What Is Escheatment?
What is “escheat” and why should individuals be aware of it? Learn all about recovering unclaimed property from your state in this guide.
September 16, 2021
When an individual passes away, their assets are transferred to their heirs or whoever is listed in their last will and testament. But what if the individual has no heirs?
In this situation, state-level “escheat” laws come into play. What is “escheat?” It’s the legal process that unclaimed property goes through. Escheatment laws by state vary, but the basic process is designed to ensure unclaimed property ends up in safe hands — specifically, in the hands of the state.
The escheatment process is widespread. In fact, as of 2020, there’s an estimated $100 billion in unclaimed property in state coffers and billions more in assets are forfeited to states each year.
But what is escheatment, really, and what does it mean for you?
What is “escheat” or “escheatment?”
“Escheat” refers to a common law doctrine that allows state governments to take ownership of unclaimed property and/or estate assets.
The concept behind escheatment relies on the fact that property consistently has a recognized legal owner. Thus, in cases where there is no legal owner of property, the state itself becomes the owner.
Escheatment can apply to nearly any type of property, including:
Bank account funds
Physical assets such as vehicles
Unclaimed refunds and deposits
Unclaimed legal settlements
Uncashed payroll checks
The most common scenario in which the escheatment process occurs is when an individual passes away and has no rightful heir to their belongings. In this situation, the state conducts due diligence to find any rightful heirs. If none are found, the state retains possession of the property in question.
Each state has their own laws relating to the escheat process, so the specifics vary by jurisdiction.
How does escheatment of unclaimed assets work?
Escheatment laws by state vary, but this section describes some of the basic principles behind the common law doctrine.
The most common situation in which the escheatment process takes place is when an individual dies and doesn’t have a will. In this case, the estate assets are considered intestate. Intestate assets go through a probate process, in which the probate courts attempt to identify lawful heirs to the property.
If no rightful heirs are found, or the property remains unclaimed for other reasons, the probate judge will likely grant escheatment debit rights to the state government. This means the state will take legal possession of the assets in question.
In some states, escheat rights may be granted automatically if the assets remain unclaimed for a certain period of time.
Typically, escheat rights are maintained on a revocable basis. This means assets may be returned to rightful heirs, should those heirs come forward in the future to claim the property.
However, many states have a statute of limitations in place. This means that, after a certain amount of time, the assets become the permanent property of the state and cannot be claimed by heirs.
How to avoid escheatment
When you read that escheatment allows the government to take control of assets, it can seem a bit off putting. The reality is, this legal practice is reserved for situations in which there is no rightful owner or heir to the property in question.
To avoid your own assets becoming subject to escheat rights by your state, it can be wise to ensure you have a last will and testament in place. This lets you designate who should receive your property when you pass away.
Death is the most common reason for assets to enter the escheatment process, but it’s not the only one. Unclaimed legal settlements, uncashed security deposit checks, unclaimed refunds and other funds can also be held in state escheatment coffers. To claim these assets, it’s wise to routinely check with the state you live in to see if you have unclaimed property in your name.
How to recover your unclaimed property
An estimated 1 in 10 Americans have unclaimed property waiting for them. Are you one of them?
Each state in the US maintains a database of unclaimed property. You can search your state’s database using your name and city or ZIP code.
The National Association of Unclaimed Property Administrators maintains a list of unclaimed property search tools in all 50 states. Simply locate your state on their interactive map and conduct a search for unclaimed property in your state.
If you do find unclaimed funds or property, follow your state’s claims process through the linked websites. There is no escheatment fee or other costs; states will typically process complimentary ownership transfers.
Each state has its own system for dealing with these claims, but the process is relatively simple. Small claims can typically be handled online, while larger claims (unclaimed real estate, for example) may require manual verification from state officials.
It’s worthwhile to check for unclaimed property in your state, as well as any states you have previously lived in. You can check once every year or two to ensure you don’t miss out on any assets that are rightfully yours.
Now that you know all about escheatment, are you ready to learn about other interesting financial topics?
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