to the General Fund from the Abandoned Property
Fund without suffering dire consequences. According to the
State Controller's Office, the current projection of General
Fund growth due to money transferred from the Abandoned Property
Fund is approximately $272.3 million each year.<1> Although
this bill would forbid transfer of unclaimed property funds to
the General Fund, it does not appear to provide a suitable
alternate location for this money. As envisioned by this bill,
this money should remain in the Abandoned Property Fund in
perpetuity, growing at a rate of potentially $272 million per
year, to be expended primarily for the purpose of paying claims
to owners of unclaimed property.
---------------------------
<1> Interview with Les Kleinberg, State Controller's Office,
March 18, 2010.
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Second, the Committee might also wish to ask if the author's
proposal is wise given that ceasing of the General Fund transfer
does not further either objective of the UPL. It is well
established that the UPL has two objectives: (1) to protect
unknown owners by locating them and restoring their property to
them; and (2) to give the state, rather than the holders of
unclaimed property, the benefit of its retention, since
experience shows that most abandoned property will never be
claimed. (State v. Pacific Far East Line, Inc. (1962) 261
Cal.App.2d 609, 611; Douglas Aircraft Co. v. Cranston (1962) 58
Cal.2d 462, 463.) The transfer of these moneys to the General
Fund does not change the fact that, while preserving the rights
of the true owner, the state remains the holder of the funds,
and that pursuant to California law, the UPL is furthered when
the state, rather than the holder of the unclaimed property, has
the benefit of its retention. The benefit is of course greater
when the state may use unclaimed property funds for general fund
purposes.
Although the author argues that the unclaimed "confiscated"
funds do not rightfully belong to the state, it does not follow
that they should not be transferred to the General Fund. It is
important to understand that the transfer of unclaimed property
funds to the General Fund does not cut off or hinder the true
owner's ability to claim and recover his property from the
state, because the state, acting through the Controller, is only
the holder of the property. Pursuant to Section 1501.5(a),
property received by the state under the UPL shall not
permanently escheat to the state. The State Controller's website
even attempts to clear up this common misperception by stating:
"There is no time limit for filing a claim. The unclaimed
property account is held in perpetuity for the owner, or the
owner's heirs, until a claim is received and paid." Therefore,
the author's proposal to prohibit transfer of money to the
General Fund alone does nothing to help locate unknown true
owners or restore their property to them, the first objective of
the UPL.
Requiring the State to Add Interest Payments on Claims When None
is Required. In requiring the State Controller to add an
interest payment to any claim paid on unclaimed property, this
bill seeks to re-enact the former language of subdivision (c) of
Section 1540, which was first added to state law by AB 3000
(Chapter 1122, Stats. of 2002), a 2002 budget trailer bill.
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Just one year later, the Legislature reversed itself and passed
AB 1756 (Chapter 228, Stats. of 2003), which deleted the
language of subdivision (c), now proposed for reintroduction by
this bill, and replaced it with the simple sentence "No interest
shall be payable on any claim paid under this chapter" (i.e. the
UPL.)
In the intervening years since 2003, the issue of whether the
state is required to add interest to claims it pays under the
UPL has been extensively litigated in court. On October 12,
2007, the U.S. District Court for the Northern District of
California held that the state is constitutionally obligated to
pay interest when returning funds to claimants under the UPL.
(Suever v. Connell, 2007 U.S. Dist. LEXIS 79265, C-03-00156 RS.)
The case was on appeal with the 9th Circuit Court of Appeal
when this Committee heard AB 1291 by the same author on April 21
2009. In light of the Northern District's ruling in Suever,
this Committee passed on consent a version of AB 1291 containing
the same language requiring interest payments that is found in
section 12 of this bill (and that embodied Section 1540(c) for
one year before being repealed by AB 1756 (2003).)
However, in light of the most recent court decision in Suever v.
Connell, the Committee may wish to reconsider whether it makes
sense here to approve the interest payment provisions of this
bill, notwithstanding its earlier consent to the same provisions
in AB 1291 of last year. This is because on August 26, 2009,
the 9th Circuit overruled the district court's ruling that the
state is constitutionally obligated to pay interest when it
returns property to owners under the UPL. (Suever v. Connell
(20009) 579 F.3d 1047.) In its opinion, the 9th Circuit
reasoned that reversal of the district court was required by its
2008 decision in Turnacliff v. Westly, in which the 9th Circuit
"squarely rejected the proposition that property owners have a
compensable Fifth Amendment right to interest earned on
unclaimed property that escheats to the State of California."
(Turnacliff v. Westly (2008) 546 F.3d 1113, 1119-20.)
If the Committee were to approve the interest payment proposal
in this bill, it would be flying in the face of the 9th
Circuit's recent decisions in Turnacliff and Suever, as well as
the Legislature's own policy determination reflected in existing
law CCP Section 1540(c), enacted by AB 1756 (2003). Without the
imprimatur of legal authority that was cited in support of this
proposal when it was part of AB 1291, the author in this case
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has not offered a compelling reason why the state should now add
interest to all claims paid under the UPL when it is not
constitutionally or otherwise obligated to do so.
