Escheat Definition: What It Means, How It Works

Escheat is the transfer of a person's abandoned or unclaimed assets, property, accounts or money to the government, often because the person died without heirs or without naming beneficiaries. Escheatment laws vary by state, but typically it takes about five years for the state to claim someone’s assets^[0]

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Property belonging to both the living and the deceased can be vulnerable to escheatment.

When the owner is alive

• The financial institution must make an earnest effort to locate the account owner. The state doesn't automatically claim money in an account because the account is inactive for "too long." However, if the financial institution can't contact the owner and the time period specified by state laws has passed, financial institutions are required by law to report the assets to the state.

• The financial institution reports the unclaimed property to the state. The state will physically transfer the funds and hold the account as a bookkeeping entry.

• The original owner can make a claim against the escheatment. Rules vary by state, but if the owner resurfaces, they'll likely have to prove they own the account. If the claim is successful, the owner typically receives cash equal to the value of the account at the time it was escheated, as opposed to having the original account returned to them.

• If no one claims the property, the state considers the assets in the account to be state-owned property. States often sell any securities that are in the account ^[0]

  U.S. Securities and Exchange Commission. Escheatment by Financial Institutions. Accessed Jul 11, 2023.

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When the owner is deceased

1. The owner must have died without a will and with no heirs or beneficiaries, or have chosen heirs who are legally incompetent. Escheatment can also happen if there’s a single heir and that heir murders the property owner.

2. In some cases, states can escheat property acquired illegally. States often earmark those funds for relevant purposes, such as helping victims of violent crimes or law enforcement budgets.

3. In rare cases, states may escheat assets left to noncitizen heirs. This means that if the heir of the property is not a citizen of the country where the deceased resides, the heir may not receive the assets.

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Escheat during life

An asset can fall into escheat if you don’t request the return of a security deposit on your rent or utilities. Escheatment can also happen if you leave a bank account inactive for a very long period of time.

Escheat example #1

Lisa attended college out of state and opened a student checking account at a small local bank near her school. After graduation, she moved back to her home state, got married and forgot about the checking account she had used as a student.

Years passed, and the bank deemed the checking account dormant. It tried to contact Lisa but was unable to do so because Lisa had a new married name, lived in a different state and had a new phone number. The funds from Lisa’s old checking account were eventually escheated and went to the state where the bank was located.

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Escheat after death

For those who die without a will — called dying intestate — or don’t have any heirs that the estate would normally pass to during probate, the escheatment process allows the state government to take the estate. This can also happen if no living heirs can be contacted.

Escheat example #2

Adam was an only child who never married or had children. His parents died many years prior and he had no living aunts, uncles or cousins.

Adam planned to leave everything to his favorite charity, but he died before he had a chance to draw up a will. Because he had no will and no obvious heirs at the time of his passing, his entire estate went to the state by escheat.

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1. To find out if you have any unclaimed assets, visit the National Association of Unclaimed Property Administrators website. Each state has its own laws and claims procedures, so be sure to search for your name in every state you’ve lived in, and search under all names you’ve had. 

2. If any unclaimed funds come up in your searches, file a claim through the website and provide whatever information your state requires to verify your ownership of the funds. Some states place a time limit on escheatment claims, so you repeat your search every few years to catch new claims quickly. 

3. If you have questions about getting your unclaimed assets back, find contact information for your state’s unclaimed property authority on the NAUPA website, or contact an attorney if necessary.

1. Create a valid estate plan with a will that clearly designates your heirs, and update it as needed.

2. Keep a list of all your financial accounts, and actively maintain those accounts. Avoiding a dormant status can be as simple as making a small deposit or withdrawal once every year or two.

3. Keep a record of security deposits you give landlords or utilities so you can remember to request a return of those funds when you move.

4. Keep a record of employer-provided retirement accounts so you don’t forget about them when you change jobs.

5. If you close an account, be sure to withdraw the remaining funds.

6. Notify the post office and/or your financial institutions immediately when your name, address, phone number or any other contact information changes.

7. Cash dividend checks you receive, no matter how small they are.

8. Vote by proxy if you own shares directly in a company. Voting shows active ownership of your assets.

9. Log in to your accounts online regularly.

10. Respond quickly to any notices of account inactivity you receive.