What's behind Luxembourg's "sleep account law"?
In Luxembourg, the amendment to Bill of Law No. 7348 (The bill) on dormant accounts, inactive safe deposit boxes and unclaimed insurance contracts, the so-called Sleeping Accounts Law, was adopted on March 30, 2022. The Dormant Accounts Act establishes the framework for inactive accounts, safe deposit boxes, and dormant life insurance contracts. Inactive accounts are accounts that have not had any account activity or messages recorded for an extended period of time. CURENTIS describes the background to the law and compares the situation in Luxembourg and Germany.
The stages of inactivity can be explained as follows. After an inactivity period of 3 years in the case of accounts or 5 years in the case of safe deposit boxes, the account-holding institution notifies the holder of the inactive use of the account and informs him/her of the resulting consequences. The holder may contact the account-holding institution at any time to reactivate the account. If the account holder fails to report to the leading institution within 6 years, an account or safe deposit box will be given the status of an inactive account. After 9 years, the account-holding institution will again notify the customer that his/her account is inactive. 10 years after the last message or account movement by the account holder, the account must request from the leading institution to deposit the assets with the State Depository Fund. The transmission is made via the online site of the Luxembourg Ministry of Finance myguichet.lu.
The law was introduced in order for account holders to implement measures to identify accounts that are inactive and to establish rules for searching beneficiaries' information. With the introduction of the law, additional reporting obligations were also established, which require to inform the Financial Sector Supervisory Commission with regard to (1) the total number of holders of inactive accounts and safe deposit boxes, as well as (2) the total balance of inactive accounts as of December 31 of each year. The information shall be submitted electronically to the Oversight Commission by February 28 of the following year.
In addition, insurance companies are required to constantly monitor the solvency of insurance benefits.
For insurance companies are to the Commissariat of insurances
- The number of insurance contracts deemed to have been discontinued as well as the
- The total value of insurance contracts to be submitted.
The introduction of the Sleeping Accounts Act improves the protection of holders of accounts and safe deposit boxes, as well as beneficiaries of insurance policies, as it ensures that they have easier access to their entitled assets. The law also regulates the introduction of special measures for obtaining information and searching for holders of these accounts, and provides for the continuous updating of information on their business relations. Depending on the amount of assets in the "dormant" accounts, credit institutions are required to take specific measures at certain intervals (three, six and nine years and as mentioned earlier in the text) to re-establish contact with the account holder concerned.
This elaborate procedure will pose challenges for many credit institutions. This is because the enactment of the law requires banks to obtain information in several areas. In some cases, the banks will have to come up with new processes to obtain the information. For example, the question arises: how do they get the information on who inherits potential assets? Banks therefore have to deal with the authorities in order to be able to identify possible heirs. In addition, the IT systems must be set up in such a way that the corresponding inactivity is also continuously displayed.
Luxembourg compared with Germany
In Germany, according to §1922 of the German Civil Code, there is no expiration date for accounts. This means that accounts at banks and credit institutions continue forever. Standing orders as well as account maintenance fees will continue to be debited from the accounts if no one notices or reports it. Therefore, banks and credit institutions in Germany are not obliged to report dormant accounts. However, it is stipulated that after 30 years, the profits of the accounts taken over by the bank must be taxed to the state. Section 1936 of the German Civil Code stipulates that the state in which the decedent was domiciled or habitually resident at the time of death receives the tax profits. If this cannot be determined, the Federal Republic of Germany inherits the assets.
Summary: where are the advantages for whom?
In Germany, the advantages clearly lie with the banks and the states. If the account holder does not report or if no one feels responsible for the account, account management fees and fixed orders are permanently debited there. Although the banks and credit institutions must pay tax on the funds after 30 years, they can claim the costs until then. They are not required to report dormant and dormant accounts. This form of legal reporting is to the detriment of potential inheritors.