Escheat is a legal term that refers to the right of a government to claim assets that are unclaimed, abandoned, or left by individuals who die without a will and without any identifiable heirs.
Escheat laws vary by jurisdiction, but in many places, if certain types of property or assets have been inactive for a certain period of time (such as bank accounts where no transactions have been made or checks that have not been cashed), and attempts to contact the owner have failed, that property may be considered “unclaimed.” It can then be seized by the state under escheat laws. The theory behind escheat is that it’s better for the property to be used in a way that benefits the public (like being added to the state’s general fund) rather than remaining unused.
However, most jurisdictions have processes in place that allow rightful owners or heirs to claim escheated property if they can provide sufficient proof of ownership. If you think you might have unclaimed property that has been escheated to the state, you can usually check a state’s unclaimed property database and file a claim if you find property that you believe is rightfully yours.
It’s worth noting that the escheat process is usually a last resort, after attempts to find the rightful owners or heirs have been exhausted.
Example of Escheat
Let’s say John, a resident of California, had a savings account that he hadn’t used in over 5 years. He also had not responded to any communication attempts from the bank during this period.
According to California law, if there has been no activity on a bank account for three years and the bank can’t contact the account holder, that account is considered abandoned.
As a result, the bank would report this account to the California State Controller’s Office under the state’s unclaimed property law. The funds in the account would be transferred to the state (a process known as “escheatment”).
Now, let’s imagine that John remembers about this account a few years later and wants to reclaim his money. He would go to the California State Controller’s website and search for unclaimed property in his name. If he finds a match, he can submit a claim to recover his funds.
In this example, escheatment safeguards the funds by transferring them to the state, where they can be claimed by the rightful owner instead of sitting unused at the bank or potentially being seized by bank fees.