Understanding Dormant Accounts and the Escheatment Process: A Step-by-Step Guide

The heart of the escheatment process is the “dormancy period.” This is where the process starts, where an asset may be first considered unclaimed, and where all due diligence efforts begin. 

It’s not an easy process, even if it is predictable. However, with the right culture and tools, you can streamline the entire process and transform it from a headache into just another part of doing business. 

This guide aims to demystify dormant accounts and the escheatment process, providing you with clear, actionable steps to effectively manage these accounts.

What Is a Dormant Account?

A financial account is considered “dormant” when it hasn’t seen any customer-initiated activity for a state-legislated period of time. This means no deposits, withdrawals, or communication from the account owner. Any account can become dormant, depending on what it’s used for:

• Checking Accounts: No transactions or checks cashed.‍
• Savings Accounts: Funds left untouched for years.
• Investment Accounts: No trades or contributions.‍
• Safe Deposit Boxes: Unopened and/or unpaid rental fees.

What Is the Difference Between Inactive and Dormant Accounts?

You may hear the words “inactive” or “dormant” used interchangeably, but they are legally distinct designations. While both inactive and dormant accounts show no activity, the key difference lies in the duration of inactivity:

• Inactive Accounts: Typically show no activity for a shorter period, such as 6 to 12 months. The institution may initiate reminders or reach out to the account holder.‍
• Dormant Accounts: Have been inactive for an extended period, usually at least 12 months. Left unattended, dormant accounts trigger legal steps toward escheatment after a period of time specified by state law (usually 3 to 5 years). 

Understanding this distinction helps in taking timely action to prevent accounts from becoming dormant and subject to escheatment.

What Is the Escheatment Process for Dormant Accounts?

Escheating dormant accounts is not merely a procedural task; it's a complex process influenced by varying state laws and regulations. Challenges include:

• Varying Dormancy Periods: Different states have different timelines for when an account becomes dormant.
• Reporting Requirements: States may require specific forms or electronic submissions.
• Penalties for Non-Compliance: Failure to comply can result in fines and reputational damage.
• Customer Relations: Mishandling dormant accounts can erode trust with customers.

These complexities necessitate a robust, efficient system to manage dormant accounts effectively.

1. Monitor Account Activity

Your first line of defense is monitoring accounts for when they enter dormancy. This includes implementing automated tracking systems and alerts so that your team has an immediate record when an account enters dormancy. This proactive approach helps in timely identification and action.

2. Start Sending Notifications to the Account Holder

It is your duty to notify the account holder about the change in status. This means reaching out via letters, emails, or phone calls that clearly outline the problem and the actions the holder should take to rectify the situation. Effective communication can reactivate accounts and maintain customer relationships.

3. Set a Time Frame for Response

Allow a reasonable period for the account holder to respond, and clearly state those deadlines in a way that both helps the customer and adheres to regulations and applicable laws.

4. Classify the Account as Dormant

If there's no response, officially label the account in your system as inactive after 12 months and dormant after 15 months. Implement security measures to protect the dormant account from fraud, in case the sudden reactivation is actually an account compromise attack.

5. Prepare Escheatment Reports for the State

Compliance requires accurate reporting. Compile all the account details, including dormancy periods and balances, and any attempts you made to contact that person. Complete any required documentation for escheatment, review for accuracy, and, when the time comes, file your paperwork with the state.

6. Transfer Funds to the State

Finalize the escheatment process. Each state has specific procedures for transferring funds, but you should always keep documentation of the transfer for future reference. Also, if the state requires, send a final notice to the account holder that the transfer is occurring.

For more insights on unclaimed property and its implications, read our detailed post on Unclaimed Property.

There's an Easier Solution. Enter Eisen.

At Eisen, we're committed to simplifying the escheatment process for you. Our Escheatment Hub is designed to automate compliance, reduce administrative burdens, and ensure you stay ahead of deadlines.

Anticipate Your Escheatment Liability Across All States

Our platform provides:

• Comprehensive Forecasting: Understand your liabilities in each jurisdiction.
• Regulatory Updates: Stay informed about changes in state laws.
• Resource Allocation: Plan effectively by knowing what's ahead.

By anticipating liabilities, you can make informed decisions and maintain compliance effortlessly.

Track the Status of Every Active, Inactive, and Dormant Account

Eisen's Escheatment Hub offers:

• Real-Time Monitoring: View account statuses at a glance.
• Automated Alerts: Receive notifications as accounts approach inactivity thresholds.
• Centralized Data: Access all account information from one dashboard.

This visibility ensures no account is overlooked, and timely actions can be taken.

Never Miss a Deadline Again

Timing is critical in compliance:

• Automated Reminders: Get alerts for upcoming deadlines.
• State-Specific Calendars: Access calendars tailored to each state's requirements.
• Task Management: Assign and track tasks within your team.

With Eisen, you can focus on your core business, knowing compliance is handled.

For a deeper dive into how the escheatment process works, check out our comprehensive guide on the Escheatment Process.

Common FAQs

Here are answers to frequently asked questions about dormant accounts and the escheatment process to support you further.

What Documentation Do We Need to Maintain for Dormant Accounts?

You should maintain:

• Account Statements: Historical records of transactions.
• Communication Logs: Records of all attempts to contact the account holder.
• Escheatment Reports: Copies of reports submitted to states.
• Transfer Receipts: Proof of funds transferred to the state.

Proper documentation ensures compliance and provides a paper trail for audits.

What Type of Transactions Reactivates a Dormant Account?

Typically, any customer-initiated activity can reactivate an account:

• Deposits or Withdrawals
• Funds Transfers
• ATM Transactions
• Contact with the Institution: Written or verbal confirmation of account awareness.

Each institution may have specific policies, and some states differ in what they consider activity, so it's essential to define these clearly as part of your process.

How Do We Handle Dormant Accounts That Hold Non-Cash Assets (Stocks, Bonds, Safe Deposit Boxes)?

Non-cash assets require special procedures:

• Securities (Stocks/Bonds): May need to be liquidated or transferred to the state's unclaimed property division.
• Safe Deposit Boxes: Contents are inventoried, and valuables may be sold at auction, with proceeds sent to the state.
• Detailed Record-Keeping: Document all actions taken with these assets.

Always consult state regulations and guidance to ensure proper handling.