Nominee or Legal Heir: Who will inherit your assets?


Rahul has got a savings account, equity shares in listed companies, mutual fund investments, and a residential flat. He has also got a life insurance policy. He has named his wife as the nominee under the policy. Rahul has also named his wife and mother as the nominees for various properties that he owns. He has assumed that the succession of these properties will be as per the nominations. This may not always be right. Read further to understand who will inherit your assets – Nominee or Legal Heir?

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The differences between the nominee and legal heir

The concept of nomination is prevalent for various assets. A nomination is defined as a right conferred upon the owner of an asset to appoint one or more persons who will be entitled to receive the asset upon the death of the holder. In simple words, a nominee is somebody who will receive the asset upon the death of the owner/holder.

A legal heir means any person, male or female, who is entitled to succeed to the property of a deceased person under a will or as per the succession laws.

According to the Indian law, the nominee will receive and hold the property of the deceased until the nominee is legally bound to transfer or distribute it to the legal heirs of the deceased.

For instance, if a husband has nominated his wife in his life insurance policy. Upon his death, the entire proceeds of life insurance will go to the wife. But the wife can’t own it if he has written a will that has something contrary. Let’s say the will says that a portion of the policy proceeds should go to his mother and children, then the wife has to give those proceeds.

Note the will made by the deceased supersedes the nomination for most assets. A will is the ‘supreme’ document that specifies the exact intentions of the testator to the succession of properties. So, a will that has been proven valid wields the power to override any arrangements or nominations made during an individual’s lifetime. The document also includes all properties of the testator that might not have any nominations or options for nomination.

In case there is no will, then the Indian Succession Act or religious Acts such as the Hindu Law or Muslim Law will apply. For instance, if a Hindu individual has said that he is nominating all his assets to his mother, but in a will, he says his wife is the beneficiary or if there is no will, the mother will receive the assets but will have to distribute it to legal heirs.

An individual must ensure he/she creates a will even if nominations have been made. It is also prudent to ensure that the contents of the will are harmonized. From a practical perspective, it is good to have the same persons as the nominees and the legal heirs under the will.


Who inherits?

Even though most of the time, the legal heirs will be the owners of the asset, there are exceptions. Read on to find out the rightful owner for different investments.


In the case of all deposits that you might have with a bank, the nominee will receive the balance in your deposit account. The Reserve Bank of India (RBI) has said that on the demise of an account holder, the nominee will receive the balance from the deceased’s account. However, this balance will be given by the bank only to hold it “as a trustee of the legal heirs of the deceased”.

Note that any payments by the bank to nominees will not affect the right or claim that any person might have against the nominee. The RBI has taken this approach to ensure that banks can discharge their duty effectively and are also shielded from legal disputes (if any) between a nominee and a legal heir over the deposit.

Also read: Why, When & How Of Will Writing

Mutual Funds

Got mutual fund folios? The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, says that on the demise of a mutual fund holder, the nominee will get the mutual fund investment. However, the nominee can only merely hold it “in trust” until the legal heir claims it. The legal heir to the mutual fund investment is free to claim the folios against the nominee.

Listed Shares

A couple of years back, the Bombay High Court gave some judgments on ‘nominee versus legal heir’ in a case that involved the ownership of equity shares. The Court said that in India a nomination cannot override the laws of succession. Nominations are made to ensure that the estate of the deceased is protected until the time the legal representatives of the deceased can take the right steps to gain control over such estate. So, if the nominee gets the shares of an Indian company, they won’t be the legal owner of the shares. The legal heirs of the deceased shareholder will have a rightful claim over such shares.

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When it comes to the succession of insurance proceeds, you should note that relevant changes in insurance law were made way back in 2015.The concept of a ‘beneficial nominee’ was introduced. Under this law, a policyholder can name his spouse, parents, or his children, or any of them separately or together, as the beneficial nominee. Such a nominee shall not act as a mere caretaker or trustee but will be treated as the ultimate beneficiary of the proceeds payable by the insurer. This will be to the exclusion of other legal heirs.

However, if the nominee is a person other than those specified above, the general rule will prevail, that is, the nominee will only be the caretaker until the legal heirs claim the insurance money. Note that the insurance policyholder doesn’t need to nominate a beneficial nominee.

Employee Provident Fund (EPF)

When you open an EPF account, you have to make a nomination. This nominee that you provide will inherit the money from the fund. The legal heir will have no right on it. As per the EPF rules, you need to appoint a family member as the nominee.

Also read: 10 NPS(National Pension Scheme) withdrawal rules that you should know 

Public Provident Fund(PPF)

The nominee will only get custody of the PPF amount. The legal heirs will be entitled to own the money in your PPF account.

It is important that you make note of all the nominations you make so that it is easy for you when you write a will. You can change the nominations for investments whenever you want. For organizing all your personal finance accounts and managing the nominations of the same investment platforms like MoneySage could be of great help.

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This article should not be construed as investment advice, please consult your Investment Adviser before making any investment decision.

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