UK: Reminder: New California Disclosure Requirement Regarding Unclaimed Property

This is a reminder that effective January 1, 2011, California's unclaimed property law will require that banking and financial organizations (including mutual funds) provide written notice to persons opening new accounts that their property may be transferred to the appropriate state (i.e., escheated) if no activity occurs in the account within the time period specified by state law.¹

To comply with this new account notice requirement, fund groups are typically adding disclosure to shareholder subscription application forms which follows the language in the California law.² We understand that some fund groups will also include this disclosure in their new account welcome letter. We note that the new account notice is not required to be disclosed in a fund's summary prospectus or statutory prospectus.

An amendment to a related provision of California's unclaimed property law concerning due diligence notice requirements also went into effect recently. Banking and financial organizations are required to make reasonable efforts to notify account owners, at prescribed times, that their property will escheat. Effective November 1, 2010, the amended due diligence notice requirement specifies the content and format of the notice's heading.³

We note that the application of state escheatment laws to mutual fund shareholder accounts can raise complicated questions, particularly with respect to which state's escheatment laws should apply and what type of account activity is sufficient to prevent escheatment. The addition of the disclosure required under California law may prompt questions from shareholders regarding the application of escheatment laws. Please contact the Dechert attorney with whom you regulary work if you would like to discuss any of these matters.

Footnotes

1. See Cal. Code of Civ. Proc. § 1513.5(e). This notice may be provided electronically if the person opening the account has consented to receiving electronic notices.

2. Section 1513.5(e) requires banking and financial organizations to provide "a written notice to the person opening the account informing the person that his or her property may be transferred to the appropriate state if no activity occurs in the account within the time period specified by state law."

3. See Cal. Code of Civ. Proc. § 1513.5(b) (requiring that the face of a due diligence notice include a heading at the top which 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 substantially similar language). In comparison, the new account notice requirement under Section 1513.5(e) does not require a specific reference to the State of California.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.