What is a dormant account?
A dormant account had no activity for a long period of time, other than showing interest. A limitation period does not generally apply to dormant accounts, which means that funds can be claimed by the owner or the beneficiary at any time.
Financial institutions are required by state laws to transfer resources held in dormant accounts to the public treasury after the accounts have been dormant for a certain period of time, which varies by state.
Key points to remember
- The dormant periods vary by state and type of account.
- After the dormant period, dormant accounts become the unclaimed property of the state.
- Financial institutions are required by state law to attempt to contact owners of dormant accounts using the most recent contact information.
- Accounts that may become dormant include chequing and savings accounts, brokerage accounts, 401 (k) accounts, pension fund accounts, and other financial resource accounts.
Understanding a dormant account
After a dormant account has no activity for a specific period of time, state law considers it dormant. Accounts that may become dormant include chequing and savings accounts, brokerage accounts, 401 (k) accounts, pension fund accounts, and other financial resource accounts.
Financial institutions are required by state law to attempt to contact dormant account owners using the most recent contact information by mail. If an attempt to find the owner fails, the resources in the dormant accounts become unclaimed property and must be transferred to the state treasury department. In addition, a reversion of property or money is transferred to the State if the owner dies intestate without an heir.
Example of dormant periods
To become dormant, the owner of an account must not have initiated any activity for a specific period of time. The activity can consist of contacting a financial institution by telephone or the Internet, logging into the account or making a withdrawal or deposit. Periodic interest or dividends that are automatically posted to funds in checking, savings or brokerage accounts are not considered an activity.
The dormant periods vary by state and type of account.
For example, chequing, savings and brokerage accounts must not see any activity for at least three years in California to become dormant, while Delaware has a dormant period of five years for the same types of accounts.
The process for keeping inactive accounts
After the dormant period, dormant accounts become unclaimed property. States have enacted escheatment laws that govern the process of protecting unclaimed funds from their return to financial institutions.
State conservation laws require companies to transfer unclaimed property from dormant accounts to the general state fund, which supports record keeping and the return of lost or forgotten property to owners or their owners. heirs if the owner is deceased.
Owners can recover unclaimed property by filing a claim with their state at no cost or for minimal processing fees. Since the state retains unclaimed property in perpetuity, owners can claim their property at any time.