BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
SB 495 (Fuller)
As Amended April 25, 2011
Hearing Date: May 3, 2011
Fiscal: Yes
Urgency: No
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SUBJECT
Unclaimed Property
DESCRIPTION
This bill would make various changes to the Unclaimed Property
Law, including:
increasing the dormancy period for safe deposit boxes
from three to five years, and requiring an additional
notice to be provided to the owner of the box;
requiring the Controller to pay interest on property
escheated to the state;
requiring the Controller to retain escheated property
with no apparent commercial value for seven years (as
opposed to 18 months);
requiring the Controller to establish a compliance
program; and
providing for the escheat of funds in a retirement
account for a self-employed individual if the owner has
reached age 70 and one-half, as specified.
BACKGROUND
The Unclaimed Property Law (UPL), 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.
The holders of unclaimed property have no interest in the
unclaimed property. (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
(more)
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holder generally uses the funds or the property as an asset.
The UPL has dual objectives: (1) to reunite owners with
unclaimed funds or property, and (2) to give the state, rather
than the holder, the benefit of the use of unclaimed funds or
property. (Bank of America v. Cory, supra, at 74; 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, 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 Civ. Proc. Secs. 1530, 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. A person with an interest in escheated
property may file a claim to recover the property from the
state. The Controller maintains a public Web site where
individuals may discover whether or not the state is holding any
of their funds or property, and may submit claims to recover the
funds or property.
This bill, sponsored by the State Controller, would make
numerous changes to the UPL that are intended to reduce the
amount of property that escheats to the state, and to facilitate
the return of property that has escheated.
CHANGES TO EXISTING LAW
1. Existing law , the Unclaimed Property Law, provides that
funds held by a business association in an individual
retirement account or under a retirement plan for
self-employed individuals or similar account or plan
established pursuant to the internal revenue laws of the
United States or of this state escheat to the state when the
owner, for more than three years after the funds become
payable or distributable, has not done any of the following:
(1) increased or decreased the principal; (2) accepted payment
of principal or income; or (3) corresponded electronically or
in writing concerning the property or otherwise indicated an
interest. (Code Civ. Proc. Sec. 1513(a)(6).) Existing law
provides that the above funds are not considered payable or
distributable unless, under the terms of the account or plan,
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distribution of all or part of the funds would then be
mandatory. (Code Civ. Proc. Sec. 1513(a)(6).)
Existing law provides that all tangible and intangible
personal property located in this state, as specified, and the
income on that property, held in a fiduciary capacity for the
benefit of another person escheats to the state if after it
becomes payable or distributable, the owner has not, within a
period of three years, increased or decreased the principal,
accepted payment of principal or income, corresponded in
writing regarding the property, or otherwise indicated an
interest. (Code Civ. Proc. 1518.) Existing law provides that
funds in an individual retirement account or retirement plan
for self-employed individuals or similar account are not
considered payable or distributable unless under the terms of
the account or plan, distribution of all or part of the funds
would then be mandatory. (Code Civ. Proc. 1518(b).)
This bill would, instead, provide that the funds are not
considered payable or distributable unless: (1) under the
terms of the account or plan, distribution of all or a part of
the funds would then be mandatory; or (2) for an account or
plan that is not subject to a mandatory distribution
requirement under the internal revenue laws of the United
States or laws of this state, the owner has attained the age
of 70 and one-half years of age.
2. Existing law provides that the contents of a safe deposit
box or other safekeeping repository, held by a business
association in this state, escheats to the state if it remains
unclaimed 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 by which the
box or repository was furnished to the owner. (Code Civ. Proc.
Sec. 1514.)
This bill would increase the holding period, from three years
to five years, of property contained in a safe deposit box or
other safekeeping repository before the property escheats to
the state.
