What is escheat?
Escheat is the legal process by which ownership of unclaimed property or assets reverts to the government when there are no identified owners, heirs, or beneficiaries entitled to claim them. In the U.S., escheat is governed by state law (not federal law), and each state sets the types of property that can be escheated, the inactivity (dormancy) period that triggers escheatment, notice requirements, and the procedures for reporting and transferring property to the state. States also establish how—and whether—owners or heirs can reclaim escheated property later. (Sources: Investopedia; National Association of Unclaimed Property Administrators—NAUPA)
Key concepts and terminology
– Dormancy period: The length of inactivity after which an account or asset is considered abandoned/dormant. Common dormancy periods are 1–5 years, but they vary by state and by asset type.
– Escheatment: The act/process of transferring unclaimed property to the state.
– Reclamation: The process by which an owner or legal heir applies to recover property that has been turned over to the state. States may impose deadlines or allow claims indefinitely.
– Intestate: Dying without a valid will; intestate estates are settled under state intestacy laws and, if no heirs are found, may result in escheat.
– Holder: The entity holding the property (bank, brokerage, business, etc.) that has reporting and remittance obligations to the state when property becomes abandoned.
What does it mean when an account is escheated?
When an account is escheated, the state becomes the custodian (and in many cases the apparent owner) of the funds or property because the account owner and any potential heirs have not claimed it and cannot be identified. The holder is required to attempt to locate the owner, send notices, and then remit the property to the state after the dormancy period and required procedures are completed. The former owner or rightful heir can often reclaim the property from the state by following the state’s claims process and providing appropriate proof. (Sources: Investopedia; NAUPA)
Common types of property that can be escheated
– Bank accounts (checking, savings, CDs)
– Payroll or uncashed wage checks
– Uncashed checks and money orders
– Brokerage accounts and unclaimed securities or dividends
– Insurance proceeds or unclaimed life insurance benefits
– Safe-deposit box contents
– Utility deposits or refunds
– Uncashed payroll or vendor checks
– Physical property (rare, for example, real estate when no heirs are found)
(State rules differ on classification and dormancy periods. Source: Investopedia)
How escheat arises (typical process)
1. Inactivity identified by holder: A bank, brokerage, insurer, or other holder classifies an account as dormant after the specified period of inactivity.
2. Due-diligence/contact attempts: State laws typically require the holder to send notices (letters, certified mail, or other methods) to the last known address to try to contact the owner.
3. Reporting to the state: If the owner cannot be located and the dormancy period is reached, the holder prepares a report listing unclaimed property and submits it to the state unclaimed property office, together with remittance of funds.
4. State custody: The state takes custody of the property. Many states list these assets on searchable public registries (NAUPA provides a centralized search tool for many states).
5. Reclamation: An owner or heir may file a claim with the state to recover the property; the state verifies documentation and releases funds if the claim is valid. (Sources: Investopedia; NAUPA)
Example scenarios
– Bank account: A savings account shows no deposits or withdrawals and no contact with the bank for the state’s dormancy period (e.g., 3 years). The bank sends required notices. No response = account is reported as unclaimed and remitted to the state; the state lists it on its unclaimed property site. If a relative later provides proof of entitlement, the state returns the funds.
– Intestate estate: Someone dies without a will and no identifiable heirs are located through probate. A probate court may allow the state to escheat the estate; if a legitimate heir later is located, many states have procedures for reclamation subject to any statute of limitations. (Source: Investopedia)
Navigating escheat in intestate situations
– Probate court handles distribution of assets when there is a will—or when there is none (intestate). The court identifies heirs according to state intestacy statutes.
– If no heirs are found, the court can direct that property escheat to the state.
– If a rightful heir is discovered after escheat, most states provide a reclamation process; however, limits or conditions (e.g., deadlines, documentation requirements) vary by state. (Source: Investopedia)
Practical steps to prevent escheat (for individuals)
1. Keep contact information current with banks, brokerages, insurers, and employers (address, phone, email).
2. Designate beneficiaries or use payable-on-death (POD) or transfer-on-death (TOD) designations where available—these bypass probate and make claims easier.
3. Create and maintain an up-to-date will and consider trusts or transfer-on-death deeds for real property where appropriate.
