This post about no activity was my first blog post ever, so I will start here.
This post is brought to you be the letter E, for escheating.
How Did I Learn About Escheating?
Years back, I read a submission to the Opinion page of The San Bernardino Sun. The opinion was written by a woman whose two teenage sons were trying to save up for a car. The boys thought it would be prudent to store their money in a bank account and perhaps let it build interest. To their surprise, after three years, the bank account had been completely wiped out.
It turns out that after a certain period of no activity in a person’s bank account, a state is given the authority to raid it. In the state of California, that period is three years. The account holder does not have to be notified by the bank before the money is taken, but they may have to fill out certain forms in order to get that money back.
I decided to do some more research on this. Along the way, I learned that the process by which a state can take funds from an idle bank account is called escheating.
What Is Escheating?
Under escheat laws, property can also be taken if unclaimed for some time; this includes items in a safe deposit box and stock options. Here’s a full list of what can be taken in the state of California:
- Bank accounts and safe deposit box contents
- Stocks, mutual funds, bonds, and dividends
- Uncashed cashier’s checks and money orders
- Certificates of deposit
- Matured or terminated insurance policies
- Mineral interests and royalty payments
- Trust funds and escrow accounts
The tangible property can be sold, and if an owner can be found, he will receive the proceeds from such a sale.
States are notified about idle funds or abandoned property by at least two ways. One way is for banks, other financial institutions, corporations, insurance companies, and other specified businesses to give specific state agencies a yearly report on assets. Abandoned property after a certain period of time is to be given to the state. Another way for states to get the property is after an audit.
How Long Can Bank Account Holders Go Without Activity?
All U.S states and the District of Columbia have escheat laws, and the idle period ranges from three to five years. Over half the states have the shorter period.
Delaware, a haven for credit card companies, shortened the period from five to three years in 2008. The state is also notable because the audit companies there want to make retirement funds escheatable.
The U.S. is not alone in having current escheat laws. The origins of these property laws began in Feudal England, and vestiges of them still exist in the U.K. I also know there are escheatment laws, in Australia, where the period for inactivity had been reduced to three from seven years in May 2013, and New Zealand.
At least in the United States, account holders are to be notified on a good faith principle of their missing property ─ but states have done all they could to skirt the issue.
For instance, in California, all that has been done is the purchase of one-page ads in newspapers. Also, the law effectively prevented 80% of holders from being contacted before their property was moved from 1990-2007, due to an address technicality.
In some cases, a state may not wait the full three years before reaching its grubby little hands into people’s money. As in all cases, correspondence is required to retrieve said funds, but that can be a weeks- or months-long wait.
How Do States Profit From Escheat Laws?
Depending on the laws, states are using the funds taken via escheating in order to close budget shortfalls, so that money will never return to the original owners or heirs. Additionally, audit companies receive a cut of funds that aren’t returned. That means there is no real incentive for the state to refund owners and unfortunately for many, they may never see the money from their bank accounts or proceeds from the sale of their property.
A way around all of this is to withdraw money from an account on one day and to put it back on another and to do this each year, but that should not be necessary.
Now, I understand something like an escheat law would be necessary where banks are concerned. If banks weren’t required to report to governments about idle bank accounts/property, they would be free to just hide money within their books. So laws like these would have a function of protecting the consumer, and this is stated in the California Controller’s website.
However, states have taken things too far and see escheat laws as a way to make more money; in essence, no bank account is safe either way. With that point, I have to ask, What is the point of having a banking account (particularly savings) if one is essentially not allowed to save his money?
I suppose that this issue has not garnered enough attention because the vast majority of Americans do not have the luxury to let funds sit idle let alone add substantially to them. Still, it’s the principle of the thing. This law is essentially a tax on those who are not rich.