3. Existing law requires the holder of the property in a safe
deposit box or other safekeeping repository to provide notice
to the owner that the property may escheat to the state. That
notice must be provided no less than six nor more than 12
months before the property becomes reportable to the
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Controller. The notice must contain a heading that states "THE
STATE OF CALIFORNIA REQUIRES US TO NOTIFY YOU THAT YOUR
UNCLAIMED PROPERTY MAY BE TRANSFERRED TO THE STATE IF YOU DO
NOT CONTACT US," or similar language, and include specified
information. (Code Civ. Proc. Sec. 1514.)
This bill would additionally require notice to be given no
less than two and one-half years, but not more than three
years, before the date the property becomes reportable to the
Controller.
This bill would require the notice to include a form, as
prescribed by the Controller, by which the customer may
declare an intention to maintain the safe deposit box or other
safekeeping repository by either renewing the lease, rental
period, or agreement, or otherwise taking possession of the
property from the business association. If that form is
filled out and returned, it shall be considered a claim, as
specified, and the contents shall not escheat.
This bill would provide that, in lieu of returning the above
form, the business association may provide a telephone number
or other electronic means to enable the owner to contact that
organization. The contact, as evidenced by a record on file
with the association, shall be considered a claim and the
contents shall not escheat, as specified.
This bill would authorize a business association to impose a
service charge on the safe deposit box or safekeeping
repository for the administrative costs of mailing the above
notice in an amount that shall not exceed $2 per required
notice.
4. Existing law provides that for new accounts opened for a
safe deposit box or other safekeeping repository on and after
January 1, 2011, the business association shall provide a
written notice informing the owner that the property may be
transferred to the appropriate state upon the running of the
time period specified by state law. (Code Civ. Sec. Proc.
1514(j).)
This bill would provide that if the person opening the account
has consented to electronic notice, the notice may be provided
electronically.
5. Existing law provides a process by which a person who
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claims an interest in property paid or delivered to the
Controller under the UPL may file a claim, and provides that
no interest shall be payable on any claim paid under the UPL.
(Code Civ. Proc. Sec. 1540.)
This bill would require the Controller to add interest at the
rate of five 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. This bill would
provide that no interest shall be payable for any period prior
to January 1, 1977, and state that any interest required to be
paid by the state pursuant to this section shall be computed
as simple interest, not as compound interest.
6. Existing law requires the Controller to retain delivered
unclaimed property that has no apparent commercial value for a
period no less than 18 months. Property may thereafter be
destroyed or otherwise disposed of, and no action against the
Controller or the holder of the property may be brought or
maintained. (Code Civ. Proc. Sec. 1565.)
This bill would extend the Controller's holding period for
property that has no apparent commercial value from not less
than 18 months to not less than seven years.
7. Existing law requires that every person holding funds or
other property escheated to the state must report specific
information to the Controller, including the last known
address of each person appearing from records to be the owner
of any property with a value of at least $50 that has
escheated under the UPL, as specified. (Code Civ. Proc.
1530.)
This bill would require the Controller to establish a
compliance program to identify holders of unclaimed property
who are not in compliance with the above report filing
requirements.
8. This bill would make other technical, clarifying changes.
COMMENT
1. Stated need for the bill
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According to the author:
SB 495 is intended to further address the problems and
concerns of the state's unclaimed property program by
ensuring that as much personal property as possible never
escheats to the state while helping to return property that
has escheated to its rightful owners.
2. Safe deposit box holding increased to five years; additional
notice
This bill would make two related changes regarding property held
in a safe deposit box that seek to prevent the unnecessary
escheat of property to the state.