Increasing the Escheat Period Alone is Likely Ineffective in
Achieving UPL's Objective of Reuniting Owners with Unclaimed
Property. There are several reasons why the Committee might
wish to consider whether it is recommendable to simply increase
the escheat period from 3 years, in most cases, to 5 years
without further action to improve notification requirements for
holders of unclaimed property. The Committee has no evidence,
and the author does not assert, that extending the escheat
period on its own would result in more owners being reunited
with their property-one of the key objectives of the UPL.
In fact, assuming that property generally goes unclaimed because
the owner, if alive, doesn't remember the holder has the
property, it would appear that the opposite may be true because
of technological improvements in the State Controller's website.
Once property escheats to the state, the State Controller
enters last known name, address, and other information about
each property into its statewide database system. Members of
the public may search this unique "one stop shopping" database
through a link on the Controller's website
( http://scoweb.sco.ca.gov /UCP/Default.aspx ) for all unclaimed
property they may own, even if once held among multiple banks or
other entities. According to the Controller's website:
The new database system allows staff to more easily
search for properties and process claims more
efficiently. We also have begun posting properties to
our unclaimed property search page on the Internet
within weeks after they are reported by businesses
transferring the property, rather than taking a year
before posting the properties. In just the first year
after these reforms, we were able to send out 2.5
million notices; more than double the 1.2 million
notices we sent during the past decade.
The longer an item of property sits unclaimed and inactive with
a holder, the longer before that property escheats to the State
and is entered into the Controller's searchable database. For
that reason, extending the escheat period without any other
action might result in fewer owners being reunited with their
property than might occur if property is left to sit inactive
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with current holders.
The Committee has previously indicated an understanding that
extending escheat periods without taking further measures like
increasing notification requirements is probably insufficient to
accomplish the goal of the UPL to reunite owners with their
unclaimed property. Just last year, the Committee in
consecutive weeks heard both AB 2221 (Wolk) and AB 2642
(Niello), two bills that both sought to extend the escheat
period for most unclaimed property from three years to five
years in the former case, and to seven years in the latter case.
The relevant distinction between the two bills was that, in
order to increase the likelihood of reuniting owners with their
property, AB 2221 required the holders of certain property to
provide two additional notifications to owners regarding
escheat, whereas AB 2462 proposed no additional notice
requirements. The Committee, through its unanimous approval of
AB 2221, supported improved notice requirements out of apparent
concern that ineffective notice might be a major factor in the
continued inactivity of unclaimed property. AB 2462, in
contrast, was found by the Committee to be a weaker bill than AB
2221 and inconsistent with the approach employed in that bill
calling for improved notice provisions to accompany any
extension of escheat periods.
Increasing Escheat Periods Without Other Measures to Reunite
Owners With Their Property Primarily Benefits Holders. By
increasing the dormancy period before escheat of property can
occur, this bill would give holders of property two more years
during which they may locate owners and deliver property in
their custody. Of course, the holders would have to pay
interest on the property (if the property consists of bank
deposits, accounts, or checks) while the property is in their
custody. Simultaneously, the holders could use and invest the
property in the same manner the state uses unclaimed property.
Thus, a bank holding a dormant savings account could earn
investment income, for example, of 6% per annum on the account
and pay the owner, when the owner claims the property before the
property escheats to the state, 3% interest per annum on the
balance of the account. Under this bill, the holder gets to
control the property two years longer and potentially benefits
the most from a longer escheat period, assuming the property is
likely to stay unclaimed absent additional efforts to reunite
owners with their property. This is a concerning aspect of the
bill that seems to conflict with one of the stated objectives of
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the UPL "to give the state, rather than the holder of unclaimed
property, the benefit of its retention, since experience shows
that most abandoned property will never be claimed." (State v.
Pacific Far East Line, Inc. (1962) 261 Cal.App.2d 609, 611;
Current escheat periods of three years represent longstanding
Legislative judgment that increased notification requirements
make longer escheat periods unnecessary. This bill extends the
escheat period for most types of unclaimed property from three
years to five years, which is a small textual change but
actually represents a major shift in Legislative policy that has
seen escheat periods get shorter and not longer, with the last
major change occurring almost 20 years ago.
As the author correctly states, when the UPL initially became
effective in 1959, bank accounts were required to be dormant for
15 years before property escheated, while all other tangible
property had a 7 year escheat period. The legislative history
of the UPL reveals that the broadest changes to the escheat
dates occurred: (1) in 1976, when the escheat period for bank
accounts was essentially halved, from 15 years to 7 years; (2)
in 1988, when the escheat period for most tangible property was
decreased from 7 years to 5 years; and (3) in 1990, when the
escheat period for most tangible property was further decreased
from 5 years to 3 years (SB 57, Chapter 450, Stats. 1990.) For
the most part, the general rule of a 3 year escheat period has
prevailed since 1990 without change, while at the same time
numerous additional notification requirements have been added to
the UPL to increase the likelihood that owners are reunited with
their property. For these reasons, the Committee may wish to
consider whether there are any compelling reasons to change
longstanding escheat periods of 3 years and reverse the clear
Legislative trend of shorter escheat periods in light of
improved notification requirements added in recent years.
