What is Escheatment? Definition, Examples, and Best Practices for Compliance

What happens when unclaimed property sits for a while? Well, if it’s just some lost and found, then anything can happen. When it comes to more important assets like bank accounts, unclaimed wages, safety deposit boxes, money orders, and other funds, there are escheatment laws that protect consumers while still providing the state with some flexibility for claiming unclaimed property.

In this guide, we’ll dive deeper into escheatment. We’ll cover examples of escheatment and the steps you need to take to ensure you meet your regulatory requirements.

Let’s dive in.

What is Escheatment?

Escheatment is the process by which unclaimed property is transferred to the state after a dormancy period, during which time the managing institution must make reasonable attempts to reach out to the owner.

The dormancy state isn’t just a ticking clock the government can use to gobble up money. It’s a time under which a financial institution records no transactions or interactions with the owner.

Escheatment laws differ from state to state, but annual reporting is mandatory no matter where you’re located. Financial institutions must perform their due diligence, sending notifications to the last available address connected to the owner and reporting these assets to the state.

Examples of Escheatment

When your financial institution fails to contact a property owner, you must “escheat” that property (or turn it over to the proper jurisdiction). Failure to do so is a massive breach of regulations and can end up in fines or other penalties.

So, what kind of property do you have to monitor for potential escheatment?

• Dormant bank accounts: When a customer does not use a bank account for a certain period, the account is considered dormant, and the funds may be escheated to the state.
  
• Uncashed payroll checks: Uncashed payroll checks aren’t considered dead and forgotten – these are financial assets that must be reported.
• Unclaimed insurance benefits: Insurance policies where the beneficiary cannot be located or is unaware of the policy can become escheatment cases after the required waiting period.
• Customer refunds: Refunds that have been issued but remain unclaimed by the recipient, such as escrow refunds or rebate checks, can be subject to escheatment.
• Safe deposit box contents: If a customer does not access or pay for a safe deposit box over a long period, the contents may be escheated to the state.

5 Recommended Steps to Ensure Escheatment Compliance

So, when managing your escheatment process, it’s very important to get proactive about compliance. You should follow these five key steps to ensure escheatment compliance and avoid penalties.

1. Identify Dormant Accounts and Assets

The first step is to identify accounts or assets that have gone dormant. You must closely follow state-specific rules regarding dormancy periods for different types of property, such as checking accounts, escrow balances, or uncashed checks. Regularly reviewing and auditing account activity helps catch dormant accounts early.

2. Perform Due Diligence

Once dormant accounts have been identified, the institution must attempt to contact the owner. In many cases, this can be like finding a needle in a haystack. Regardless, you must keep detailed records of these efforts, as they are required to prove that due diligence was performed before the property can be escheated.

3. Report Unclaimed Property

After performing due diligence, if the property remains unclaimed, the next step is to report the unclaimed property to the appropriate state authorities. This report must include information such as the owner’s last known contact details, the type of property, and its value. Make sure to follow each state’s specific reporting procedures.

Check out Eisen’s guide to escheatment laws by state.

4. Remit Unclaimed Property to the State

You must remit the unclaimed property to the state’s unclaimed property office. Each state has specific guidelines for how and when to transfer the funds or assets. Once transferred, the state will hold the property until the rightful owner, or their heirs claim it.

5. Maintain Detailed Audit Records

Institutions are required to maintain comprehensive records of the escheatment process, including account details, owner information, notification attempts, and transfer documentation. These records are critical in case of an audit, ensuring that the institution can prove compliance with escheatment laws.

Escheatment Is a Necessary but Manageable Process

Escheatment is a complex process that requires close attention to each state’s rules, procedures, and timelines. 

These regulations can vary by industry account type. Businesses should proactively manage the unclaimed property and staying on top of state-specific escheatment requirements, minimizing regulatory risks and avoid penalties. Implementing best practices, such as regularly auditing accounts and using automated tools, ensures that your institution remains compliant.

Set Escheatment on Autopilot with Eisen

Escheatment sounds intimidating, but the reality is that it’s just another cost of doing business for financial institutions. Eisen simplifies the process by enabling you to stay compliant while minimizing manual work. With our escheatment automation platform, you can streamline unclaimed property identification, reporting, and remittance.

Forecast Your Escheatment Liability for Each State

Eisen provides a clear forecast of your escheatment liabilities based on state-specific rules. This allows you to plan for potential liabilities and avoid unexpected fines.

Monitor the Status of Active, Inactive, and Dormant Accounts

Eisen’s platform helps you track every account’s status—whether active, inactive, or dormant. This real-time tracking gives you complete visibility into your account portfolio and ensures that no account is overlooked.

Ensure You Never Miss an Escheatment Deadline

Our system sends automated alerts for upcoming escheatment deadlines, so your institution can stay ahead of the reporting schedule and ensure timely transfers to the state.

Common FAQs

How do we determine when an account or asset is eligible for escheatment?

The eligibility for escheatment depends on the asset type and the state-specific dormancy period. Most states require an account to be inactive for a set number of years before it becomes eligible, and it’s up to you to monitor accounts to stay ahead of when they enter their dormancy period.

What systems or software can we use to automate escheatment compliance?

Eisen’s escheatment automation solution is designed to streamline the entire process, from tracking dormant accounts to forecasting escheatment liability and ensuring timely reporting. Automated solutions like Eisen reduce non-compliance risk and make the process much more efficient.

How frequently should we audit our accounts for escheatment compliance?

It’s best practice to audit your accounts at least quarterly to ensure no dormant accounts are overlooked. Frequent audits help you catch potential escheatment cases early and perform due diligence before the reporting deadline.