What Is Escheat? Definition And Explanation

Escheat is a legal term referring to what happens to property (real estate or otherwise) when a property owner dies without any inheritors. The concept of escheat allows property such as real estate or bank accounts, or even renter’s security deposits, to revert to government ownership. If you’re wondering how to pronounce “escheat,” it’s pronounced es-cheat – with the accent on the first syllable. The second syllable is pronounced exactly like the word “cheat.”

Now that we know how to say it, let’s figure out what escheat really is.

Understanding Escheat

Escheat is a legal term that goes back to English common law. It deals with what happens to property if the property goes unclaimed. This scenario can come about when a person dies intestate – that is, without a final will. But other circumstances can also lead to escheatment, as you’ll see.

What Is Escheat In Real Estate?

In real estate, escheat refers to the government’s right to take or claim property that doesn’t have a clear owner (though escheat isn’t limited to real estate property). This most commonly occurs in real estate when a property owner dies without naming heirs or without explicitly leaving a property to another person or organization through their will. When this happens, the government can take possession of the property.

Dying Without A Will Vs. Dying Heirless

When someone dies without a final will, it doesn’t mean that their property automatically gets claimed by the government. In fact, for someone without heirs, finding heirs through the probate process (generally, children or close family members) will often prevent the property from being escheated to the government.

Keep in mind that states have different laws around escheatment. Be sure to research the escheatment laws where you live to verify whether you have the correct information.

Escheat Examples

One example of a situation where escheatment can come into play is a real estate property owner dying without anyone to inherit the property. If no heirs can be found after a certain period of time, the government can assume ownership of the abandoned property. It’s then considered escheated property.

Financial Assets Can Be Escheated

It’s not just real estate that can be escheated. Examples of financial assets that can go into escheatment include brokerage accounts, trust funds and retirement accounts. Unclaimed checking or savings accounts can also go into escheatment.

If you close a bank account without withdrawing all the funds, it’s possible for those funds to go into escheatment. This can happen in cases where a bank closes your account due to inactivity. Rather than sending the funds from your account to your last known address, financial institutions will turn these unclaimed property funds over to your state.

Rent Or Utility Deposits Can Be Claimed

Rent and utility deposits are other common examples of where personal property funds can be escheated. When you leave an apartment, landlords or utility companies generally have a certain amount of time to refund your deposit. If they can’t locate you, they may turn the funds over to the state’s unclaimed funds department.

Other Circumstances That Lead To Escheatment

States can use escheatment in other situations besides dying intestate or forgetting about a deposit. For example, escheatment can allow the government to take property if:

• The deceased’s heirs are legally incompetent
• The deceased acquired the property using resources they acquired illegally, or they otherwise acquired the property illegally and rightful owners can’t be found
• The sole heir is convicted of killing the decedent

How To Avoid Escheatment

The easiest way to avoid escheatment is to establish a will early on. Make sure you appoint clear beneficiaries or legal heirs who can inherit your property and assets when you pass away. If you don’t have close friends or relatives in mind, you can always leave your assets to a charity or cause you’re passionate about.

You can also protect your monetary assets by keeping up with all your checking, savings and investment accounts. One way you can monitor your accounts is by linking all of your financial institutions to an app, such as Rocket Money^SM. As long as your accounts are active, the government can’t have them escheated. If you need to close one for any reason, make sure you withdraw or transfer the funds at closing.

If you receive a notice from a financial institution – such as your bank or investment brokerage firm – about dormant accounts in your name, contact the bank as soon as possible. Banks will notify you if an account is going inactive so you can take the necessary steps to reactivate it or close it out and avoid escheatment.

Escheat Reclamation: Is It Possible?

In many cases, it’s possible to reclaim assets that have been escheated. However, a statute of limitations often exists, so you’ll want to act as soon as you think that the government has possession of your property. Many states have online registries of unclaimed assets, where you can search to find any of your funds that might be unclaimed.

MissingMoney.com is one website where the departments of unclaimed property from several states and provinces have worked together. You can search for funds in more than 40 states simply by entering your name or business.

How To Reclaim Escheated Assets

The procedure for reclaiming assets lost to escheat depends on the state where the funds are held. In most states, you’ll need to fill out a form and verify your identity. Watch out for scams – you’ll almost never need to pay money to claim your escheated funds. And if you have a claim to real estate in escheat, it’ll rarely be necessary to purchase that property to restore ownership.

Escheatment FAQs

Here are a few questions people often have about escheatment.

What does escheatment mean in law?

Escheatment is the concept that the government can claim property under certain circumstances, including when a person dies without a will or when someone abandons a bank account.

How can I prevent my property from being escheated?

Effective estate planning can help you avoid escheatment of your assets. First, create a will and name rightful heirs. In addition to estate planning, stay active on your checking, brokerage, savings and other accounts. Also, follow up on recovering any security deposits a landlord or utility company might owe you.

Can I recover escheated property?

It’s often possible to reclaim escheated property. But you might need to act within a statute of limitations according to state laws. Avoid scams by being leery of any demands for you to pay to reclaim your escheated assets.

The Bottom Line: Protect Your Heirs By Knowing Escheatment Laws

Understanding how escheat works can help you avoid unfair and frustrating loss of property. It can also help you find money you may have forgotten about over time.

As long as you stay up to date on your accounts and take the time to appoint heirs for any personal property you want to pass on, you’ll be able to avoid escheatment with ease. This can help ensure any property you own goes to people or causes you care about. 

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