a. Extending dormancy period
Under existing law, the contents (or proceeds of sale of the
contents) of a safe deposit box escheat to the state if
unclaimed by the owner for more than three years after either
the expiration of the safe deposit box lease, or from the
termination of any agreement by which the box was furnished to
the owner. This bill would extend that dormancy period from
three to five years, thus, providing owners with additional
time to recover items from the box before the contents escheat
to the state. The author, in support of the extension, notes
that:
Because safe deposit boxes are more likely to contain
family heirlooms, sensitive financial and legal
documents, and rare items of sentimental value, and also
because it is conceivable that safe deposit boxes are, on
average, transacted less frequently than products like
demand deposit accounts, the public would be better
served by allowing for a longer dormancy period prior to
escheatment. This would have the added benefit of
increasing the likelihood that safe deposit box
properties will be kept from escheating to the state,
thereby reducing the burden on the state in both storing
and processing them back to the owners. Additionally,
extending the dormancy period may limit possible
litigation because of the transfer of safe deposit box
contents and auction of contents before the owner has
claimed their property.
Staff notes that AB 2221 (Wolk, 2008) similarly sought to
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extend the dormancy period on safe deposit boxes from three to
five years, but was held on suspense in the Senate
Appropriations Committee after being approved by this
Committee.
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b. Additional notices
Under existing law, the business association holding the safe
deposit box must send the owner a statutory notice between six
and 12 months before the contents become reportable to the
Controller (escheat to the state). The author notes that
owners of safe deposit boxes contend that they have not
received sufficient notice that the safe deposit box property
held in their name by the holder is in danger of escheating to
the state. This bill would respond to that concern by
requiring an additional statutory notice to be provided not
less than two and one-half years, but not more than three
years, before the property becomes reportable. That
additional notice is similar to the notice requirements for
bank accounts that mandate a notice be given between two and
two and a half years, and between six and twelve months before
the interest becomes reportable.
To provide the owner with an opportunity to prevent the
escheat of the contents of the box, this bill would also
require the above notices to contain a form (prescribed by the
Controller) that would allow the customer to declare his or
her intention to maintain the box by either renewing the
lease, rental period, or agreement, or otherwise taking
possession of the property. If the form is signed and
returned, it shall be considered a claim and the contents may
not escheat. This bill would similarly allow the customer to
contact the holder of the box by telephone or other electronic
means, and allow that contact (which must be evidenced) to be
considered a claim sufficient that the contents not escheat.
To reimburse the business for the cost of mailing the notice
and form, this bill would allow the business to charge a fee
not to exceed two dollars. Consistent with the above
provision, this provision would similarly allow an individual
to make a claim to their property and prevent it from
escheating to the state.
3. Interest on claims to escheated property
Once property has escheated to the state, the owner (or an heir)
may search the State Controller's Web site and file a claim for
free. Prior to August 11, 2003, the Controller was statutorily
required to add interest at the rate of five percent or the bond
equivalent of 13-week United States Treasury bills, whichever is
lower, to the amount of any claim paid to the owner. That
provision was removed by AB 1756 (Committee on Budget, Chapter
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228, Statutes of 2003) and replaced with a statement that "no
interest shall be payable . . ." Staff notes that the provision
prohibiting payment of interest has been challenged several
times, and that recently, California's Second District Court of
Appeal, held that:
Because title to plaintiff's property was legitimately
vested in the state during the period in question, she was
not entitled to the interest earned on it. The UPL specifies
that such interest shall be paid to the general fund. (Sec.
1562.) This directive does not violate the principle that
interest "follows" and attaches to the principal on which it
is earned, because during the holding period the state has
title to the principal property. For the same reason,
retention of the interest earned by unclaimed property while
held under the UPL does not constitute a taking of private
property, as occurred in various cases on which plaintiff
relies.
. . . We conclude that the state's retention of interest
earned on unclaimed property, to which it has temporary,
nonpermanent title, does not constitute an unconstitutional
taking without compensation. (Morris v. Chiang (2008) 163
Cal. App. 4th 753, 761.)
This bill would reinstate the requirement for the Controller to
add interest at the rate of five percent per year or bond
equivalent rate of 13-week United States Treasury bills. John
Chiang, California State Controller, in support, notes that his
office has "received numerous complaints about money that was
turned over by banks which, had it continued to be held by the
bank, would have accrued interest, yet there is no interest
accrued once it is transferred to the state." The author's
office similarly notes that claimants take issue with the lack
of interest especially when it is perceived that insufficient
notice was provided, and in cases where interest would have
continued to accrue had the property remained with the holder.
