escheatment

Escheatment

Escheatment is the legal process by which a financial institution transfers unclaimed or abandoned property to the state government. When an account or asset has had no owner activity for a set period of time, typically between one and five years depending on the state, the bank or financial institution is generally required by law to turn those funds over to the state.

Each state has its own abandoned property laws, sometimes called unclaimed property laws, that define what counts as “inactive” and how long the dormancy period must last before escheatment is triggered. Common types of property subject to escheatment include checking and savings account balances, uncashed checks, certificates of deposit, and the contents of safe deposit boxes.

Why it matters

Escheatment matters because it can affect money you may have forgotten about or simply stopped monitoring. Once your funds are transferred to the state, your account at the bank is typically closed. The good news is that the state holds those funds on your behalf indefinitely in most cases, and you can generally file a claim to recover your money through your state’s unclaimed property program at no cost.

To avoid escheatment, it helps to log in to your accounts periodically, respond to bank communications, or make at least a small transaction. Most banks will send a warning notice before reporting an account as abandoned, so paying attention to your mail and email from your financial institution is important.

Example

Suppose you opened a savings account ten years ago and deposited $200, then moved and forgot about it. You stopped logging in and never updated your contact information, so the bank’s notices went unread. After three years of no activity, which meets your state’s dormancy threshold, the bank attempts to contact you one final time. Receiving no response, the bank is required to report the $200 as abandoned property and transfer it to the state. You can later visit your state’s unclaimed property website, search for your name, and submit a claim to have the $200 returned to you.

Related terms

• Dormant account: a bank account that has had no customer-initiated activity for an extended period
• Unclaimed property: funds or assets that have been abandoned by their rightful owner and turned over to the state
• Abandonment period: the length of time an account must be inactive before escheatment rules apply
• Dormancy fee: a fee some banks charge on accounts that have been inactive for a defined period
• Unclaimed property claim: the formal process a consumer uses to recover escheated funds from the state