Delaware and Foreign-Addressed Unclaimed Property

Delaware Senate Bill 267, signed into law and made effective on August 15, 2024, made several important revisions to Delaware’s unclaimed property law, particularly as it relates to foreign-addressed property.

The priority rules, or jurisdictional rules, were established in 1965 by the Supreme Court in Texas v. New Jersey (379 U.S. 674 (1965)) and determine which state has the right to take custody of unclaimed property.  Under the first priority rule, unclaimed property is reported to the state of the owner’s last known address, as shown in the books and records of the holder.  Per the second priority rule, if the owner’s last known address is unknown, the property is reported to the holder’s state of domicile.  Notably, the Supreme Court has not directly opined as to whether states have the right to take custody of foreign-addressed property, though reporting such property to the holder’s state of domicile has been viewed as a “rational extension” of the second priority rule.

In SB 267, Delaware defines a foreign country, or foreign jurisdiction, as any foreign country or jurisdiction or subdivision of a foreign country or jurisdiction which is not a state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States.

Additionally, Delaware revised its jurisdictional rules such that the State Escheator may take custody of property presumed abandoned in Delaware, another state or a foreign jurisdiction if the holder is domiciled in Delaware and any of the following circumstances exist:

• Another state or foreign jurisdiction is not entitled to the property because there is no last known address in the holder’s books and records for the owner;
• The state of the last known address of the owner does not provide for the custodial taking of the property; or
• The last known address of the owner is in a foreign jurisdiction that does not provide for custodial taking of the property.

Moreover, SB 267 added that property is not subject to custody of the State Escheator if such property is specifically exempt from custodial taking under Delaware law or the law of the state or foreign jurisdiction of the owner’s last known address.

Delaware also modified the holder indemnification provision, providing that the holder will be indemnified against a claim if the property was paid or delivered in good faith, but only up to the value of the property at the time it was escheated.  Holders are not indemnified against penalties or interest imposed by another state or for legal fees or expenses incurred in connection with the claim.  And there is no indemnification for property that was reported and delivered early.

Importantly, SB 267 redefines “good faith” as a reasonable attempt by the holder to comply not only with Delaware’s unclaimed property law, but also with any other applicable law, including relevant decisions of the Supreme Court and the applicable law of any foreign jurisdiction.

Given these significant changes to Delaware’s unclaimed property law, holders domiciled in Delaware may wish to review their processes and procedures as they relate to the escheatment of foreign-addressed property.  Factors to consider include:

• Property types, particularly securities and virtual currency. Foreign shareholders are not often aware of state unclaimed property laws and may not receive notice of potential escheat.  As a reminder, Delaware is permitted to liquidate securities (delivered to the state on or after July 1, 2017) “as soon as the State Escheator deems practicable.”   Holders are required to liquidate virtual currency within 90 days of filing the unclaimed property report. For both securities and virtual currency, owners have no recourse to recover post-liquidation gains in value.
• The lack of guidance provided by Delaware as to (i) which foreign jurisdictions property should be reported for those jurisdictions that require reporting, and (ii) foreign jurisdiction exemptions available to the holder (e.g. which property types are exempt from reporting).
• The new limitations on the holder indemnification provided by Delaware.
• The risks of not reporting to Delaware if reporting is required (penalties and interest, audit risk, etc.).

MarketSphere Unclaimed Property Specialists are experts in their field and can help you assess your risk regarding foreign-addressed property. They will also guide you through your options and the necessary next steps. Contact Us to connect with one of our specialists.

Content contained in this article is considered accurate as of the publish date.