Dormant Account: What It Means & Why It Matters | Eisen Blog

What Is a Dormant Account? Everything You Need to Know

The heart of the escheatment process is the “dormancy period.” This is where the process starts, where an asset may be first considered unclaimed, and where all due diligence efforts begin.

It’s not an easy process, even if it is predictable. However, with the right culture and tools, you can streamline the entire process and transform it from a headache into just another part of doing business.

This guide aims to demystify dormant accounts and the escheatment process, providing you with clear, actionable steps to effectively manage these accounts.

What Is a Dormant Account?

A financial account is considered “dormant” when it hasn’t seen any customer-initiated activity for a state-legislated period of time. This means no deposits, withdrawals, or communication from the account owner. Any account can become dormant, depending on what it’s used for:

What Is the Difference Between Inactive and Dormant Accounts?

You may hear the words “inactive” or “dormant” used interchangeably, but they are legally distinct designations. While both inactive and dormant accounts show no activity, the key difference lies in the duration of inactivity:

Understanding this distinction helps in taking timely action to prevent accounts from becoming dormant and subject to escheatment.

What Is the Escheatment Process for Dormant Accounts?

Escheating dormant accounts is not merely a procedural task; it's a complex process influenced by varying state laws and regulations. Challenges include:

These complexities necessitate a robust, efficient system to manage dormant accounts effectively.

1. Monitor Account Activity

Your first line of defense is monitoring accounts for when they enter dormancy. This includes implementing automated tracking systems and alerts so that your team has an immediate record when an account enters dormancy. This proactive approach helps in timely identification and action.

2. Start Sending Notifications to the Account Holder

It is your duty to notify the account holder about the change in status. This means reaching out via letters, emails, or phone calls that clearly outline the problem and the actions the holder should take to rectify the situation. Effective communication can reactivate accounts and maintain customer relationships.

3. Set a Time Frame for Response

Allow a reasonable period for the account holder to respond, and clearly state those deadlines in a way that both helps the customer and adheres to regulations and applicable laws.

4. Classify the Account as Dormant

If there's no response, officially label the account in your system as inactive after 12 months and dormant after 15 months. Implement security measures to protect the dormant account from fraud, in case the sudden reactivation is actually an account compromise attack.

5. Prepare Escheatment Reports for the State

Compliance requires accurate reporting. Compile all the account details, including dormancy periods and balances, and any attempts you made to contact that person. Complete any required documentation for escheatment, review for accuracy, and, when the time comes, file your paperwork with the state.

6. Transfer Funds to the State

Finalize the escheatment process. Each state has specific procedures for transferring funds, but you should always keep documentation of the transfer for future reference. Also, if the state requires, send a final notice to the account holder that the transfer is occurring.

For more insights on unclaimed property and its implications, read our detailed post on Unclaimed Property.

There's an Easier Solution. Enter Eisen.

At Eisen, we're committed to simplifying the escheatment process for you. Our Escheatment Hub is designed to automate compliance, reduce administrative burdens, and ensure you stay ahead of deadlines.

Anticipate Your Escheatment Liability Across All States

Our platform provides:

By anticipating liabilities, you can make informed decisions and maintain compliance effortlessly.

Track the Status of Every Active, Inactive, and Dormant Account

Eisen's Escheatment Hub offers:

This visibility ensures no account is overlooked, and timely actions can be taken.

Never Miss a Deadline Again

Timing is critical in compliance:

With Eisen, you can focus on your core business, knowing dormant account risk and compliance is handled.

For a deeper dive into how the escheatment process works, check out our comprehensive guide on the Escheatment Process.

Common FAQs

Here are answers to frequently asked questions about dormant accounts and the escheatment process to support you further.

What Documentation Do We Need to Maintain for Dormant Accounts?

You should maintain:

Proper documentation ensures compliance and provides a paper trail for audits.

What Type of Transactions Reactivates a Dormant Account?

Typically, any customer-initiated activity can reactivate an account:

Each institution may have specific policies, and some states differ in what they consider activity, so it's essential to define these clearly as part of your process.

How Do We Handle Dormant Accounts That Hold Non-Cash Assets (Stocks, Bonds, Safe Deposit Boxes)?

Non-cash assets require special procedures:

Always consult state regulations and guidance to ensure proper handling.