What is a Dormant Account?
A dormant account refers to an account held by a customer in a bank or other financial institution that has experienced no activity, excluding potential interest deposits, over an extended period. Various reasons may include the owner forgetting about the account, relocating without updating their forwarding address, or even passing away.
A dormant account with a minimal balance might eventually be depleted due to recurring bank fees surpassing any interest generated. If not, the remaining balance is transferred to the state treasury, where it awaits rightful reclamation by the account owner.
Financial institutions must transfer funds in dormant accounts to the state’s treasury after being inactive for a predetermined time, varying by state.
Key Insights
- A dormant account signifies an account without financial activity for an extended period except for interest postings.
- Once the dormancy period, which varies by state, ends, dormant accounts are handed over to the state as unclaimed property.
- Accounts susceptible to becoming dormant include checking and savings accounts, brokerage accounts, 401(k) accounts, pension fund accounts, and more.
The Inner Workings of Dormant Accounts
Accounts that might be flagged as dormant encompass checking and savings accounts, brokerage accounts, 401(k) plans, and pension fund accounts. Safety deposit boxes can also be considered unclaimed property.
The inactivity period before an account is deemed dormant may be as brief as two years.
An account is marked dormant when the owner initiates no activity for a specific duration. Activity can mean contacting the financial institution via phone or internet, logging into the account, withdrawing or depositing money, or receiving a third-party payment.
Automatically posted interest or dividend payments do not count as activity.
What if the Bank Fails?
In the event of a bank failure, the inactive account or safety deposit box is typically held by the acquiring bank or the FDIC. In some cases, the state where the account was opened takes custody if the account is inactive. The FDIC offers online tools to locate deposits from defunct institutions.
Proactive Measures by Banks
Some states require financial institutions to attempt contacting dormant account holders using the last known contact address.
If unsuccessful, dormant accounts’ assets are turned over to the state’s treasury department as unclaimed property. For instance, in California, it takes three years of inactivity for accounts to be deemed dormant, whereas in Delaware, the period is five years.
With no statute of limitations typically applied, the funds can be claimed at any future time by the account owner or rightful beneficiary.
The Escheatment Process
Escheatment is the legal transmission of unclaimed property to the state. Account owners can reclaim assets that have been considered inactive and handed over to the state.
State-escheatment statutes outline the unclaimed funds’ transfer process, ensuring they don’t revert to financial institutions. These laws mandate the transfer of dormant accounts’ unclaimed property to the state’s general fund for safekeeping. The state then inherits record-keeping duties and facilitates returning property to owners or their heirs.
Owners can retrieve unclaimed property anytime by filing an application with the state where the account was opened at no cost. Should the state have sold the property, its cash equivalent is paid out.
Examples of State Reclamation Processes
Different states have unique processes to help individuals reclaim assets from inactive accounts handed over to the state.
California provides a searchable database for potential claimants, allowing searches by Social Security number. Florida offers its “Florida Treasure Hunt” search function.
States prefer returning unclaimed property as they maintain records but do not benefit from the cash.
Reclaiming Funds from a Dormant Account
First, contact the originating bank or institution with proper identification and proof of ownership, such as a bank statement.
If deemed inactive but not yet transferred to the state, the account can usually be reactivated.
For accounts already turned over to the state, visit the state treasury department’s website to reclaim the funds, where detailed instructions are provided.
Tracking Unclaimed Money
The National Association of Unclaimed Property Administrators (NAUPA) offers a free search tool to locate unclaimed property across all states, some Canadian provinces, and other regions like Puerto Rico and Kenya.
Other governmental and commercial services are also available; however, NAUPA represents state administrators directly involved in managing and returning unclaimed funds.
Closing a Dormant Account
Closing a dormant account is both possible and advisable to prevent depletion due to dormant account fees. Contact the institution to transfer the remaining balance to an active account.
Key Takeaway
Losing track of a bank account can easily happen due to moving, changing jobs, or other life shifts. Thankfully, mechanisms exist to manage these dormant accounts, which include eventually transferring them to the state treasury for safekeeping.
The funds remain yours indefinitely, awaiting your initiation to locate and reclaim them.
Related Terms: unclaimed property, escheatment, statute of limitations, financial accounts.
References
- Federal Deposit Insurance Corp. “Unclaimed Funds”.
- Federal Deposit Insurance Corp. “Encheatment: Where Unclaimed Assets Go”.
- California State Controller. “About Unclaimed Property”.
- Delaware Department of State. “Abandoned or Unclaimed Property FAQs”.
