The term “escheat” describes a situation wherein a property owner dies without leaving a will, and without legal heirs, and so his property becomes the property of the state. For example, escheat happens when a person has no beneficiaries. Escheat may also happen in a situation where there is money in a bank account that has gone unclaimed for years, though the account owner would be able to reclaim it if he were to come forward. To explore this concept, consider the following escheat definition.

Definition of Escheat


  1. The reversion of a person’s property to the state upon his death, provided he does not have a will.


1250–1300       Middle English (eschete)

Escheat of Unclaimed Financial Assets

The escheat of unclaimed financial assets occurs when a bank account has not gone dormant and there is still money left in it. In this case, the state would take over the ownership of the funds, making them escheated funds. Of course, before the state would transfer the money, the law requires that the bank make every possible effort to contact the owner of the account, and on multiple occasions. Once the bank has sent out the required number of reminders and notices, if the account owner doesn’t turn up, then the state would escheat the funds.

Each state’s law determines the amount of time that must pass before such a transfer can occur. State law also determines the specific factors involved with escheating the money, such as the required number of notices, how the bank delivers the notices, and so forth.

Reversing Escheated Funds

If the account owner does pop up at some point in the future, he can reclaim escheated funds. In most cases, the bank can reverse the escheat. Some states keep records on file that list the accounts that banks transferred. The account owner may still be able to claim escheated funds, but it is ultimately up to the state to decide. Some states may no longer have the money available, as they may have needed it to fund state activities. If that’s the case, then the account owner is out of luck for having not responded sooner.

Escheated Property

It’s not just money that the state can claim, but property as well. Property is unclaimed if no one has claimed it by the end of the “dormancy period.” The dormancy period is the time that passes between when the bank first reports the property as unclaimed and the government confirms it. Typically, for most states, this is about five years. This means that a person has five years to claim property from the time the bank reports it as unclaimed. Else, after that five years is up, the state can then escheat the property.

Unclaimed property may be more difficult to reconcile insofar as attempting to contact the owner of the property. For example, escheat typically occurs because the person’s mailing address may have changed since the bank first declared the property unclaimed. For this reason, the state may decide not to attempt to contact the property owner and just allow the dormancy period to run.

Types of unclaimed property that states can ultimately escheat include:

  • Payroll checks
  • Dormant stocks
  • Checking and savings accounts
  • Funds from Court proceedings

There are several reasons why property like this may go unclaimed, including:

  • The death of the property owner
  • A failure to submit a forwarding address upon moving
  • Simply forgetting the account exists

One unpleasant side effect of reclaiming dormant property is that the owner may be subject to certain taxes on that property. While the property is unclaimed, no taxes are imposed. However, once the owner reclaims the property, he may have to claim that property as separate income on his taxes. He may be able to reclaim some properties tax-free, like 401(k) investments or IRAs.

Escheatment Process

The escheatment process works like this: every state requires its banks and other financial institutions to report when personal property has gone unclaimed past the dormancy period specified by that state. As mentioned earlier, this period is usually five years. Before a bank marks the account as abandoned, the bank must make every attempt to try to locate the owner of the account. If the bank is unable to reach the owner, and the account has been inactive for the time period specified in that state’s law, then the bank must report the account to the state. The state then takes over the ownership of the account by way of escheatment.

As part of the escheatment process, the state will keep a record of the account so that the account owner can come back at some point and make an ownership claim to take back the account. States often utilize the monies associated with escheated accounts as state funds. If the account owner comes forward, the state will then give the owner the cash equivalent of the face value of the account when the state escheated it.

Anyone can run a search to see if there are unclaimed funds out there in their name. The National Association of Unclaimed Property Administrators allows visitors to search by state to see if they are entitled to any unclaimed funds. Each state has its own rules insofar as allowing citizens to claim previously unclaimed property. Typically, the state will require an individual to provide information that verifies his ownership of the unclaimed property. From there, the state will either mail that individual a claim form or will permit the person to fill the form out online so that he can print it out and submit to the state.

Escheat Example Involving a Dispute Among States Over Unclaimed Funds

Perhaps the most famous example of escheat is the case of Texas v.New Jersey, which the U.S. Supreme Court heard in 1965. Here, the issue that the Court was to hear concerned which state was legally entitled to escheat the property at issue. The problem was that Sun Oil Co., located in Texas, had unclaimed property – mostly checks that were either unclaimed or uncashed – in an amount exceeding $26,000.

Some of the payments dated back 40 years prior to the Supreme Court hearing the case, and there were over 1,700 creditors who could potentially lay claim to these funds. The last known address for these creditors was in Texas.

The problem was that Sun Oil Co. incorporated in the state of New Jersey, but they ran their corporate offices out of Pennsylvania. So which state had the right to escheat the unclaimed funds: Texas, New Jersey, or Pennsylvania? The state of Texas brought the case straight to the Supreme Court under Article III, section 2 of the Constitution, which gives the Court jurisdiction over cases that occur between the states. The Court agreed to hear the case.

New Jersey’s argument was that the ability to escheat should lie with the debtor’s state of incorporation, i.e. New Jersey.