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.

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