If you have ever opened a bank account or applied for an insurance policy, you must have filled out a form where you would have noticed that they ask you to assign a ‘nominee’. Now, what exactly is a nominee? And why should you assign one?
Many of you might think that nominee is a person whom you appoint to will own the money after your death. But that’s not entirely true. Nomination of a person does not guarantee inheritance. A person who is appointed as a nominee is only the caretaker of the money but does not have the legal ownership of it.
Let’s check it out in detail
Who is a nominee?
A nominee is a person assigned by the policy/account holder at the time of taking a policy or opening a bank account or deposit account, who will be legally entitled to receive the benefits in the event of the policyholder’s death.
He is like a custodian assigned on your behalf. He acts in the capacity of a trustee, who responsible to take care of the money.
Nomination does not guarantee inheritance
Nominating a person for the purpose of bank account or other policies does not mean that the person nominated will inherit the money after your death. It means that you have appointed a person to act as a custodian for your money in the event of your death. It does not guarantee inheritance. Only a legal heir, determined either by will or by the Indian Succession Act, in case of absence of will, shall have the right to inherit the money according to the mentioned share.
Difference between a nominee and a legal heir
A nominee is a custodian who is authorized to look after the money in the event of the death of a person and is specifically assigned by a person to take care of his assets in the event of his death.
A legal heir is the one who has the legal right to inherit the assets of the deceased and is determined by way of will of the deceased or by the rules stated in the Indian Succession Act.
Is it possible to assign a legal heir as a nominee?
Yes, it is possible to assign a legal heir as a nominee but even then he can only act as a trustee for the money. Only a will can affirm the ownership of his share. And in the absence of a will, the distribution will be according to the Indian Succession Act.
To know how the distribution of assets is done according the Indian Succession Act, you can refer this article on Distribution of Assets after the death of a person.
Let’s understand this better with an example,
Suppose, Mr. A has two sons B & C and a wife named D. A has a fixed deposit of Rs. 100,000. He had assigned B as a nominee in respect of the fixed deposit account. Now, due to an unfortunate event, Mr. A dies.
Case 1: A has made a will in which he has specifically mentioned that both the sons i.e. B & C will get equal share and wife D will not get any share.
Case 2: A leaves no will.
Let’s see what will happen in the following two cases:
Case 1: A has made a will in which he has specifically mentioned that both B & C will get equal share and wife D will not get any share.
In this case, B will receive the money from the bank since he has been assigned as a nominee.
Since the will says that both the sons i.e. B and C have an equal share in the maturity amount, B will have to give Rs.50,000 to his brother C. And the balance Rs.50,000 becomes his share.
Case 2: A leaves no will.
At first, B will receive the money from the bank since he has been assigned as a nominee.
After B has received the money, it will have to be divided amongst the legal heirs based on the Indian Succession Act, which says that it will be divided equally among the children and wife. Hence, all three of them, i.e. B, C and D will get Rs. 33,333 each. And B will distribute this money.
Why is it important to assign a nominee?
Usually a person has a lot of investments in the form of bank account, deposits, Insurance Policy, Mutual Fund etc. In the event of the death of a person, a nominee will be responsible for realising the money from your investments on your behalf. It is important that you assign a person you trust as your nominee who can take care of your assets fairly in your absence.
By assigning a nominee you can be relieved that at least your money is in safe hands after your death. But remember, you have to make a will to distribute the share in your money.
What happens if you don’t appoint a nominee?
In case one does not appoint a nominee, then the bank tries to trace the legal heirs of the account holder. If they fail to find one, then the amount is kept in a separate account and they wait for someone to claim the money. If someone tries to claim the money, then they have to prove their relationship with the account holder, for which they need either a legal heir certificate or succession certificate.
Thus, you can see that in case no nominee is appointed it becomes a great hassle not just for the bank but also for your family.
Let’s take an example to understand this better, referring to the example above,
Suppose, Mr. A has two sons B & C and a wife named D. A has a fixed deposit of Rs. 100,000. He did not assign anyone as a nominee. Now, due to an unfortunate event, Mr. A dies.
In this case, any of the family member can go to the bank to claim the money. But they will have to prove their relationship with A. B and C will have to prove that they are the sons of A or if D is going to claim the money then she will have to prove that she is the wife of Mr. A.
To prove that, they will have to obtain a legal heir certificate or a succession certificate. And then any one of them can take the money from the bank.
Suppose B claims the money from the bank with a legal heir certificate, even then it is not his money. Just like in the above example, the distribution will depend on the will or in case of absence of will it will distributed according to the Indian Succession Act.
Thus, to save your family from the hassle always make sure to nominate a person wherever necessary. Also, make a will to ensure clear distribution of assets.