Between bank accounts, investments, and insurance policies, it can be easy to lose track of your assets. If you’re not careful, though, these assets could be turned over to the state through a process known as escheatment.
Let’s take a closer look at what escheatment is, how it works, and what the process typically looks like. We’ll also review some common reasons it could happen, along with tips for reclaiming escheated property—and avoiding escheatment altogether.
What is escheatment?
Escheatment is the legal process that allows a state government to take ownership of property that is lost, abandoned, or otherwise unclaimed by an owner. It typically happens when a person dies without an heir to inherit the property, or when financial accounts are inactive for a prolonged period of time (usually 3 to 5 years).
Escheatment can involve:
- Bank accounts
- Safety deposit box contents
- Uncashed checks
- Refunds for utility deposits and services
- Brokerage accounts
- Retirement accounts
- Annuity payments or contracts
- Life insurance payouts or reimbursements
- Real estate
Of course it’s best to avoid escheatment whenever possible. If it happens, many states will allow a rightful owner to reclaim their escheated property within a certain timeframe. Time limits vary by state.
What triggers escheatment?
Escheatment happens when property is legally considered abandoned. Each state defines this differently, but it typically means an account or asset has been inactive for a period of time. Escheatment can happen after:
- Someone passes away without a will or heirs to claim assets
- An account has been inactive for a period of time
- Someone moves and doesn’t notify their financial institutions about the address change
- Someone fails to cash checks, such as dividend payments, within a certain period of time
How does escheatment work?
The escheatment process can vary by state, but it typically goes like this:
1. The account goes dormant or property is abandoned
For an account to remain active, the owner must periodically engage with it in some way. This can include making a deposit or withdrawal, receiving a payment or direct deposit, initiating a transfer or transaction, logging into the account, or simply contacting the financial institution. If a few years pass without any activity, the financial institution may mark the account as dormant.
Real estate works differently. If a homeowner fails to make their mortgage payments and defaults on their home loan, the mortgage lender will likely initiate a foreclosure to seize the property. But if there’s no mortgage attached to the property, which could happen if someone pays off their home and then dies without a will or heirs, the home could be transferred to the state as part of the probate process.
2. The dormancy period begins
The dormancy period is how much time an account must be inactive (or piece of property must be abandoned) before it can be transferred to the state. In many cases, the dormancy period lasts 3 to 5 years, but it could be longer or shorter depending on the state and type of asset. For example, the dormancy period for wages in most states is shorter than for financial accounts. During this time, the financial institution or custodian is always required to contact the owner before transferring assets to the state.
3. The state takes possession
If the dormancy period ends with the financial institution or custodian failing to reach the rightful owner, the state will likely take possession of the unclaimed assets. This duty typically falls to the state comptroller, treasurer, or unclaimed property division. Once the state has taken possession of an account or asset, that doesn’t mean it’s gone forever. The rightful owner or their heirs can file a claim with the state to recover it.
Depending on the state, stocks, bonds, mutual funds, ETFs, and other securities may be sold either by the financial institution before transferring the assets to the state or by the state shortly after receiving them. If the rightful owner eventually steps forward to claim the assets, they are typically only entitled to the cash equivalent of the account’s value at the time it was turned over to the state—not to any appreciation, dividends, or interest that may have accrued had the assets not been liquidated.
Escheatment laws by state
Escheatment laws and dormancy periods vary by state and asset type. According to data that’s subject to change from the National Association of Unclaimed Property Administrators (NAUPA), the dormancy period for checking and savings accounts is typically 3 to 5 years. For securities, like stocks and funds, the dormancy period typically ranges from 3 to 7 years, with most states in the 3-to-5-year window. For wages, the dormancy period ranges from 1 to 5 years, with most states’ dormancy period lasting just 1 year. Remember these are general guidelines. It’s important to visit your state’s unclaimed property site for the most accurate and current information.
How to reclaim escheated property
If you believe you’ve had property or assets escheated to the state (or you’re the heir of someone who has), the good news is you can likely attempt to reclaim it.
States maintain databases of assets that have been escheated to them—like the CT Big List in Connecticut or the Florida Treasure Hunt. NAUPA also runs a nationwide database for unclaimed property at Missingmoney.com.
To find unclaimed property:
- Visit the relevant database for your or the deceased’s state (or Washington, DC).
- Enter your name, the deceased’s name, or a business name, depending on who or what entity originally owned the assets.
- Narrow your results by entering the town, city, or jurisdiction, if you have the option.
- If you find you have escheated property, file a claim. You can often do this online.
- Be prepared to provide evidence the asset is indeed yours. The site may list the documents you’ll need to supply.
How to avoid escheatment
Below are some simple things you can do to prevent your accounts from going dormant or being escheated:
- Maintain a list of all financial institutions you work with—and keep your accounts active. Regular engagement with these accounts can be as simple as logging into your accounts each month.
- Consider consolidating multiple accounts. For example, you might roll an old 401(k) or other workplace account from a previous employer into an individual retirement account (IRA). Keep in mind that some ERISA-governed workplace plans may offer additional protections, including delaying escheatment until you reach required minimum distribution (RMD) age. Check your plan details to understand how these rules apply before deciding.
- If you move, be sure to update each financial institution with your new address as soon as possible.
- Similarly, if you change email addresses or phone numbers, update your contact info with each financial institution.
- Respond immediately to any notices indicating your account has become dormant or inactive. Financial institutions like Fidelity are required by law to try to contact the owner of an account before the assets are turned over to the state. These communications may be sent via mail, email, text messages, and or account statement messages. Respond immediately to any notices you receive indicating your account may be considered dormant or inactive.
To prevent escheatment after death, it’s important to have a will or trust that clearly names your heirs and how you’d like your assets to be distributed after you’re gone. It’s also crucial to designate a beneficiary—and a contingent beneficiary—on every account. That can help your loved ones avoid the time-consuming probate process and ensure your assets are divided according to your wishes.