Escheat Process

Escheat laws require banks to transfer dormant accounts to the state.

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In English common law, the escheat process mandated the transfer of real estate from a deceased person without heirs to the crown. Historically, title to the land transferred to the feudal lord of the property. In modern days, the escheat process lives, but in a different form. In most cases, it involves banks, credit unions and investment firms. A dormant account, whether it's real estate, cash or personal property, is escheated, or transferred, to a designated state government agency.

Unclaimed Property

Financial institutions and companies must report to their state whenever real or personal property, cash or any other assets go unclaimed for a specified length of time. According to state law, after the period, often one or two years, expires, the assumption is that the owner has abandoned the asset. Instead of the state using these assets or taking title to them, the government agency responsible holds the property, providing the owners an opportunity to recover their misplaced, lost or forgotten assets.

Account Inactivity

When an account has no activity for the state-specified period, the account moves to a "dormant" status. When this happens, the entity holding the assets must report these dormant accounts -- including owner information and balance, if in cash, or an estimated value -- to the appropriate state agency. Each state has a specific form for companies to report escheatable funds or property. These reports are typically filed annually with the state government. If the account remains inactive after becoming dormant, the holder of the asset must transfer, deliver or remit the property or cash to the state.

Attempts to Locate Owners

Before considering an account abandoned or dormant, the company or financial institution must make good faith attempts to locate the account owners. While the institution can try to locate owners by telephone or the Internet, most entities will send appropriate notification to the last known address of account owners. Creating a paper trail is the best way to verify that sincere efforts to locate owners were attempted but unsuccessful.

Non-reporting Penalties

Companies must create, maintain and employ appropriate systems, policies and procedures to identify and "age" accounts of escheatable property. Since the dawn of the computer age, this formerly difficult and time-consuming requirement has become much easier and cost-effective. Institutions failing to report unclaimed property are subject to serious financial penalties, which differ from state to state. Should a company write off cash or credit memos to retain possession of the account balance or property, the laws of escheatment consider this practice unlawful or illegal. Such behavior by a company generates penalties, fines and interest charges.

State Custodians

States will hold escheated funds or property indefinitely, giving owners or heirs the opportunity to claim the assets. Most states maintain an online database of escheated accounts to help owners locate their assets. Some states still publish a paper version of all escheated accounts for which they are custodians. Owners or rightful heirs must then provide the state with evidence of their identity and relationship to the funds or property to recover the assets in escheated accounts.