Escheatment is the process by which an abandoned asset passes to the state because of a failure to make a proper claim to the property under applicable escheat laws, or because the owner cannot be located.
It commonly happens when a property owner dies without any heirs, or when somebody dies without having made out a will. It can also occur if all heirs die before they can inherit their share of the decedent’s property.
If somebody dies intestate, escheatment can occur considering the different laws for each state.
Escheats are held by the government until they are claimed by family members and other interested persons that may be able to make a claim on the decedent’s estate.
Escheated funds should go first to creditors, then others with a legitimate claim on the estate, including mortgages and taxes owed, and finally, if there are still funds unclaimed, then the law will determine who gets the escheats.
Assets That Can Be Subject to Escheatment
There are a number of assets that can be subject to escheatment, including:
- properties (houses, land, or other real property)
- bank accounts (checking and savings accounts)
- cash (found or unclaimed)
- appropriations (money owed to you by the state)
- securities (stocks, bonds, mutual funds)
- unclaimed dividends, interest payments
Other examples are:
- rent (abandoned homes)
- life insurance policies
- unclaimed tax refunds, pensions, wages, insurance benefits
- safe deposit box/storage unit contents such as jewelry
- coupons (deeds, gift certificates)
Understanding the Process of Escheatment
All financial institutions must comply and declare any property that has been abandoned or left unclaimed after a period set by the state, known as the dormancy period, generally five years.
However, before they do so, they must make a concerted attempt to discover the abandoned property’s owner.
An accounting record is generated in the books during the escheatment procedure, against which the property owner may make a claim. Once the abandoned property is taken over by the state, it is liquidated and the earnings are turned over to the state.
How to Avoid Escheatment
Escheatment can be avoided by taking simple steps, here are some:
Put together a will and testament.
If an owner creates a will, then upon the owner’s death, his or her property will go to the one who is specified in the will. Make sure all wills are updated after every major life change.
Find out the escheatment laws in your state.
Being informed about the laws will help you know what you need to do so that your property will not be considered abandoned and turned over to the state.
Compile and systematize your accounts.
Maintaining up-to-date and organized records of your property will help you know if your accounts are being treated properly.
Do not forget about the accounts that you have left especially if you have moved or have been traveling. If you do not think that you will come back to the state where your assets are located, then it is best to close all your accounts and transfer your assets somewhere else.
Constantly update your contact information.
Remember to state pertinent information changes like your current address with all financial institutions and government agencies.
Make sure that your accounts are in check with your broker or agent.
For them to monitor your properties, you must make sure that they have the correct and complete details.
Maintain the active status of your bank accounts.
Be sure to use your accounts once in a while so they remain active, and do not accumulate bank fees.
In the Event of Escheatment
Unclaimed property and inactive accounts are listed online, in registries of certain states. You will receive notice from your financial institution if your unclaimed property has been escheated to the state.
It is crucial to take action right away. Reclaiming escheated monies can be a difficult and time-consuming procedure.
Even if the cash has been escheated to the state because you didn’t claim it for so long, there could still be ways for you to get hold of it. Owners can claim their property at any time since the state preserves control of the unclaimed property in perpetuity.
While unclaimed, the escheated property is not taxed; but, when it is recovered, it may be formally recognized as taxable income. Some unclaimed money, such as 401(k) or IRA investments, can be returned tax-free.
Unfortunately, states can restrict claims after a certain amount of time. States that sell assets or spend monies for their own purposes are frequently protected by statutes of limitation, which make these assets less recoverable over time.
Reclaiming Escheated Assets
Since the laws vary from one state to another, it is best that you check with your state’s unclaimed property administrator about its specific laws and proceedings on how you can reclaim your missing money. It usually consists of the following steps:
- Search the state’s unclaimed property database. Examine and match your records to those on file with the state.
- Print out a form online. Accomplish and submit it along with other requirements and account details to the claimed institution.
- Wait for a response from the claimed institution to get back to you with their findings or instructions on how to proceed and claim your unclaimed funds. The state will typically give you an option about how you want to receive your money: either all at once or through a series of payments.
- After receiving your property, do not forget to update your address with all financial institutions and government agencies.
Unclaimed property is a problem that affects many people. Fortunately, by knowing the laws that govern escheatment, you can better protect yourself against losing your assets.
It is important to check constantly for any changes in legislation, as well as your state’s policies regarding unclaimed property. By staying informed and taking the necessary measures, you ensure that you will not lose any property to the government.
Always get financial guidance from an expert before making any decisions regarding your accounts. An expert will be able to offer advice on how best to keep track of all your properties and assist you if something were to ever happen to them.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.