What financial assets can be escheated?
Any financial assets you hold at a bank or investment or brokerage firm can be escheated by the state government if your account remains inactive for a given period, called the dormancy period, and the institution is unable to contact you through reasonable means. This includes checking and savings accounts; individual retirement accounts (IRAs); investment portfolios containing stock, bonds, exchange-traded funds (ETFs) or mutual funds; and other financial products, such as matured certificates of deposit (CDs), money orders, the contents of safe-deposit boxes and travelers' checks.
What Is Escheatment?
Escheatment is the process by which a government assumes ownership of an asset when the original owner is no longer able or willing to utilize it. In theory, this process is in place to prevent the unnecessary waste of funds in the event an account holder dies without leaving any beneficiaries or heirs. However, in reality, the government can escheat financial assets under far less dire circumstances.Every state has laws that require all financial institutions to report abandoned or unclaimed assets that have remained dormant for a set amount of time. The specific period may vary from state to state but is usually five years. This means if an account remains inactive for five years, and the institution is unable to make contact with the account holder, the contents of the account transfer to the state government and are considered state funds.
What Constitutes Inactivity?
The definition of inactivity varies depending on the type of account in question. For example, a checking or savings account may be declared abandoned if the account owner fails to make any deposits or withdrawals or simply does not log in to his online account for the specified period.Other types of accounts, however, are allowed to sit untended for an extended period without consequence. For example, IRAs are designed to accrue interest without any account holder participation during the accumulation phase. However, traditional IRAs require the account owner to begin taking distributions by age 70.5. If these required distributions are not taken and the account continues to sit untouched for the specified period, it can be declared inactive and escheated by the state. In some states, accounts for which mail has been returned as undeliverable may also be considered inactive or abandoned.
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