What is Escheatment?

Every year, billions of dollars sitting in forgotten bank accounts, uncashed checks, and dormant savings accounts are transferred to state governments across the US. This process — called escheatment — is one of the most overlooked compliance obligations in banking, yet the penalties for getting it wrong can be severe.

What is Escheatment?

Escheatment is the legal process by which a bank transfers unclaimed or abandoned property to the state government after a defined dormancy period. Once transferred, the state holds the property in perpetuity on behalf of the original owner, who can reclaim it — in theory — at any time.

Escheatment is governed by state law, not federal law. Every US state has its own unclaimed property statute, its own dormancy periods, and its own reporting deadlines — which makes compliance particularly complex for banks operating across multiple states.

What Counts as Abandoned Property?

Banks hold a wide range of property types that are subject to escheatment:

Dormancy periods vary significantly by state and property type. A checking account dormant for 3 years may be escheatable in one state but not another.

How the Process Works

What Triggers Dormancy?

Dormancy begins when there is no owner-initiated activity on an account. The key word is owner-initiated — activity generated by the bank itself does not reset the dormancy clock. Specifically:

Activity that resets the clock

• Customer-initiated deposits or withdrawals
• Customer login to online banking
• Written correspondence from the customer
• Customer response to a bank communication

Activity that does NOT reset the clock

• Bank-generated interest credits
• Automatic fee deductions by the bank
• Bank-initiated statements or notices
• Direct deposits from third parties (varies by state)

Bank Obligations Under State Law

Banks operating in the US have a defined set of obligations under state unclaimed property laws:

1. Dormancy tracking

Banks must track owner-initiated activity at the account level and flag accounts that have crossed dormancy thresholds. For multi-state banks, this means applying the dormancy rules of the state of the owner's last known address — not the state where the bank branch is located.

2. Due diligence notices

Before reporting property to the state, banks must make a good-faith effort to locate the owner. Most states require a written due diligence notice sent to the owner's last known address between 60 and 180 days before the reporting deadline. Some states require email notice in addition to written notice.

3. Annual reporting

Banks must file annual unclaimed property reports with each state where they hold abandoned property. Report formats, deadlines, and filing systems vary by state. Most states require electronic filing through their unclaimed property portal.

4. Remittance

Along with the report, banks must remit the cash value of all abandoned property to the state. For non-cash property (safe deposit box contents, securities), the process varies — some states require liquidation, others accept delivery in kind.

Which State's Law Applies?

For banks operating across multiple states, determining which state's law applies is one of the most complex aspects of escheatment compliance. The general rule established by the US Supreme Court is:

• Primary rule: The property escheats to the state of the owner's last known address
• Secondary rule: If the owner's address is unknown, the property escheats to the state where the bank is incorporated

This means a bank incorporated in Delaware but with customers nationwide may need to file reports with all 50 states — each with different dormancy periods, deadlines, and formats.

Penalties for Non-Compliance

State unclaimed property audits are aggressive and the penalties are significant:

States frequently hire third-party audit firms working on contingency — meaning the auditors are paid a percentage of what they recover. These audits can go back 10–15 years and use estimation methodologies that inflate assessments well beyond actual unreported amounts.

The Uniform Unclaimed Property Act

While escheatment is governed by state law, most states have modeled their statutes on one of two versions of the Uniform Unclaimed Property Act — either the 1995 version or the updated 2016 version. The 2016 version introduced several significant changes including:

• Shorter dormancy periods for many property types
• Expanded due diligence requirements including email outreach
• New rules for virtual currency and stored value cards
• Clearer rules on when direct deposits reset dormancy

As of 2024, adoption of the 2016 Act has been uneven — roughly a dozen states have adopted it, while others remain on the 1995 version or their own independent statutes.

The Bottom Line

Escheatment is a mandatory, state-by-state compliance obligation that every bank holding customer funds must manage. The combination of varying dormancy periods, multi-state reporting requirements, aggressive audit practices, and significant penalties makes it one of the more operationally demanding compliance functions in retail banking. Understanding the mechanics — from dormancy triggers to due diligence requirements to remittance — is foundational for anyone working in banking operations or compliance.