Despite those arguments, this provision would require the
Controller to pay interest on funds that have been abandoned at
a time when the state is facing a severe budget shortfall.
Considering that the Controller's office is holding those funds
at no cost to the owner, and that the Constitution arguably does
not require interest to be paid on those funds, the author
should consider amending the bill to remove the requirement to
pay interest to the claimant.
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Suggested amendment
On page 17, strike out lines 10 through 39, inclusive, and on
page 18, strike out lines 1 through 20, inclusive.
4. Property of noncommercial value
Any property that escheats to the state which has no apparent
commercial value must be retained by the Controller for a period
of not less than 18 months from the date the property is
delivered. The Controller may destroy or dispose of the
property at any time after that 18-month period. The author
notes that the property can currently be held longer than the
statutory 18-month period, "but due to physical space
limitations inherent with storing property, once the minimum 18
months has been met, it is much more likely to be destroyed.
This can lead to backlash especially if the destroyed items are
of a sensitive or deeply sentimental nature."
To address concerns regarding the destruction of sentimental
items with no apparent commercial value, this bill would require
the Controller to retain those items for a period of seven years
(as opposed to 18 months). Staff notes that this significant
extension of the timeframe could prevent the destruction of
personal, irreplaceable items, but also would appear to require
a significant amount of storage space. Despite that arguable
increase in demand for space, the California State Controller,
sponsor, supports the extension and notes that his "office
frequently receives complaints from property owners that their
property was destroyed because it had no commercial value before
they even knew that the state had the property." Staff notes
that for property escheating from safe deposit boxes, this bill
would enhance the notice required under existing law so that
these sentimental items would be less likely to escheat. (See
Comment 2(b).)
5. Compliance program
This bill would also require the Controller to establish a
compliance program to identify holders of unclaimed property who
are not in compliance with the unclaimed property filing
requirements of the UPL. From a policy standpoint, failure of a
holder to comply with the reporting requirements would act to
frustrate or delay the discovery of the unclaimed property by
the owner. The author's office further notes:
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�E]ach year Controller's Office staff spends time working
with holders to correct report discrepancies which delays
the property being made available for the rightful owner to
claim. Increased holder reporting compliance is consistent
with the mission of reuniting owners with their unclaimed
property and protecting consumers by safeguarding their lost
or abandoned assets. It is also consistent with the
Controller's fiscal responsibility to promote a fair and
equitable business climate.
6. Remaining provisions
Under existing law, when an individual opens a new account for a
safe deposit box, the business association must provide a
specified written notice to that individual. This bill would
additionally allow a business association to provide that notice
electronically, provided that the person consented to electronic
notice. That notice informs the person that the contents of the
box escheat upon the running of the specified timeframe. Since
email addresses can change over time (or simply be unavailable),
the author should consider amending the bill to clarify that the
notice may be provided electronically as long as the electronic
notice is not returned as undeliverable.
Suggested amendment:
On page 12, line 30 before the period, insert:
unless the electronic notice is returned as undeliverable
The bill would also provide for the escheat of funds in an
individual retirement account or a retirement plan for
self-employed individuals if the owner has attained the age of
70 and one-half years of age, provided that the account plan is
not under a mandatory distribution requirement. That provision
provides an alternative to the existing requirement that those
funds only escheat if the distribution of all or part of those
funds would be mandatory.
Support : None Known
Opposition : None Known
HISTORY
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Source : California State Controller
Related Pending Legislation : None Known
Prior Legislation :
AB 2221 (Wolk, 2008), see Comment 2a
AB 1756 (Committee on Budget, Chapter 228, Statutes of 2003),
see Comment 3
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