Key Takeaways
- Escheatment is the process by which a state seizes control of an individual’s assets after a designated period of inactivity.
- Recent changes in escheatment laws have made state seizure of assets more common.
- An experienced financial advisor will regularly review your assets and accounts to help you avoid escheatment.
Many people assume their bank accounts, investment holdings, uncashed checks and insurance proceeds are safely maintained until they need them. However, you may be surprised to learn that each state has laws that allow it to take custody of property that is deemed abandoned after a period of inactivity. The process by which this seizure occurs is referred to as escheatment.
Escheatment was originally intended as a consumer protection measure to reunite owners with forgotten assets rather than leave them indefinitely in unused accounts. However, escheatment has evolved over time, and many states now aggressively pursue it as a meaningful source of revenue. This approach creates a real risk that your asset could be transferred to the state without your knowledge.
How Escheatment Works
Escheatment may occur when an account or asset experiences no owner-initiated activity for a certain period of time, known as the dormancy period. Once the dormancy period is reached, the asset holder (bank, broker-dealer, employer, insurance agent, etc.) must attempt to contact the owner. If contact fails, the property is reported and remitted to the state of the owner’s last known address.
Dormancy periods vary by state but are typically one year for wages or payroll checks and three to five years for bank accounts, brokerage accounts, securities and other financial assets. Examples of property commonly subject to escheatment include:
- Checking and savings accounts
- Certificates of deposit
- Brokerage accounts, mutual funds and individual securities
- Uncashed dividends, interest and refund checks
- Insurance proceeds
- Contents of abandoned safe-deposit boxes
- Certain retirement account assets
Once transferred, the state becomes the custodian of the seized property. In many cases, the owner or heirs can still claim the assets at a later date, but the process can be time-consuming and requires significant documentation.
Also, it is important to note that when a state obtains securities and investment accounts, it often liquidates assets quickly. When that occurs, a successful claim typically returns only the cash value realized at liquidation, not any subsequent market appreciation, dividends or compounded growth.
Why Escheatment Has Become More Common
There are two main reasons why escheatment has become more common in recent years. First, many states have shortened their dormancy periods. Historically, a common dormancy period for securities or bank accounts was five years; however, many states have shortened this period to just three years.
Second, previous escheatment laws required that asset-related mail be returned as undeliverable to justify account inactivity. Today, many states consider inactivity as the absence of owner-initiated contact, such as a login, transaction or direct response to inquiry.
These changes have increased the value of property flowing to states, which has become a notable revenue source for certain jurisdictions. Many states have also intensified their enforcement of escheatment laws by adding more frequent audits, outreach letters, disclosure programs and the assessment of interest and penalties on asset holders. Some states have even expanded escheatment laws to cover digital assets.
An unfortunate result of the rise in escheatment is that disciplined, long-term investors may be subject to asset seizures for simply allowing their assets to grow untouched.
How a Financial Advisor Can Help
An experienced financial advisor who regularly reviews your holdings can help you avoid escheatment in several ways, including:
- Ongoing monitoring of assets and accounts –Through regular reviews, your financial advisor can help ensure accounts demonstrate the required regular owner-initiated contact.
- Consolidation and organization – Maintaining accounts at multiple institutions can increase the chance of assets falling into dormancy. Your financial advisor can bring holdings under coordinated oversight in order to better organize and track your assets.
- Multistate and multigenerational planning – An experienced financial advisor can track accounts across multiple states and generations to help ensure they are updated with your recent contact and ownership information.
- Basic account maintenance – A financial advisor will regularly confirm that the proper addresses, phone numbers, email addresses and beneficiary designations are reflected across all accounts.
- Claims assistance – If property has already been escheated, your financial advisor can help coordinate the recovery process and reinvest assets to ensure they align with your overall financial plan.
Practical Steps to Avoid Escheatment
In addition to seeking the assistance of a qualified financial advisor, there are several steps you can take to avoid escheatment, such as:
- Confirm that every financial institution, past employer and insurer has your current address, phone number and email.
- Regularly log in to all accounts, respond to notices or initiate a small transaction to show activity.
- Search free databases, such as MissingMoney.com, to identify any unclaimed property in your name or the name of a loved one.
- Review old bank statements, retirement plan documents and employer records for any accounts you may have forgotten about.
- Ask your financial advisor to initiate an activity review, especially if you have recently moved, changed your name, changed jobs, consolidated accounts or experienced the death of a family member.
Could you use some help reviewing your accounts for inactivity and outdated contact information? United Capital Financial Advisors is here for you. Please schedule a call to learn more.
