Escheat Definition: What It Is, How It Works

Escheatment happens when the state takes ownership of unclaimed property.
Roberta Pescow
By Roberta Pescow 
Edited by Dalia Ramirez

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Escheat law, or escheatment, is the process of a state taking possession of personal property when it appears to be abandoned or unclaimed. Escheat laws vary by state, but typically it takes about five years before an asset’s ownership is transferred to the government; U.S. Securities and Exchange Commission. Escheatment by Financial Institutions. Accessed May 12, 2023.

How does escheatment happen?

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

When the owner is alive:

  1. The financial institution must make an earnest effort to locate the account owner; property doesn’t get automatically transferred to the state after sitting inactive for too long. If the property owner can’t be contacted, and the time period specified by state laws has passed, financial institutions are required by law to report the assets.

  2. 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.

  3. The original owner can make a claim against the escheatment. Filing rules vary for each state, but you’ll likely have to verify ownership of the account. If the claim is successful, you’ll receive cash equal to the value of the account at the time it was escheated, as opposed to having the original account returned to your name.

  4. If no one claims the property, the state considers the assets in the account to be state-owned property and often sells any securities held in the account.

When the owner is deceased:

  • They must have died without a will and with no heirs, 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.

  • Property acquired illegally can be escheated in some cases. When this happens, those funds are earmarked for relevant purposes, including helping victims of violent crimes or contributing to law enforcement budgets.

  • Assets left to noncitizen heirs may be escheated in very rare cases. This means that the heir of the property is not a citizen of the country where the deceased resides and cannot properly receive the assets.

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How escheat works

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, or leave a bank account inactive for a long period of time.

Here’s an example:

  • 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, married, and forgot about the checking account she had used as a student. Years passed, and the checking account was deemed dormant. The small bank 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.

Escheat of an estate

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

Here’s an example:

  • Adam was an only child who never married or had children. His parents had 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.

How to recover property if it’s been escheated

You still have a chance to get back assets that have been escheated. But because you wouldn’t have received a notification about the assets in the first place, you might not have realized any assets are missing.

  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, you can 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 may want to repeat your search every few years to catch any new claims quickly. 

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

How to avoid escheatment

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

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

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

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

  • If you close an account, be sure to withdraw any remaining funds.

  • Notify the post office and/or financial institutions you do business with immediately when your name, address, phone number or any other contact information changes.

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

  • Vote by proxy if you receive a request from a company you own stock in. Companies allow stock owners to vote by proxy in shareholder meetings; voting shows active ownership of your assets.

  • Log in to your accounts online regularly to confirm active ownership of assets.

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

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