United States

Delaware addresses unclaimed property VDA in light of Temple-Inland

Provides for holder-friendly changes to voluntary disclosure program


As of Aug. 26, 2016, Delaware Secretary of State Jeffrey W. Bullock began sending out a statement to all currently enrolled holders in the Delaware unclaimed property voluntary disclosure program discussing changes to the program in light of the Temple-Inland litigation. In that litigation, the U.S. District Court determined that the state’s unclaimed audit procedures and techniques “shocked the conscience” in violating substantive due process. However, the case was recently dismissed due to a settlement between the parties and before a remedy to the state’s audit procedures could be determined by the judge. For more information about the Temple-Inland litigation and settlement, please read our alert, Temple-Inland’s Delaware unclaimed property audit challenge dismissed.

The secretary’s statement acknowledges that Temple-Inland did not involve an unclaimed property holder in the voluntary disclosure program, but states that he did not want to “ignore the seriousness of some of the issues raised” by the litigation. One of the audit practices questioned in Temple-Inland was the state’s use of ‘estimation’ in determining a holder’s Delaware liabilities. The statement discusses the ‘bright-line rule’ used in voluntary disclosure that provides no estimation is involved for non-Delaware domiciled entities, and that when estimation is used, the liabilities are reportable to the holder’s state of incorporation or formation. Additionally, the statement points out that when entering into a voluntary disclosure settlement agreement, a holder is provided a release that indemnifies the holder for all future claims by another state on the estimated unclaimed property, thereby preventing a risk of a holder paying the same unclaimed property to more than one state.

The secretary also notes that a number of unclaimed property audit and disclosure changes have been made in the past few years including the secretary of state’s voluntary disclosure program created in 2012, a shorter look back for audits, and offering all holders the opportunity to enter into voluntary disclosure before an audit commences. Based on Temple-Inland, the secretary intends to propose additional changes to the General Assembly including a more favorable look back period, a record retention policy tied to the statute of limitations, and possibly a negative reporting requirement. However, even without the statutory support, the secretary will begin to provide voluntary disclosure settlements based on a look back period of 10 years plus dormancy from the date a holder enrolled in the voluntary disclosure program.


While the secretary’s statement does not appear to be publicly available yet, holders currently enrolled in the voluntary disclosure program are expected to receive the statement the week of Aug. 29, 2016, if not earlier. Although disappointing that the statement does not address any changes to estimation methodologies, holders in the voluntary disclosure program should take note of the holder-friendly changes, namely, voluntary disclosure agreements settled on a 10-year, plus dormancy, look back period from the date a holder enrolls in the program. That look back is a reduction from the current period that look backs to 1996, and a reduction from the planned 19-year rolling look back originally scheduled to begin Jan. 1, 2017.

Holders will also want to keep track of the additional changes that will be proposed through the legislative process once the Delaware General Assembly reconvenes in January 2017. Holders should speak to their unclaimed property advisors about how the statement may impact their current or future voluntary disclosure agreements.


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