Escheat, Explained: How Escheatment Works

Money can sometimes become “lost” without actually disappearing. Forgotten bank accounts, uncashed checks, insurance proceeds and other financial assets may eventually be turned over to the state through a process known as escheatment. Understanding how escheatment works, how to find unclaimed property and how to keep your accounts active can help you avoid losing track of assets that are still legally yours.

For proper estate planning, and to make sure you’ve thought through all the details, consider working with a financial advisor.

How Escheatment Happens

There are all sorts of reasons you might have lost track of money. Think of a time you switched jobs but didn’t roll over your work-sponsored 401(k) account. Or perhaps you took the money in your checking account to a new bank but forgot about that basic savings account with $100 in it. Maybe you even received a life insurance payout but didn’t realize it.

The financial institution holding your money is required to try and find the account holder. But if you’ve moved or updated your contact information since the account was opened, it may have a hard time doing so. If the firm wasn’t successful in finding you and the account remained inactive for five years, the escheatment process begins, and the institution will turn over that money to the state government.

The good news is that the money doesn’t just go into the government’s coffers for them to do as they please. Part of the escheatment process allows account owners to claim their inactive accounts – or, at least, the cash value of it. States only hold onto securities and other assets for a certain amount of time and then liquidate them to keep money from the sale.

Every state is different in how long escheatment is in effect. Along with that, different accounts have different rules for how long firms can wait to turn over assets and property to a state. Generally, though, between one and five years must pass before escheatment begins.

How to Find Old Accounts and Property

If you have lost track of a bank account, insurance payout, security deposit or other financial asset, the property may eventually have been transferred to a state through the escheatment process. States generally maintain searchable unclaimed property databases that allow individuals to look for assets being held in their name.

A good place to start is with the unclaimed property website for any state where you have lived, worked or conducted business. Searching variations of your name, including previous names or common misspellings, may help uncover accounts that were reported with incomplete or outdated information.

You can also search for property belonging to deceased relatives if you are an heir or the representative of an estate. Depending on the type of property, the state may require documents such as identification, proof of a previous address, a death certificate or paperwork establishing your legal right to claim the asset.

It can also help to review old tax returns, bank statements, brokerage records and insurance documents for evidence of forgotten accounts. Former employers may have information about unclaimed wages or retirement benefits, while financial institutions can sometimes help trace accounts that were closed, transferred or turned over to the state.

Once you locate unclaimed property, you typically need to submit a claim through the state agency holding it. There is generally no need to pay a private company simply to search public unclaimed property records, although more complicated cases involving estates or disputed ownership may require additional professional assistance.

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How to Avoid Escheatment

Escheatment usually occurs after a financial account or other property has been considered inactive for a state-defined dormancy period and the institution holding it cannot successfully reach the owner. Once that period expires, the institution may be required to transfer the property to the state. Staying engaged with your accounts and keeping your contact information current can help prevent this from happening.

One of the simplest ways to avoid escheatment is to regularly monitor all of your financial accounts, including checking and savings accounts, brokerage accounts, retirement plans and insurance policies. Even accounts you rarely use should be reviewed periodically. If you leave an employer, it can also help to decide what to do with an old workplace retirement account rather than losing track of it over time, whether that means leaving it in the former employer’s plan, rolling it into a new employer plan or transferring it to an IRA when permitted.

Keeping your personal information updated is equally important. Banks, brokerages, insurers and other financial institutions may try to contact you before classifying property as abandoned, so outdated mailing addresses, phone numbers or email addresses can make it more difficult for them to reach you. Updating your information after a move, marriage, name change or change in contact details can reduce the risk that important notices go unanswered.

You should also pay attention to dividend checks, interest payments, insurance proceeds and other distributions. Repeatedly failing to cash checks or respond to communications can sometimes contribute to an account being treated as inactive. Choosing direct deposit or automatic reinvestment, when available, may make it easier to keep assets connected to an active account.

Finally, maintaining organized financial records can help you keep track of accounts that might otherwise be forgotten. Periodically reviewing statements, tax documents and beneficiary information can make it easier to identify inactive property before it reaches the point of escheatment.

The Bottom Line

Escheatment allows states to take custody of abandoned financial property when its rightful owner cannot be located after a required dormancy period. While the property usually remains claimable, recovering it can take time and documentation. Regularly monitoring your accounts, updating your contact information and responding to financial institutions can help prevent assets from becoming unclaimed in the first place.

Tips for Maximizing Your Money

A financial advisor can take a holistic view of your money and help you put together a financial plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Organizing your various accounts, including any escheated funds, is a great first step to putting together a financial plan. Once you know how much you have in savings, you can use a retirement calculator to see if it’s enough to meet your retirement goals.