What is a 'Dormant Account'

A dormant account has had no activity for a long period of time, other than posting interest. A statute of limitations usually does not apply to dormant accounts, meaning that funds can be claimed by the owner or beneficiary at any time. Financial institutions are required by state laws to transfer resources held at dormant accounts to the state's treasury after the accounts have been dormant for a certain period of time, which varies by state.

BREAKING DOWN 'Dormant Account'

After a dormant account has no activity for a specific period of time, state law considers it to be dormant. Accounts that can become dormant include checking and savings accounts, brokerage accounts, 401(k) accounts, pension fund accounts, and other accounts for financial resources. Financial institutions are required by state laws to make an attempt to contact owners of dormant accounts using the most recent contact information. If an attempt to find the owner is unsuccessful, resources in dormant accounts become unclaimed property and must be transferred to the state's treasury department. Also, a reversion of a property or monies is transferred to the state if the owner dies intestate without any heirs.

Dormancy Periods

To become dormant, an owner of an account must have not initiated any activity for a specific period of time. Activity can include contacting a financial institution by phone or internet, logging into the account, or making a withdrawal or deposit. Periodic interest or dividends that are posted automatically on funds at checking, savings or brokerage accounts are not considered to be activity. Dormancy periods vary by state and type of account. For instance, checking, savings and brokerage accounts must see no activity for at least three years in California to become dormant, while Delaware has a five-year dormancy period for the same types of accounts.

Escheatment Process of Dormant Accounts

After the dormancy period, dormant accounts become unclaimed property. States enacted escheatment statutes that govern the process of protecting unclaimed funds from reverting them back to financial institutions. Escheatment state laws require companies to transfer unclaimed property at dormant accounts to the state general fund, which takes over record-keeping and returning of lost or forgotten property to owners or their heirs. Owners can gain back unclaimed property by filing an application with their state at no cost or for a nominal handling fee. Because the state keeps custody of the unclaimed property in perpetuity, owners can claim their property at any time.

RELATED TERMS
  1. Escheat

    The transfer of title of property or an estate to the state when ...
  2. Savings Account

    A deposit account held at a bank or other financial institution ...
  3. Chart Of Accounts

    A listing of each account a company owns, along with the account ...
  4. Linked Savings Account

    Any type of bank savings account that is linked by account number ...
  5. Automatic Transfer Service - ATS

    A banking service offered to customers that has both a general ...
  6. Account Minimum

    The minimum balance required to be maintained in an investment ...
Related Articles
  1. Financial Advisor

    Finding Unclaimed Assets: Top Tips

    Locating unclaimed money or other property for clients can be a very useful additional service that can help you to add value and grow your business.
  2. Personal Finance

    Explaining Checking Accounts

    A checking account is an account at a financial institution, usually a bank, that allows for deposits and withdrawals.
  3. Personal Finance

    Handling High-Yield Savings Accounts

    Is this the savings route for you? Read on to find out what these accounts have to offer.
  4. Trading

    Pick the Right Brokerage Account for Options Trading

    Follow these steps to pick the right options brokerage account depending on your trading needs and style of trading.
  5. Retirement

    Consolidating Your Retirement Money

    By midlife, you're likely to have accumulated a string of IRAs, 401(k)s and the like. This tutorial helps you organize them around your retirement goals.
  6. Personal Finance

    Accountant: Job Description & Average Salary

    Discover what the job description of an accountant entails, along with education and training, salary and skills necessary for success.
  7. Personal Finance

    What is an Account Balance?

    An account balance represents the total amount of money in a financial account at any given moment.
  8. Small Business

    Best Checking Accounts For Small Businesses

    What you need to know to choose the best checking account for your small business – and where to look.
RELATED FAQS
  1. How can I avoid escheatment of my bank account?

    Learn how to avoid escheatment of a dormant bank deposit by logging on to your online account, calling your bank or making ... Read Answer >>
  2. How does escheatment impact a company?

    Find out how escheatment can impact a company's bottom line, including what kinds of assets are at risk and what the penalties ... Read Answer >>
  3. Are UTMA accounts escheatable?

    Find out whether your UTMA account can be escheated, the basics of escheatment and who is responsible for maintaining account ... Read Answer >>
  4. How much money does Michigan make from unclaimed property each year?

    Learn about revenue from unclaimed property in Michigan and types of escheated accounts. Read about how Michigan handles ... Read Answer >>
  5. How much money does New York make from unclaimed property each year?

    Learn about unclaimed property accounts and the different types of unclaimed property. Read about why property accounts are ... Read Answer >>
  6. What financial assets can be escheated?

    Find out which financial assets can be escheated by your state government and how the dormancy period applies to different ... Read Answer >>
Trading Center