4. Regularly monitor accounts and statements; respond to any “inactive account” notices promptly.
5. Track and maintain records for small accounts and uncashed checks; cash or deposit checks in a timely way.
6. Use a secure place to store estate documents and let a trusted person know where to find them. (Source: Investopedia guidance)
Practical steps to reclaim escheated assets (for owners or heirs)
1. Search for property:
– Start with the National Association of Unclaimed Property Administrators (NAUPA) search portal (unclaimed.org) and the unclaimed property website for the state(s) where the owner lived or banks were located.
2. Identify the holding state and file a claim:
– Follow the state’s specific instructions and complete its claim form (often available online).
3. Gather required documentation:
– Photo ID for claimant; proof of ownership (account statements, account numbers); proof of relationship for heirs (birth/marriage certificates, genealogy); death certificate; probate documents or letters of administration if applicable; and notarized affidavits if required.
4. Submit the claim and supporting documents:
– Many states require original or certified copies, and some require forms to be notarized.
5. Wait for verification and payment:
– Verification timelines vary—some claims are processed in weeks, others take longer, especially for complex assets like securities or real estate.
6. If claim is denied or complex, consider legal assistance:
– Real estate, securities, or claims involving multiple heirs may require an attorney or probate filing. (Sources: NAUPA; state unclaimed property sites)
Practical steps for holders (banks, brokers, insurers, businesses)
1. Maintain robust account-activity monitoring to identify dormancy.
2. Conduct required owner-contact attempts and keep documentation of those efforts.
3. Prepare and file accurate unclaimed property reports by the state’s filing deadlines.
4. Remit funds and/or deliver property in accordance with state rules.
5. Retain records; states audit holders’ unclaimed property filings.
6. Establish procedures for handling claims returned by the state (e.g., if an owner shows up after remittance). (Source: NAUPA; common state requirements)
Timing and statute of limitations
– Dormancy periods, reporting deadlines, and allowable time to reclaim vary significantly by state and by asset type. Many financial accounts become reportable after 3–5 years of inactivity, but some types of property have different thresholds.
– Several states impose statutes of limitation on recovery once property has been sold or the funds used by the state; other states allow claims indefinitely. Check the specific state law where the property was reported. (Source: Investopedia; state sites)
Important cautions and legal points
– Escheat is distinct from a creditor claim: if an estate has debts, creditors are typically paid first in probate before heirs receive assets. Escheated property may still be subject to liens or claims in some situations prior to the state taking final ownership.
– Escheat laws and procedures differ by state. Always use the state unclaimed property office that holds the asset and consult state statutes or an attorney for complex cases.
– Escheat does not mean the state benefits permanently in every case—states generally hold the property and are responsible to return it to a rightful owner who proves entitlement (subject to state rules). (Source: Investopedia)
Typical timeline example (illustrative)
– Year 0: Owner stops using account, moves away, or dies.
– Years 1–3: Holder classifies account dormant after a period specified by state law and sends notice attempts.
– Year 3 or later: If no response, holder reports and remits funds to the state; the state posts the asset in its unclaimed property database.
– Any later time: Owner or heir searches state databases and files a claim with required documentation to recover funds. (Timing varies by asset and state.)
The bottom line
Escheatment protects governments (and helps protect holders) by creating a formal process to handle property when owners cannot be located. It also creates a public safety net that preserves unclaimed assets so rightful owners or heirs can recover them. Because laws and procedures vary by state and by asset type, the most effective steps are proactive prevention (keep records, designate beneficiaries, maintain contact information) and, if you suspect property may have been escheated, searching NAUPA and the relevant state’s unclaimed property website and promptly following their claim procedures. (Sources: Investopedia; NAUPA)
Where to start searching and getting help
– NAUPA (National Association of Unclaimed Property Administrators) searchable index and guidance: unclaimed.org
– Your state’s unclaimed property office or treasury website (search “unclaimed property [state name]”)
– If an estate/probate issue is complex, consult a probate attorney or estate planner.
Primary sources used
– Investopedia: “Escheat” (definition and explanatory content)
– National Association of Unclaimed Property Administrators (NAUPA): state-by-state reporting and searchable database
If you’d like, I can:
– Look up the unclaimed property site and contact info for a specific state.
– Draft a checklist or sample claim-document packet for submitting a reclaim request to a state.
– Walk through steps for preventing escheatment for a specific account type (brokerage, bank, real estate).