Even if the Committee decides to consider extending escheat
periods for some types of unclaimed property, there are clear
justifications to exclude wages and property distributable from
dissolution. Recent legislation shortened the escheat period
for unclaimed wages and salaries from three years to one year.
(AB 378, Chapter 304, Stats. 2003, amending Section 1513(a)(7).)
This bill would repeal these provisions and would instead
extend the escheat period for unclaimed wages and salaries from
one year to five years. Extending the dormancy period for wages
and salaries from one year to five years would significantly
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alter existing law. As stated by the author of AB 378 at the
time, the original intention of reducing the dormancy period for
wages and salaries was to create a system where employees could
quickly and easily discover if they had monies owed to them from
a previous employer, rather than allowing them to remain dormant
for several years. Moreover, wages and salaries are different
from other unclaimed property because there is a risk that the
employer will become insolvent, change accounting systems
thereby losing records of unpaid wages and possibly no longer do
business or keeps offices in the state. For these reasons, it
is recommended that the escheat period for unclaimed wages and
salaries remain at only one year before they escheat to the
state.
Since 1968, property distributable in the course of voluntary or
involuntary dissolution or liquidation of a business association
or insurer escheats six months after final distribution or
liquidation. (Section 1517.) This bill seeks to impose a 5
year escheat period across the board, applicable to every type
of unclaimed property, without nuance. Unlike an increase from
3 years to 5 years (a 66% increase) for most types of property,
in this case the bill would result in an increase from 6 months
to 5 years (a 1000% increase) without any specific
justification. This is simply too much of a change to implement
in one fell swoop. Furthermore, the 1968 Law Revision
Commission Comments on this section note that because property
escheated under Section 1517 remains subject to the owner's
claim, there appears to be no reason to delay transfer of
custody of this property to the state. For these reasons, it is
recommended that the escheat period for unclaimed distributable
property as defined by Section 1517 remain unchanged at 6 months
in duration.
PRIOR LEGISLATION : AB 1291 (Niello) Ch. 522, Stats. 2009, as
heard by this Committee, would have, among other things: (1)
required the Controller to add interest to any claim paid to an
owner of unclaimed property for the period the property was on
deposit in the Abandoned Property Fund; (2) added additional
notification requirements for holders of unclaimed property,
particularly for holders of safe deposit boxes. Asm Jud passed
this bill on consent, including the interest payment provision,
for reasons stated above. This provision was later removed when
the bill was on the Assembly Floor, but many of the additional
notification requirements were preserved in the chaptered
version of the bill.
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SB 1319 (Machado) of 2008, as heard by this Committee, would
have required the Controller to add interest to any claim paid
to an owner of unclaimed property for the period the property
was on deposit in the Abandoned Property Fund. This bill was
passed by this Committee on a 7-3 vote, but ultimately was
vetoed by the Governor for a reason unrelated to the required
interest payment.
AB 2221 (Wolk) of 2008, as heard by this Committee, would have:
(1) extended the escheat period from three years to five years
for most types of unclaimed property; and (2) would have added
additional notification requirements for holders of unclaimed
property. Asm Judiciary passed this bill by a 10-0 vote. Asm.
Approps passed this bill only after both of these provisions
were removed, leaving a much narrower bill. This bill later
died in Senate Judiciary.
AB 2642 (Niello) of 2008, as heard by this Committee, would
have: (1) extended the escheat period of most types of unclaimed
property from three years to seven years; and (2) eliminated the
transfer of unclaimed property funds to the General Fund. Asm.
Judiciary passed this bill only after both of these provisions
were removed, leaving a much narrower bill. This bill later
died in Senate Judiciary.
SB 270 (McClintock) of 2007 would have, among other things: (1)
extended the escheat period of most types of unclaimed property
from three years to seven years; (2) extended the escheat period
for unclaimed wages and salaries from one year to seven years.
This bill failed in Senate Judiciary.
SB 1259 (McClintock) of 2006 would have: (1) extended the
escheat period of most types of unclaimed property from three
years to seven years; (2) extended the notice requirement from
two years to six years of inactivity; and (3) prescribed the
form of the notice that the holder must mail to the owner of the
unclaimed property. This bill passed unanimously out of Senate
Judiciary, but was held in Senate Appropriations.
SB 1752 (Migden) of 2006 would have required the State
Controller to pay interest on the escheated property at the same
rate that the State Investment Pool would pay. This bill passed
out of Senate Judiciary (3-1), but was held in Senate
Appropriations.
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AB 378 (Steinberg) Ch. 304, Stats. of 2003, reduced the escheat
period from five years to three years for bank checks and
deposit accounts, and from three years to one year for wages and
salaries.
REGISTERED SUPPORT / OPPOSITION :
Support
California Taxpayers' Association
Opposition
None on file
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334